FTSE 100 revived by Wall Street’s dramatic « dead cat bounce », while UK borrows less than forecast

It will take a lot to recover all of Monday’s losses, but at least the market is making an attempt and heading further in the right direction.

The FTSE 100 is currently up 75.6 points or 1.04% at 7372.75, close to the day’s high.

 Russ Mould, investment director at AJ Bell. said risk appetite remained weak: « Tensions between Ukraine and Russia appear to be getting worse, inflation and interest rate pressures are front and centre, and central banks are still in the very early stages of withdrawing stimulus measures and reducing liquidity.

“It’s hard to see what’s installed a sudden bout of confidence in investors unless they are simply judging share prices relative to recent highs and assuming they are now bargains following the sell-off. They might be overlooking the fact that a lot of stocks were priced too highly in 2021 so the current correction is deserved.

“The FTSE 100 remains an outlier in global markets due to the construction of its index. For years it was criticised for lacking exciting fast-growth tech stocks, that’s now worked to its advantage. »

10.30am: London maintains status as Europe’s top IPO market

London remained Europe’s leading exchange in 2021 following a record-breaking year for the global IPO market, according to the latest edition of PwC’s IPO Watch Europe.

There had been concerns about London losing out to rivals, although that was mainly related to tech stocks and the US market rather than Europe.

London’s IPO market raised a total of £16.8bn from 100 issuances in 2021 which was more than previous years 2020 and 2019 combined. AIM IPOs continued to gain momentum, delivering a sixth consecutive quarter of growth, with 21 IPOs raising £1bn worth of proceeds in Q4 2021.

Overall, the 2021 European IPO market delivered 422 IPOs raising €75.0bn, compared to 135 IPOs raising €20.3bn in 2020.

The largest European IPO in 2021 was InPost at €3.2bn, followed by Volvo Car (€2.3bn) and Vantage Towers (€2.2bn). 

The largest London IPOs were Deliveroo (€1.8bn) and Dr Martens (€1.7bn) with the exchange seeing five €1bn+ IPOs and three €1bn+ further offers. 

Richard Spilsbury, UK Capital Markets Partner at PwC UK, said: “2021 was very much the year of the IPO. We have witnessed one of the busiest IPO markets in Europe in 2021 on record and evidence suggests that there is still a lot of money in the market that investors are looking to deploy.

« While the market is expected to calm in early 2022 as investors display more selectivity, this will mean that IPO candidates will need to be well prepared. A robust equity story and an ability to adapt to evolving regulation and the geopolitical environment will be crucial, especially with increasing expectations over net zero commitments and ESG reporting.”

9.45am: Unilever to cut 1,500 management jobs

Unilever PLC (LSE:ULVR) has been under pressure since its failed attempt to buy the consumer division of GlaxoSmithKline PLC (LSE:GSK) and the arrival of activist investor Nelson Peltz on its share register. In an attempt to regain the initiative, the company has announced it plans to cut 1,500 management roles across the globe.

Its shares have edged down 0.22%, not helped by a sell note from analysts at UBS.

UBS lists four possible strategic options for Unilever: « 1. Accelerated portfolio rotation – i.e. pursuing a GSK type of deal which, combined with some substantial divestments, would significantly improve the group’s Underlying Sales Growth  prospects and Gross Margin; 2. Status quo – although this appears increasingly unlikely in our view, 3. Enhanced focus on cash generation – which would require the company to lower its Underlying Sales Growth ambitions but could translate into consistent double-digit total shareholder return, and 4. A breakup of its operations. »

9.07am: Is this the calm before another storm?

Leading shares are off their peak but still in positive territory despite the deteriorating situation in Ukraine.

The FTSE 100 is currently up 30.86 points or 0.42% at 7328.01, having earlier touched 7359.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’A calm before another potential storm has descended on the FTSE 100… as bargain hunters head out to try and capitalise on yesterday’s losses.

« Some of the companies marking out the biggest falls yesterday are among the top risers today including mining and travel stocks, with Rolls Royce also regaining ground, following airlines up on a recovery trajectory. Tech heavy Scottish Mortgage Investment Trust, also reversed some of yesterday’s losses but it’s still down 20% year to date..

« A string of corporate results for some of the beasts of tech, such as Microsoft, Apple and Tesla could either quell fears about valuations tumbling further or build up a barrier of support around the sector. Microsoft will report later and expectations will be high given how accustomed investors have become to outstanding results, with double digit growth in every division in the last quarter. With such high bars set, falling short of expectations could set off a fresh round of selling.’’

Meanwhile Rolls-Royce Holdings PLC (LSE:RR.) has risen 2.87% and Scottish Mortgage Investment Trust PLC (LSE:SMT) is up 2.61%.

8.35am: Royal Mail rises after update

Royal Mail PLC (LSE:RMG) is the leading riser in the blue chip index, adding 3.3%

The company has delivered a positive update but also news of further job cuts.

It said trading for the three months to December – which of course includes the key festive period – was in line with expectations.

Operating profits for the year are forecast to be around £500mln in line with previous guidance. This is before a £70mln restructuring charge as part of its transformation programme, and it has started a formal consultation on a reorganisation to streamline its operational management, which could see 700 jobs going.

It believes there has been a structural shift in parcel volumes since the start of the pandemic.

Chairman Keith Williams said: « We expected some decline in parcel volumes given most retail stores were open during the period, unlike last year. However, the trend towards customers wanting more parcels remains , and responding to that change efficiently is key. Our domestic parcels business in the UK has seen demand increase by around a third over two years, as has our GLS business across its markets . »

With the spread of the Omicron variant, sickness absence has been twice pre-COVID-19 levels, with around 15,000 staff off sick or isolating in early January, although it said the situation was now improving.

8.18am: Positive start despite Ukraine worries

Leading shares have recovered some of Monday’s losses in the wake of a rebound on Wall Street, even though the signs are that US markets will head south again later today.

Having lost 2.6% yesterday –  its biggest one day fall since the end of November –  the FTSE 100 is up 45.15 points or 0.62% at 7342.30.

A number of factors are causing the current worries. Investors are nervous about what the US Federal Reserve might do or say about interest rate rises at this week’s meeting, as inflationary pressures continue.

But the biggest concern at the moment is the escalating situation in Ukraine.

Michael Hewson at CMC Markets said: « It appears that the penny has finally dropped with financial markets that events in eastern Europe have the potential to get even worse, after NATO announced it is putting additional ships and aircraft on standby for mobilisation, and that the US is considering sending troops to shore up its Baltic defences, in response to requests from the likes of Estonia for a greater US presence to deter a potential Russian escalation. »

7.52am: Public sector borrowing falls but government debt highest since 1963

The UK government borrowed less than expected in December, but it was still the fourth highest amount for the month since records began in 11993.

Public sector net borrowing excluding public sector banks came in at £16.8bn last month, lower than the £18.5bn forecast by economists.

For the year, the figure was £146.8bn,  the second-highest financial year-to-December borrowing since monthly records began in 1993, £129.3bn less than in the same period the previous year.

Public sector net debt excluding public sector banks was £2,339.9bn at the end of December 2021 or around 96.0% of gross domestic product, the highest ratio since March 1963 when it was 98.3%.

And with inflation rising, the cost to the government of servicing the debt is increasing.

???? ???? Ouch. There’s a real warning in todays public borrowing figures about the impact of soaring inflation on government debt payments – which jumped to £8.1bn in December alone – much more than forecast as RPI hit 7.5%

— Scott Beasley (@SkyScottBeasley) January 25, 2022

Laith Khalaf, head of investment analysis at AJ Bell, said: « “With the debt to GDP ratio sitting at 96%, the highest level since the 1960s, the Chancellor is still wedged in a tight spot after the pandemic has ravaged the nations finances

« The good news is so far this financial year, public sector borrowing is coming in below OBR forecasts.

« The bad news is the government is facing calls to help out with the cost of living crisis, including pressure to postpone the new Health and Social Care Levy, which is expected to raise £12.7 billion in the coming financial year. That would leave a sizeable hole for the Chancellor to fill in his March Budget.

“Two months is of course a very long time in politics, and given the political turmoil in Westminster, we can’t even be sure who will be delivering the Budget when March rolls around. We can be more certain that the pressure on government finances will be considerable.”

6.50am: UK market set for rebound after Monday’s slump

The FTSE 100 has been predicted to rebound higher on Tuesday after a turbulent start to the week for global stock markets.

After London’s top share benchmark plunged 197 points or 2.6% yesterday, spread-betters on the IG platform are anticipating a 44-point come back today.

European losses were even higher, with Germany, Italy and France’s indices down almost 4% – and also expected to make repairs today.

As so often, it was an even more dramatic rollercoaster in New York overnight, with the main indices down between 3% and 5% before they all finished higher, with the Nasdaq closing up 0.6%, the small-cap focused Russell 2000 rebounding to a 2.3% gain, and the Dow Jones and S&P 500 both up 0.3%.

However, this may have been a « dead-cat bounce », said market analyst Naeem Aslam at AvaTrade, with US futures pointing to further falls of 0.8% to 1.4% today, with knees knocking ahead of the US Federal Reserve decision due tomorrow.

“Due to stock prices’ significant drops, investors may now feel that stocks are undervalued and, hence, are capitalizing on the opportunity to bag stocks of good companies at bargain prices,” said Aslam.

“Having said that, as we are expecting various economic reports this week along with the Fed’s monetary policy, stock markets are likely to remain volatile over the next few days.

“The main issue that investors are facing is trying to understand what the aggressive pace of winding down the Fed’s quantitative measures would mean for valuations of companies and global financial markets. Moreover, rising geopolitical tensions in the Middle East and Ukraine may also cause waves of uncertainty among investors.”

Despite the uncertainty, Aslam said the strength in corporate earnings and earnings growth is likely to support growth in stock markets in the short term.

Today’s big quarterly earnings report from Microsoft Corporation (NASDAQ:MSFT) is due after the stock market’s closing bell, but before markets open there will be updates from the likes of Johnson & Johnson (NYSE:JNJ), Verizon and American Express.

6.50am: Early Markets – Asia / Australia

Asia-Pacific shares tumbled on Tuesday as Australia’s core inflation surged to its fastest annual pace since 2014 in the December quarter as fuel and housing costs led broad-based price pressure.

Data from the Australian Bureau of Statistics showed the headline consumer price index (CPI) rose 1.3% in the fourth quarter and 3.5% for the year, topping forecasts.

Australia’s S&P/ASX 200 index dived 2.5% in its second-biggest sell-off this year to close at 6961.6 points.

China’s Shanghai Composite fell 2.37% and Hong Kong’s Hang Seng index slipped 1.86%.

The Nikkei in Japan declined 1.66% while South Korea’s Kospi plunged 2.56%.

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