European shares were rising early Friday, aimed toward rounding off another rough week for investors on a high, as the market priced in a slightly lower chance of a full percentage point interest rate hike by the US central bank later this month.
In UK company news, Aston Martin’s shares rose on plans to raise funds to repay debt and bolster its balance sheet, while Burberry’s fell on first quarter sales being hurt by tough trading conditions in China.
The FTSE 100 was up 44.64 points, or 0.6%, at 7,084.45. The FTSE 250 index was 130.21 points, or 0.7%, higher at 18,10.87. However, the AIM All-Share index was down 3.95 points, or 0.5% at 866.30.
The Cboe UK 100 index was up 0.5% at 706.50. The Cboe 250 was up 0.7% at 16,168.50, and the Cboe Small Companies was up 0.2% at 13,050.85.
In mainland Europe, the CAC 40 stock index in Paris was up 0.6%, while the DAX 40 in Frankfurt was 1.1% higher.
Sterling was quoted at $1.1838 early Friday, up from $1.1803 at the London equities close on Thursday. The euro traded at $1.0028 early Friday, higher against $1.0010 late Thursday.
The next US Federal Reserve policy meeting is on July 26 and 27, from which investors are expecting either a 75 basis point interest rate hike, or even a full percentage point lift.
This was after data from the US on Thursday showing inflation continuing to heat up, with the US producer price index soaring 11.3% on an annual basis in June, the largest increase since a record 11.6% jump earlier this year, in March. This was faster than the 10.9% growth clocked in May and defied expectations of a slowdown to 10.7%.
The PPI report followed data on Wednesday showing consumer prices rose by 9.1% in June, a 40-year-high pace.
Against the yen, the dollar was quoted at JP¥138.80 in London, down from JP¥139.09.
According to the CME FedWatch tool, market expectations are almost equally split. Expectations for a 75-basis-points hike at the July meeting are at 54%, while expectations for a 100 point rise stood at 46%.
Fed Governor Christopher Waller on Thursday signalled a possible full percentage point interest rate hike - a move not seen for more than 30 years and a further indication of the Fed’s determination to rein in sky-high inflation.
Waller previously expressed support for another 75 basis point hike at the policy meeting later this month, but said Thursday he will be watching key reports on retail sales and housing coming in before then.
On Thursday, stocks in New York ended mostly lower. The Dow Jones Industrial Average closed down 0.5% and the S&P 500 down 0.3%, while the Nasdaq Composite closed marginally higher.
In the US, earnings season will continue, with BlackRock and Well Fargo next up to report their second-quarter results on Friday, following fellow financial firms JPMorgan Chase and Morgan Stanley on Thursday.
In Asia on Friday, the Japanese Nikkei 225 index closed up 0.5%. In China, the Shanghai Composite closed down 1.4%, while the Hang Seng index in Hong Kong was 2.1% lower. In Sydney, the S&P/ASX 200 ended down 0.7%.
In China, data from the National Bureau of Statistics showed that its economy grew just 0.4% in the second quarter of 2022 from a year before, marking a two-year low pace of annual growth, with Covid lockdowns and an embattled property market nudging a government target further out of reach.
This print fell short of FXStreet-cited expectations of a 1.0% rise.
GDP for the second quarter in the world’s second-biggest economy was also down 2.6% compared with the first three months of this year, the National Bureau of Statistics said.
In the FTSE 100, Burberry was down 4.4%, the index’s worst performer, as recent Covid-19 lockdowns in China held back sales growth.
For the 13 weeks ended July 2, Burberry’s retail revenue increased 5.4% to £505 million from £479 million in the same period a year before, driven by stronger sales outside of China from the Europe, Middle East, India & Africa region and higher tourist spend in the Americas.
However, comparable store sales growth was just 1%, compared to a 90% increase a year prior, hindered by mainland China. Excluding that region, comparable store sales grew 16%.
Burberry said it has started its £400 million share buyback, and this is expected to be completed by the end of the financial year.
‘The market is watching the Burberry turnaround and elevation strategy very closely. Leather goods is a key category for driving growth,’ commented Alex Smith, a senior analyst at Third Bridge.
‘Burberry should remain resilient during a recession but it is more exposed than some other luxury brands,’ he added. ‘Gross margins could be improved by increased pricing and better sourcing. Operating margins are expected to be under pressure due to high inflation and the marketing costs required for their turnaround strategy.’
Rio Tinto was down 2.0%. For the six months ended June 30, the Anglo Australian miner produced 1.5 million tonnes of aluminium, down 9% from the same period a year before. Following this, it lowered its aluminium production guidance for 2022 to 3.0 to 3.1 million tonnes from 3.1 to 3.2 million tonnes in its previous guidance.
‘Aluminium production of 700,000 tonnes was 10% lower than the second quarter of 2021 due to reduced capacity at our Kitimat smelter in British Columbia following the strike which commenced in July 2021. A controlled restart began at the end of the second quarter of 2022 with ramp-up progressing subject to plant stability,’ Rio Tinto explains.
Meanwhile, its titanium dioxide slag production fell 2% to 566,000 tonnes for the first half, due to operational disruptions following cyclones in Madagascar.
Pilbara iron ore production decreased 1% to 150.3 million tonnes due to stronger rainfall in May in Pilbara, Australia. For the second quarter, Pilbara production was up 4% year-on-year to 78.6 million tonnes as production volumes ramped up.
Admiral was down 0.8%, after JPMorgan cut the Cardiff-based insurer’s rating to Underweight from Neutral. Admiral shares had dropped 17% on Thursday after a negative trading update from peer Sabre Insurance.
Sabre itself was up 1.3% to 115.07 pence early Friday, having tumbled by 40% on Thursday. Berenberg on Friday cut its price target on Sabre shares to 123p from 229p.
In the green, DCC was up 0.4%. For the ‘seasonally less significant’ first quarter of its financial year running to March 31, the Ireland-based sales, marketing, and support services firm said operating profit was in line with expectations and ‘well ahead’ of the prior year.
Strong growth from DCC Energy drove the performance, while DCC Healthcare traded robustly and DCC Technology benefited from the acquisition of Almo.
‘DCC continues to expect that the year ending 31 March 2023 will be another year of profit growth and development, notwithstanding the challenging macro environment at present,’ the company stated.
Elsewhere in London, Aston Martin was 16% higher at 429.90p. The luxury carmaker proposed an equity raise of £653 million, with Saudi sovereign wealth fund PIF, the Yew Tree Consortium and fellow car maker Mercedes-Benz expected to invest £335 million in total.
Aston Martin will raise the funds through a placing of 23.3 million shares at a price of £3.35 each for £78.0 million, followed by an underwritten rights issue to raise £575 million. The stock closed on Thursday at £4.21.
Proceeds from the fundraise will go towards the repayment of existing debt, improvement of the company’s cash flow generation and to provide a liquidity cushion for what remains a challenging operating environment, Aston Martin said.
In addition, Aston Martin rejected an offer from Investindustrial Group Holdings and Geely International Hong Kong - collectively the Atlas Consortium - for an equity investment of up to £1.3 billion, comprising a £203 million firm placing and subsequent £1.11 billion underwritten rights issue.
‘The board of Aston Martin believes that the proposal markedly overestimated the company’s new equity capital requirements, would have been heavily dilutive for existing shareholders, and comprised a number of execution obstacles,’ the company stated.
Gold stood at $1,703.99 an ounce early Friday, lower than $1,707.30 on Thursday afternoon. Brent oil was trading at $99.56 a barrel early Friday, up from $96.82 late Thursday.
In the international economics calendar on Friday, there’s EU trade balance data at 1000 BST before the US shares retail sales data and industrial production in the afternoon.
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