Stocks in London opened lower on Tuesday as Rolls-Royce outperformed, but there was a lack of strong positive catalysts to boost share prices overall.
The Cboe UK 100 was down 0.6% at 740.58, the Cboe UK 250 was down 0.4% at 15,927.04, and the Cboe Small Companies was slightly lower at 13,425.19.
In European equities on Tuesday, the CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt was down 0.1%.
UK shop price inflation fell for the sixth month in a row in November, hitting levels not seen since June 2022, figures showed.
Annual inflation decelerated to 4.3% in November, down from 5.2% in October, according to BRC-Nielsen Shop Price Index data. This is below the three-month average rate of 5.3%.
Non-food inflation cooled to 2.5% in November, down from 3.4% in October, below the three-month average rate of 3.5%. Food inflation eased to 7.8% in November, down from 8.8% in October, below the three-month average rate of 8.9% and the seventh consecutive deceleration in the food category.
‘We sense folks like [Bank of England Governor] Andrew Bailey and [Chancellor] Jeremy Hunt will be pleased that the industry is delivering for them on this front,’ Shore Capital said.
‘All in all, that UK retail inflation is easing is welcome news, high single digit overall retail inflation and double-digit food inflation are not healthy in the long run for shopkeepers’ or their supply chains in terms of the impact upon mix and volume. However, the chancellor is fuelling the perpetuation of the [shop price inflation] and so [consumer price inflation] through his political measures around the [national living wage] and business rates, which also fuels our conviction of the need of further cost recovery from spring 2024, sustaining upward price momentum in the absence of a further squeeze on already tight retail margins in many cases into 2025,’ the analysts continued.
Meanwhile, the dollar was slightly weaker in early exchanges in Europe, as traders assessed the outlook for rate cuts from the Federal Reserve, and US bond yields retreated.
Sterling was quoted at $1.2617 early Tuesday, rising from $1.2604 at the London equities close on Monday. The euro traded at $1.0939, higher than $1.0931. Against the yen, the dollar was quoted at JP¥148.51, down versus JP¥148.97.
Gold was quoted at $2,013.83 an ounce early Tuesday, rising from $2,000.74 on Monday.
Brent oil was trading at $80.09 a barrel, slightly higher than $79.98.
On the geopolitical front, a truce between Israel and Hamas will be extended by two days, mediator Qatar said hours before the pause was due to end Tuesday, as more hostages were freed from Gaza in exchange for the release of dozens of Palestinian prisoners. The extension of the truce, which had been scheduled to end at 7:00am, or 0500 GMT, was welcomed internationally.
A further catalyst for financial markets and oil prices will be the delayed Opec+ meeting, now set for Thursday.
In the FTSE 100, Rolls-Royce rose 5.8% as it laid out mid-term targets, which the aero-engine maker said will represent ‘a step change’ in its financial performance.
For a ‘2027 timeframe’, it is targeting operating profit between £2.5 to £2.8 billion, at an operating margin between 13% and 15%. It is also aiming for free cash flow of £2.8 to £3.1 billion, with a return on capital between 16% and 18%. ‘We expect a progressive, but not necessarily linear, improvement year-on-year, and if we can accelerate the achievement of our ambitions we will,’ Rolls-Royce said.
The firm is also planning a divestment program targeting £1.0 to £1.5 billion in proceeds over five years. It is looking to exit Rolls-Royce Electric in the short run or reduce its position to a minority stake, while pursuing a full exit down the line.
It also noted that recent trading was in line with expectations for the full year, and it expects profit and cash in 2023 to be ‘materially ahead’ of 2022.
Elsewhere, there were broker ratings moving the needle. M&G added 0.9%, as Goldman Sachs started the stock with ’buy’, believing the investment manager is ‘a firm in transition with attractive growth, capital returns and valuation’.
Lloyds Banking rose 0.7% as Morgan Stanley raised the bank to ’overweight’ from ’equal weight’. Frasers rose 1.2% as Barclays started the stock at ’overweight’. Publishing company Pearson shed 2.0% as Exane BNP cut its stock to ’neutral’ from ’outperform’.
In the FTSE 250, easyJet rose 3.8%.
The budget airline reinstated dividends as promised, alongside reporting a swing to annual profit. In the year to September 30, easyJet said revenue jumped to £8.17 billion from £5.77 billion a year before. It swung to a total pretax profit of £432 million from a loss of £208 million. It noted a ‘record’ performance in the summer, which it attributed to its recent initiatives, which helped to offset the hit from higher fuel costs and external operating challenges.
It reinstated dividends at 4.5p a share. easyJet last paid a dividend for financial 2019. It was 43.9p per share, which had represented a 25% cut from financial 2018. The amount for financial 2023 represents 10% of profit after tax, which it expects to increase to 20% in financial 2024.
On AIM, Supreme jumped 13%.
The manufacturer and distributor of battery, lighting and vaping products said its interim profit jumped, and upgraded annual guidance after strong third-quarter to-date trading. In the six months to September, revenue rose 63% on-year to £105.1 million from £64.6 million. Pretax profit nearly tripled to £12.3 million from £4.4 million. It raised its interim payout to 1.5p per share from 0.8p the prior year. The firm said its second half has ‘begun very well’, with growth reported across all divisions.
It now expects financial 2024 revenue to be between £210 and £225 million, which is up from March’s guidance of £195 to £205 million. Adjusted earnings before interest, tax, depreciation and amortisation are forecast between £32 to £35 million, compared to the prior range of £28 to £30 million.
In the US on Monday, Wall Street ended lower, with the Dow Jones Industrial Average down 0.2%, the S&P 500 down 0.2% and the Nasdaq Composite down 0.1%.
In Asia on Tuesday, the Nikkei 225 index in Tokyo closed down 0.1%. In China, the Shanghai Composite closed up 0.2%, while the Hang Seng index in Hong Kong was down 1.0%. The S&P/ASX 200 in Sydney closed up 0.4%.
Still to come in the economic calendar, there’s consumer confidence data and house prices from the US.
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