Major UK stocks reversed earlier declines at lunchtime on Wednesday as positive company updates outweigh the jump in the cost of living.

At 12.30pm, the benchmark FTSE 100 is trading 0.4% higher at 7,596.10, with the ongoing sell-off of risk assets, and growth stocks in particular, being offset by strength in housebuilders, retailers and oil producers on the FTSE 100, and optimism generated by profit upgrades for Burberry (BRBY) and Pearson (PSON).

The latest inflation data from the Office for National Statistics showed an annual rise in the UK consumer price index of 5.4% in December 2021, ahead of expectations for a 5.2% increase and representing the highest annual reading since this measure of inflation was introduced in 1997.

However, markets took the UK CPI print in their stride, as the rate of increase was only marginally ahead of expectations

Inflation is likely to stay at around 5% in the first half of this year, according to the National Institute of Economic and Social Research.

It said higher inflation in the medium term was likely to wipe out pay increases negotiated in the last three months. Higher commodity prices and an additional VAT hike scheduled for April 2022 means consumer prices are likely to remain above the Bank of England’s target 0f 2% until 2024.

US stocks are expected to open higher, recovering from a sharp fall after rising government bond yields and the prospect of higher interest rates saw investors cutting back on their equity exposure.

Futures for the Dow Jones Industrial Average rose 0.16% in Wednesday pre-market trading, while the broader S&P 500 index added 0.2% and those for the tech-heavy Nasdaq 100 gained 0.3%.

Brent crude futures continue to charge ahead, up more than 1% on Wednesday at $88.44, stoking speculation that it could soon return to $100 per barrel amid supply constraints and robust demand.

LUXURY SELLING LIKE HOT CAKES

Luxury goods group Burberry rallied 6% to £18.655 after the trenchcoats-to-cashmere scarves seller said it expected to deliver increased annual profit after reporting an acceleration in full price sales for the third quarter to 25 December.

Burberry now expects adjusted operating profit for the 53 weeks ending 2 April 2022 to grow ‘in the region of 35%’ at constant currency compared with the prior year. In addition, the currency headwind on sales is now estimated to be £79 million, down from Burberry’s earlier estimate of £100 million, with the impact on operating profit downgraded from £40 million to £27 million.

Educational publisher Pearson jumped 7.5% to 679.6p as the company upgraded profit guidance for 2021 after it boosted sales in its assessments and virtual learning businesses.

Adjusted operating profit for the year to December is now expected to rise by about 33% to around £385 million, ahead of consensus expectations £375 million, on revenue growth of 8%.

‘We made great progress in the fourth quarter and are delivering a strong full year performance, with sales growth and profit exceeding our original guidance,’ said CEO Andy Bird, adding that Pearson is ‘well placed to build on this momentum in the year ahead’.

Elsewhere, mining giant BHP (BHP) gained more than 2% to £24.675 even as it downgraded annual production guidance for copper and metallurgical coal. There was relief as BHP, rumoured to be mulling a bid for Glencore (GLEN), stuck to its guidance for iron ore, energy coal and nickel production.

Chile-focused copper play Antofagasta (ANTO) reversed earlier losses to gain 2.5% at £14.77 after it warned of a fall in production this year, owing to lower grades and an ongoing drought impact.

Copper production in 2022 is now expected to be between 660,000 and 690,000 tonnes at a net cash cost of $1.55 per pound, down from 721,500 tonnes in 2021.

AROUND THE MARKET

Books, magazines and snacks seller WH Smith (SMWH) rallied nearly 7% to £16.55 despite revenue falling to 85% of pre-pandemic levels in the 20 weeks to 15 January 2022 as the Omicron variant disrupted footfall at travel hubs and on the high street.

Investors focused on the company’s expectation of a resumption in the recovery of its all-important travel markets over the coming months. ‘We are well placed for the key trading period in travel this summer and the ongoing recovery in our markets’, insisted CEO Carl Cowling.

Distributor Diploma (DPLM) dipped 2% to £27.64 despite news its performance in the first quarter of the year was ‘strong’, with revenue up by more than a fifth, driven by continued demand and boost from acquisitions.

Looking ahead however, the company kept its outlook unchanged and said it continued to expect underlying growth to moderate as the year progresses and comparators become more demanding.

Pubs operator JD Wetherspoon (JDW) edged 0.4% higher to 907p as the pub chain touted a stronger second half of the year on hopes of easing Covid-19 restrictions.

‘The company will be loss-making in the first half of the financial year, but hopes that, with the ending of restrictions, improved customer confidence and better weather, it will have a much stronger performance in the second half,’ insisted the pubs operator.

For the 25 weeks to 16 January 2022, like-for-like sales decreased by 11.7% and total sales by 13.3%, versus compared to the similar period in financial year 2020. Sales in the second quarter were affected by the ‘Plan B’ restrictions announced by the government in December.

Homebuilder Crest Nicholson (CRST) nudged 1.1% higher to 343.2p after it reported a jump in annual adjusted profit as revenue was boosted by ongoing strength in the housing market.

Devro (DVO) rose 1.5% to 205p as the sausage skins maker said it expected to report operating profit in line with expectations, with earnings per share ‘modestly ahead’ of market expectations following a rise in revenue.

Online car competitions company Best of the Best (BOTB:AIM) slumped 32% to 410p on yet another earnings downgrade.

Margin pressure caused by higher customer acquisition cost and increased prizes, as well as a cautious outlook, mean Best of the Best now sees full year sales coming in at between £34 million to £35 million, with pre-tax profits expected to be in the £4.25 million to £4.75 million range.

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Issue Date: 19 Jan 2022