FTSE 100 slips into the red; CBI survey shows business optimism jumps

  • FTSE 100 index sheds 3 points
  • Public sector borrowing lower in December
  • Analysts see potential for extra GBP10bn a year

11.45 am: CBI survey shows business optimism jumps

The FTSE 100 index slipped into the red just before lunchtime as sterling got a boost after a survey by the Confederation of British Industry showed revived positivity among business leaders.

Despite the UK being set for a hard Brexit on January 31, the CBI’s business optimism balance rose to its highest level since 2014.

However, since the CBI survey is compiled in the first half of the month, analysts pointed out that it probably has not captured manufacturers’ reaction to Chancellor of the Exchequer Sajid Javid’s recent comments that “there will not be alignment” to EU rules and regulations post-Brexit.

Plus, the pool only counted 300 participants, Samuel Tombs from Pantheon Economics noted.

Tombs said: “After adjusting for its seasonality and excessive volatility, we judge that the total orders balance is consistent with a rise in the manufacturing PMI to 49.3 in January, from 47.5 in December, only a bit above the current consensus, 48.8.

Around 11.45am, the UK blue chip index was 3 points easier at 7,608, with sterling rising 0.3% to US$1.3088.

10.45am: Government spending could be increased

The FTSE 100 index and sterling were both inching up in mid-morning.

London’s big caps gained 17 points to 7,627.9 even though the pound rose 0.1% to US$1.3061.

After figures came out earlier on UK public sector spending, economists expect a boost for the British economy from higher investment.

“We suspect he will increase investment by about GBP10bn a year (0.5% of GDP),” said Capital Economics‘ Andrew Wishart.

“On top of a similar sized pre-announced rise in spending on government services, that would provide a substantial and much-needed boost to economic activity.”

Wishart pointed out that, even if government borrowing rose in the year to date, it is on track to be below the Office for Budget Responsibility forecast.

Chancellor Sajid Javid is expected to announce plans to ramp up investment spending by billions of pounds as part of his Budget on 11 March, which should allow the government to borrow for more capital projects too, with plans also to invest in new infrastructure and a focus more on skills and vocational education.

Increased spending in infrastructure could see winners in the construction sector such as Balfour Beatty plc (LON:BBY), Galliford Try PLC (LON:GFRD) and Kier Group PLC (LON:KIE).

Housing remains a government focus, with Persimmon PLC (LON:PSN), Taylor Wimpey PLC (LON:TW.) and Berkeley Group Holdings PLC (LON:BKG) shares in the green on Wednesday morning, with the latter lifting the sector after announcing an extra GBP455mln payout to shareholders.

9.45am: Monthly public sector borrowing shrinks

The FTSE 100 index trimmed its gains in mid-morning trading as sterling headed back towards positive territory after the latest UK data.

The blue chip index was up 5 points at 7,615.4, while the pound was flat at US$1.3051.

UK public sector finance figures showed Britain’s government borrowed less than expected in December.

Borrowing last month was GBP4.8bn, 4% lower than in December 2018.

However, borrowing in the fiscal year-to-date, was 7.9% higher than the same period last year at GBP54.6bn, meaning the new Conservative government still has limited room for manoeuvre in the upcoming Budget in March.

8.35am: Early gains

The FTSE 100 index shrugged off the potential threat posed by the coronavirus and navigated the political bow waves caused by Donald Trump’s impeachment to open in positive territory.

The index of UK blue-chips started 14 points higher at 7,624.48

Overnight, Netflix provided a better than expected update to trading, quelling (some) fears over its growth trajectory, while Tesla also defied the naysayers to become a US$100bn company.

Closer to home, Burberry’s (LON:BRBY) post-Christmas round-up prompted some mild profit-taking with shares falling 2% early on.

The early price reaction was more about the outlook for the luxury fashion retailer than the most recent sale performance, which topped expectations.

“Burberry cautioned that full-year total revenue will grow by a single-digit percentage, while the previous guidance was for growth to be broadly stable,” said David Madden of CMC Markets.

“It seems the high-end fashion house is a little less certain about the future, so that is likely to weigh on the share price.”

News of Sainsbury’s (LON:SBRY) boss Mike Coupe’s departure after the Asda merger debacle was met with only very mild dismay as the share price fell 1.4% early on.

Top of the risers was builder Berkeley Group (LON:BKG), which was bid 5% higher on cash return plans.

Among the small-caps, cancer detection specialist ANGLE (LON:AGL) was up 7% after constructive talks with US Food & Drug Administration.

Tissue Regenix, by contrast, was off 10% after providing a trading and funding update.

Proactive news headline:

ANGLE PLC (LON:AGL) has predicted that it will receive regulatory clearance for its Parsortix cancer test by the third quarter of this year following a successful face-to-face meeting with the US Food and Drug Administration (FDA). The AIM-listed firm said it is now preparing for a full De Novo submission to the FDA, a process that allows the regulator to approve medical devices that have no comparative already on the market.

Ceres Power Holdings PLC (LON:CWR) has announced that German engineering and technology giant Bosch will increase its stake in the company to 18% from 4% though a share subscription, netting the fuel cell firm GBP38mln. In a statement, the AIM-listed group said Bosch will acquire the additional stake through a subscription of around 11.9mln new shares at a price of 320p each, a 7.8% discount to Ceres’ Tuesday closing price.

United Oil & Gas PLC (LON:UOG) has updated investors on the ASH-2 well at the Abu Sennan field – part of a package of assets to be acquired from Rockhopper PLC (LON:ROK) – which came online earlier this month. In a statement. United noted that ASH-2 was drilled to a depth of 4,030 metres into the Alem El Buieb (AEB) formation and was completed in two reservoir intervals, each testing at 7,027 barrels of oil equivalent per day (boepd) and 3,851 boepd respectively.

Yellow Cake PLC (LON:YCA), a specialist company operating in the uranium sector with a view to holding physical uranium for the long term, said it to initiate a share buyback programme to purchase up to US$2mln of its ordinary shares over three months, commencing on 22 January 2020. The group said its board notes that the company’s shares continue to trade at a material discount to its underlying net asset value hence the decision to implement a share buyback programme as a means of effectively acquiring exposure to uranium at a discount to the commodity spot price. It said the programme forms part of the group’s broader strategy to deliver value to its shareholders.

Alliance Pharma PLC (LON:APH) has revealed that its 2019 underlying profit was in line with expectations after turnover grew 16% last year, while strong cash generation saw a significant fall in the company’s net debt. The group, which has a number of international star medicine brands as well as important regional product lines, weighed in with what it described as “see-through revenues” of GBP144.3mln.

SDX Energy PLC (LON:SDX) described 2019 as a successful year as it provided a trading update ahead of its financial results, revealing a 12% rise in production. For the year, production averaged 4,020 barrels of oil equivalent per day (boepd) and the company noted that, at asset level, it had either exceeded or reached the upper end of guidance. Looking to 2020, the company’s guidance is pitched at 6,750 to 7,000 boepd, 68-74% higher, as operations continue to ramp-up.

Asiamet Resources Ltd. (LON:ARS) said it intends to relocate its corporate head office function to Jakarta, Indonesia from Melbourne, Australia commencing immediately following on from a review of its operations. In a statement, the group noted: “While there are a number of drivers for the relocation, the Asiamet Board considers that a significant increase in corporate and project activities relating to ongoing funding and development of the Company’s asset portfolio, in particular the nearer term BKM Copper Project, is best served by moving the Corporate head office to Jakarta.”

Oriole Resources PLC (LON:ORR) has revealed positive initial results from its 2020 exploration campaign at the Bibemi gold project in Cameroon. Mapping work, at the 90% owned project, has shown a continuation of mineralisation at the main Bakassi area adding 1.3 kilometres to the known strike which now exceeds 5 kilometres. Preparations are underway for a drill programme of 1,500 metres.

88 Energy Limited (LON:88E) (ASX:88E) said it is considering a potential capital raising which has led it to place a trading halt on its shares on the Australian Securities Exchange. In a brief statement, the energy group said it is currently intended that any such capital raising will utilise the company’s existing authorities and will not be subject to shareholder approval.

NQ Minerals PLC (LON:NQMI) (OTCMKTS:NQMLF) is looking to investors across the Atlantic and has retained the services of Ortoli Rosenstadt LLP, an internationally focused, New York-based law firm to pursue a potential ADR listing of the company’s securities in the United States. In a brief statement, the NEX-listed base and precious metals producer, which operates the flagship Hellyer Gold Mine in Tasmania Australia said no timetable for a listing has been set.

Tissue Regenix PLC (LON:TRX) said it expects to report sales and earnings (EBITDA) in line with revised expectations as it re-confirmed it is looking for sources of additional finance for the regenerative medicines business. Revenues for the year gone rose 12% to GBP13mln, the company said in a comprehensive trading update, which also revealed it had GBP2.4mln of cash, including a GBP1mln revolving credit facility. This, Tissue Regenix said, was enough to see it through to “at least the end of April”.

6.45am: Footsie called higher

The FTSE 100 is expected to begin Wednesday’s session on the front foot as investor optimism began to return despite lingering concerns around the spread of the Wuhan virus.

Spread-better IG expects the FTSE 100 to open around 27 points higher after ending Tuesday’s session 41 points lower at 7,611.

News that the pneumonia-like virus has spread to the US caused some jitters on Wall Street overnight as investors remain concerned that a potential pandemic could drag on economic growth.

The Dow Jones Industrials Average ended Tuesday’s session 0.5% lower at 29,196 while the S&P 500 was down 0.27% at 3,320 and the Nasdaq fell 0.19% to 9,370.

However, those concerns had mostly dissipated for Asian markets by Wednesday, with the Japanese Nikkei 225 up 0.7% while Hong Kong’s Hang Seng was 1.3% higher.

Michael Hewson, chief market analyst at CMC Markets, said that markets are currently adopting “a safety-first approach” in the face of the disease, particularly with concerns that Chinese New Year celebrations, which begin this weekend, could help the virus spread on a wider scale.

On the currency markets, the pound was 0.1% higher at US$1.3057 against the dollar, with today’s CBI business confidence data possibly providing some catalysts as a barometer for the UK’s economic health in the final weeks before Brexit.

There could also be some movement in cable as the Senate impeachment trial against Donald Trump continues to shake US politics.

Significant announcements expected for Wednesday January 22:

Trading announcements: Burberry Group PLC (LON:BRBY), JD Wetherspoon PLC (LON:JDW), Sage Group PLC (LON:SGE), AJ Bell PLC (LON:AJB), Antofagasta PLC (LON:ANTO),Connect Group PLC (LON:CNCT), Close Brothers Group PLC (LON:CBG), Pets at Home Group PLC (LON:PETS), WH Smith PLC (LON:SMWH)

Interims: Van Elle Holdings PLC (LON:VANL)

Economic data: US house prices

Around the markets:

  • Sterling: US$1.3057, up 0.1%
  • Brent crude: US$64.31 a barrel, down 0.4%
  • Gold: US$1,552.27 an ounce, down 0.27%
  • Bitcoin: US$8,712, up 0.7%

City headlines:

  • Sirius Minerals has launched an internal investigation after a senior worker was allegedly heard discussing the controversial takeover by Anglo American with a hotel barmaid before it was publicly announced – Daily Mail
  • Washington has threatened retaliatory tariffs if the British government did not back down on plans to impose the levy digital tax from April – Financial Times
  • Boeing has been forced to halt trading in its shares as the commercial aerospace titan warned of yet another delay to its grounded 737 Max fleet – Telegraph
  • The probability of the Bank of England cutting interest rates next week is less than 50 per cent, according to financial markets, after the employment rate hit a new record high – Times
  • Forensic analysis by experts hired by Jeff Bezos to investigate 2018 phone hack has pointed to attack on the Amazon boss from Mohammad bin Salman’s WhatsApp account – FT
  • Netflix attracted more new subscribers than expected at the end of last year, but still missed its target for the United States and offered a pessimistic forecast for the coming quarter – Times

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