Oil majors underpin strong rally despite US falls

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  • FTSE 100 closes up 60 points at 7,587
  • Flutter eases as Disney inks US sports betting deal
  • Severn Trent faces lawsuit over sewage spills

4.40pm: Oil majors support gains in London

The FTSE 100 ended sharply higher, although off earlier best levels, as a weak start in the US weighed towards the close.

London’s leading index ended Wednesday up 59.88 points, 0.8%, at 7,587.30 while the FTSE 250 jumped 95.66  points, 0.5%, to 18,937.20. 

Oil majors led the way with BP PLC (LSE:BP.) up 2.5% and Shell PLC (LSE:SHEL, NYSE:SHEL) rising 2.2% as oil prices climbed while banks rallied after the Italian authorities watered down windfall tax plans.

Flutter Entertainment fell 4.1% on fears of increased competition after Disney announced it is moving into the sports betting business, with ESPN inking a licensing deal with casino operator Penn Entertainment.

Seven Trent fell 3.6% as it faced a lawsuit over sewage spills dragging United Utilities down with it, while reports that TikTok users were targeting shoplifting raids on JD Sports pulled the retailer down 1.4%. 

4.20pm: European gas prices soar on fears over Australian supply

European natural gas prices have surged more than 30% as the potential for liquefied natural gas supply disruptions from Australia spooked traders who have been betting against the price.

TTF, the European benchmark, are 28.5% higher at 39.94 per megawatt hour while UK prices are 29% higher at 100.75p per therm.

Traders attributed the rise to the closing out of short positions on the back of reports of potential worker strikes at some LNG plants in Australia.

3.55pm: Rice prices hit 15 year high

Hopes remain strong that food price inflation is easing but there are still pockets of strong growth.

Rice price have soared to the highest in almost 15 years in Asia on mounting concerns over global supplies as dry weather threatens production in Thailand and after top exporter India banned some shipments.

The price of Thai white 5% broken rice, an Asian benchmark, jumped to $648 a tonne, the most expensive since October 2008, according to data from the Thai Rice Exporters Association on Wednesday.

This goes alongside the recent rise in grain prices related to Russia’s war in Ukraine and more broadly with the wild weather conditions the world has seen this year.

3.24pm: Jefferies tucks into Dominos Pizza Group

Jefferies has taken Domino’s Pizza Group PLC off the sell list, upgrading to hold, hiking its price target by 71% to 410p from 240p.

“Cost inflation, franchisee friction, and lower top line growth previously kept us cautious on Domino’s,” the broker said.

But it sees these challenges easing with food inflation declining, the arrival of a new CEO with a strong Domino’s growth track record, the introduction of a loyalty programme in 2024 and franchisee profitability prioritisation.

The broker raised 2023 and 2024 EPS forecasts by 16% and 12% alongside the rating upgrade.

Jefferies noted the new CEO Andrew Rennie tripled the store count of the European arm of Domino’s Pizza Enterprises during his tenure, and thinks store growth could increase following his arrival.

It also thinks the introduction of loyalty programme in 2024 could lead to volume increases.

2.50pm: US markets subdued as trading kicks off

US markets ticked narrowly into the red as trading kicked on Wednesday with investors nervously eyeing key inflation data that will help shape the outlook for the Federal Reserve’s next steps.

Shortly after the opening bell, the Dow Jones Industrial Average was down 15.01 points at 35,299.48, the S&P 500 was little changed at 4,497.85 and the Nasdq Composite was down 23.60  points, 0.2%, at 13,860.72.

“A friendlier risk backdrop, which a weaker US CPI print could catalyze, is likely needed to push stocks higher,” commented Stephen Innes at SPI Asset Management.

Thursday’s CPI report is expected to show that inflation increased at a 3.3% annual pace in July, marking the first acceleration since June 2022, while the core measure, which strips out volatile food and energy prices, is expected to ease slightly to 4.7%.

The Walt Disney Co rose 0.8% ahead of results after the closing bell Wednesday and after moving into the sports betting business, with ESPN inking a licensing deal with casino operator Penn Entertainment.

For its part, Penn shares soared leapt 11.6% but fears of increased competition saw Draftkings slide 7.6%.

WeWork Inc (NYSE:WE) slumped 20% as it continues to struggle with losses, requiring more cash to improve liquidity levels.

“As a result of the company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern,” the group’s statement read.

2.14pm: JD Sports targeted by TikTok posts

London’s Oxford Street is on high alert after a viral TikTok post urged followers to “rob JD Sports”.

The Metropolitan Police have increased patrols in the central London shopping district, anticipating a large turnout of youths responding to the call.

The online post, which has spread across various social media platforms, advises participants to dress in ‘bally and gloves’ and warns against bringing weapons.

Last year, similar incidents led to widespread vandalism, including damage to shops and a Ferrari (NYSE:RACE) (Ferrari (NYSE:RACE)), and assaults on police officers.

Shares in JD Sports Fashion Group PLC fell marginally into the red after a bright start. 

2.03pm: Rolls-Royce is Jefferies top sector pick

Rolls-Royce Holdings PLC (LSE:RR.) has recoverded rapidly from the lows of January’s “burning platform” comments, Jefferies analysts say, prompting a host of upgrades.

An operating margin of 12.4% in the half year to June, compared to 3.4% last time around, proves analysts’ expectations had been too conservative, the investment bank said.

This should stick throughout next year, it continued, with Rolls-Royce’s civil aerospace wing likely to see margins climb into the 15% region based on the aviation sector’s recovery

“Rolls-Royce remains our sector top pick,” Jefferies said, as the company “now offers an attractive mix of a value profile and recovery potential”.

Shares rose 0.5% to 208.95p.

1.00pm: Oil price at four-month high

The oil price continues to rumble higher, hitting its highest level since April.

The price of Brent crude is 0.9% higher at $86.98 and West Texas Intermediate is 0.8% to the good at $83.54.

The extension of production cuts by Saudi Arabia last week couple with supply concerns over risks to

Russian crude shipments from tensions in the Black Sea continue to underpin the price.

Ukrainian President Volodymyr Zelensliy said his country would retaliate if Russia continues to block Ukrainian ports.

12:37pm: Chinese deflation will raise the “drumbeat” for stimulus

News that China has fallen into deflation raises questions for central banks as they battle to tame inflation while it will also increase pressure for Chinese authorities to act to boost the ailing economy.

The consumer price index fell 0.3% cent year on year in July, according to official statistics released on Wednesday, after registering no change a month earlier. The producer price index, a gauge of the prices of goods as they leave factory gates, was down 4.4% in July.

Michael Hewson at CMC Markets feels “Chinese deflation has been the proverbial elephant in the room when it comes to recent tightening measures from the Federal Reserve, the ECB, and Bank of England.”

He wondered “how many more rate hikes can we expect in the coming months when there is a clear deflationary impulse coming from Asia, and where is the tipping point when it comes to the risk of overtightening.”

Tom Hopkins, Portfolio Manager at BRI Wealth Management, said: “The move into deflation for the world’s second largest economy is a clear sign of weakening, something that’ll spark concern for EU companies and economies of which China is one of the most important trading partners.”  

Deutsche Bank thinks the news will “increase the drumbeat for more stimulus.”

But Hopkins reckons “Chinese policymakers have a difficult balancing act with calls for stimulus whilst battling a slowdown in its property sector and a weakening in trade and consumer confidence.”

12:10pm: Rally expected in US after Tuesday’s falls

Equities in the US look set to rally when trading gets under way in New York as investors look ahead to earnings from Disney and tomorrow’s key consumer price inflation print.

In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 up 0.3%, and contracts for the Nasdaq 100 futures climbed 0.3%.

“A relatively quiet economic calendar sees traders await tomorrow’s all-important US inflation report, with markets looking for CPI to turn higher after 12 consecutive months of declines,” said Joshua Mahony at Scope markets.

The consumer price index rose 3.0% on an annual basis in June, cooling from a 4.0% rise in May. It was the smallest 12-month increase since March 2021. Core inflation – which excludes items such as food and energy – was 4.8% in June, down from 5.3% in May.

According to FXStreet consensus, markets are expecting a 3.3% annual rise in CPI in July. Core inflation, however, is meant to cool slightly to a 4.7% rise.

Walt Disney Co will be in the spotlight ahead of financial third quarter results due after the closing bell.

Mahony said there are “concerns around streaming subscriber numbers and park visitors coming into focus.”

“While earnings are expected to rise against the previous quarter, there are concerns around the predicted decline made against the same quarter last year.”

On Tuesday, the firm announced a move into the sports betting business, with ESPN inking a licensing deal with casino operator Penn Entertainment. 

ESPN has signed a licensing deal with Penn to create ESPN Bet, a sportsbook for audiences in the United States.

Shares in Penn soared 12% pre-market while Disney is 1.4% to the good.

Online retailer Amazon.com Inc (NASDAQ:AMZN) is in talks to become an anchor investor in Arm Ltd’s initial public offering, according to Bloomberg on Wednesday.

Citing “a person familiar with the situation”, Bloomberg said Amazon is in discussions to be an anchor investor in the IPO alongside other tech companies. The deal could raise as much as USD10 billion.

Office space provider WeWork Inc (NYSE:WE) looks set to tumble after warning it could be on the brink of collapse as it continues to struggle with losses, requiring more cash to improve liquidity levels.

“As a result of the company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern,” the firm said.

Shares were 16% lower in pre-market trading.

11.37am: Coca-Cola HBC fizzes on raised guidance

Coca-Cola HBC AG, The Steinhausen, Switzerland-based bottling partner of the Coca-Cola, climbed after raising revenue guidance for the full-year.

The FTSE 100-listed firm expects mid-teens full-year organic revenue growth, lifting its outlook from 5.0% to 6.0% growth previously, while Ebit growth in the range of 9% to 12% in 2023, is unchanged from previous guidance.

Net sales in the six months to June 30 were up 19% to €5.02 billion from €4.21 billion the year before.

Chief Executive Officer Zoran Bogdanovic said: “It has been a very good first half of the year with progress across our strategic pillars. Our priority categories of Sparkling, Energy and Coffee, together with a strong performance across all segments, have driven organic revenues and EBIT growth ahead of expectations.”

11.02am: NIESR sees inflation above 2% through 2026

Alongside its gloomy prediction for the UK economy, the  National Institute of Economic and Social Research sees inflation staying above the Bank of England’s 2% remit through 2026.

While the bank’s forecasts pencil in inflation falling back to the 2% target by the second quarter of 2025, NIESR thinks CPI will still average an above target 2.3% across 2025 as a whole, and also average above 2% in 2026.

NIESR’s Stephen Millard said: “The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.”

10.36am: TP ICAP soars on buy-back, strong results

Top of the pile in the FTSE 250 is interdealer broker TP ICAP Group PLC which 11.3% as it reported better half-year earnings and announced the launch of a buyback. 

Revenue in the first half of the year climbed 4.8% to £1.13 billion from GBP1.08 billion a year prior while pre-tax profit rose 26% to £91 million from £72 million. 

The firm said it benefitted from rising volatility during the half, particularly in its Global Broking division.

In addition, it said it is launching a £30 million share buyback programme.

“We will continue to assess opportunities to free up more cash to pay down more debt, and/or initiate further buybacks,” it said.

IWG sits in second spot, up 9.8%, after the Wework warning boosted hopes of less competition while Hill & Smith PLC is 8.8% higher after well received results. 

9:54am: TUI needs to fix the roof while the sun shines

TUI AG (LSE:TUI) is edged higher with shares up 0.8% after it swung back into profit in the financial third quarter, boosted by the rebound in travel and rising prices.

But it was the debt pile that attracted attention of analysts which TUI said improved to €2.2 billion from €3.3 billion last year.

Deutsche Bank explained that while net debt stood at €2.2 billion, this includes around €2.9 billion of lease-related liabilities.

On a pre IFRS 16 basis, the business is net cash c.€700 million, the broker estimated.

As a result, Deutsche took a positive view on the debt position: “With the balance sheet concerns more or less put to rest with the most recent round of funding, we see the business as well positioned for a strong Q4 performance.”

“With Q4 set to see a strong performance, we remain of the view that the risk-reward balance is favorable at the moment.”

But Russ Mould at AJ Bell recons “TUI really needs to ensure it fixes the roof while the sun shines.”

While consumers continue to prioritise a “week on the beach with their dwindling disposable income,” he wondered how long this can be sustained “as household budgets face continuing strain.”

Mould accepts TUI “has taken steps to repair a balance sheet which took severe damage during the pandemic but it is still sitting on lots of debt.”

“It doesn’t want to be left exposed if the post-Covid boom in travel demand starts to ebb away,” he said.

“This means dividends remain a distant prospect. The Greek wildfires are a reminder of the risks posed by climate change and, amid increasing awareness of this issue, TUI needs to demonstrate how it can reduce its own emissions,” Mould said

9:22am: IWG bounces on Wework woes

Shares in IWG PLC (LSE:IWG) soared 6.8% after rival WeWork Inc (NYSE:WE) warned there are “substantial” doubts about its ability to keep running.

Shares in the office space-sharing company are down 17% after-hours in New York taking its market value to $374 million.

The company was once valued at $47 billion by tech investor Softbank, before its first attempt to float on the stock market failed, in 2019.

Wework blamed a “difficult operating environment” for its woes.

But one less competitor in the serviced ofice could be good news for IWG, formerly known as Regus.

On Tuesday, IWG reported revenue for the six months ended June 30 increased 15% to £1.48 billion from £1.29 billion a year earlier. System-wide revenue, which includes franchise, managed centre and joint-venture partners, surged 16% to £1.68 billion.

“We continue to grow as expected, producing a record period for IWG with our highest ever revenue in our over 30-year history,” chief executive Mark Dixon said.

9:02am: Severn Trent faces lawsuit over sewage spills

Severn Trent PLC (LSE:SVT) shares sprang a leak on Wednesday, down 1%, as a former Oxford academic filed a US-style class action lawsuit against the water company, for allegedly under-reporting sewage spills and overcharging customers.

Carolyn Roberts, a former Oxford university professor and environmental consultant, has filed a claim in the Competition Appeal Tribunal against the company, which provides water and waste services to more than 4.5 million homes.

Roberts is planning to file similar suits against other large water companies.

She has accused Severn Trent of misleading regulators about the number of times they discharged raw and untreated sewage into waterways, resulting in customers being “unfairly overcharged”.

Households paid more as a result of the “serial and serious under-reporting,” which should have led to penalties and pushed down bills, said Roberts.

8:46am: Flutter slides as Disney wades into US market

Shares in Flutter Entertainment PLC (LSE:FLTR) are now down 5.3% at 14,125p but it might not be today’s results that are denting the mood.

It looks set to face a new competitor in the US after Disney announced it is moving into the sports betting business, with ESPN inking a licensing deal with casino operator Penn Entertainment.

ESPN has signed a licensing deal with Penn to create ESPN Bet, a sportsbook for audiences in the US.

Penn will rebrand its US sports betting portals, currently known as Barstool Sportsbook, to ESPN Bet. The move comes less than six months after Penn completed a $551mn acquisition of Barstool, the sports gambling and entertainment site founded by Dave Portnoy in 2003

The new outfit could be a threat to Flutter’s FanDuel business which posted a profit in the first half of 2023.

Flutter intends to add a US listing later this year or early into 2024.

Entain was also lower, down 1.0%, on the news. It has a 50/50 jv with MGM in the US.

8:17am: Banks lead the way as stocks rally

The FTSE 100 bounced back on Wednesday as banks rallied after Italian authorities watered down windfall tax plans for the country’s banks.

At 8.15am, London’s lead index was up 44.26, 0.6%, at 7,571.68 while the FTSE 250 jumped 148.96 points, 0.8%, at 18,990.50.

Italy’s government surprisingly decided to impose a 40% windfall tax on its banks which caused banking share prices to fall sharply on Tuesday.

But late Tuesday, the Italian finance ministry said in a statement that the tax on net interest income would be capped at 0.1% of assets.

Deutsche Bank said such a cap would reduce the overall size of the tax by over 40%, though it would still take more than 10% from 2023 profits. 

Banks in London rallied with Lloyds Banking Group PLC (LSE:LLOY), Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG) up 1.2%, 1.7% and 1.0% respectively.

In corporate news Flutter Entertainment PLC (LSE:FLTR) eased 1.3% despite a profit at its US business, FanDuel ahead of plans to list the company’s shares in New York.

Peter Jackson, chief executive, commented: “The first half of 2023 marks a pivotal moment for the Group, with our US business now at a profitability inflection point, helping transform the earnings profile of the Group and significantly enhance our financial flexibility.”

Broker Peel Hunt said the US profit was as expected and “we expect this to be repeated for the full year, representing a very important inflection for this key part of the group.”

“We believe that this excellent business is correctly priced and reiterate our hold recommendation,” the broker added.

Bellway PLC (LSE:BWY) slipped 2.2% as it indicated new home sales are likely to ‘decrease materially’ in the current year with the downturn attributed to the surge in mortgage rates, which has created a challenging trading environment.

In its latest update for the 12 months ending July 31, the Newcastle headquartered builder reported housing revenue of approximately £3.4 billion, a slight decrease from the previous year’s £3.52bn.

Liberum said operating profit was slightly below consensus “with the reduction reflecting higher build cost inflation, longer site duration and increased use of incentives.”

7:50am: TUI back in profit as demand remains strong

TUI AG (LSE:TUI) swung back into profit in the financial third quarter boosted by the rebound in travel and rising prices.

The package holiday operator said group revenue in the three months to June 30 was €5.3 billion, an increase of 19% from €4.4 billion last year, supported by higher volumes and prices taking revenue 11% above pre-pandemic levels. 

Third quarter underlying Ebit at €169.4 million compared to a loss of €27.0 million last year and was the first profitable quarter three since the pandemic.

“Current booking levels confirm our expectations for a strong Summer and we are on track to deliver on FY 2023 expectations,” the firm said.

TUI said bookings were impacted in the short-term as a result of the wildfires in Southern Europe and flight cancellations to Rhodes, but have subsequently recovered as operations have resumed.

7:34am: Flutter’s delivers US profit ahead of listing plans across the pond

We start the day with news from Flutter Entertainment PLC (LSE:FLTR) which hailed an “exceptional” performance in the US ahead of plans for a US listing, as it reported a return to profit and a big jump in revenue in the first half.

US business FanDuel returned a first-half adjusted earnings before interest, tax, depreciation and amortization of £49 million and Flutter said it expected the secondary listing to happen late in the fourth quarter or early in the first quarter of next year.

Peter Jackson, chief executive, commented: “The first half of 2023 marks a pivotal moment for the Group, with our US business now at a profitability inflection point, helping transform the earnings profile of the Group and significantly enhance our financial flexibility.”

The owner of Betfair and Paddy Power said reported a 42% rise in revenue to £4.81 billion from £3.39 billion the year before but swung to a pre-tax profit of £128 million from loss of £112 million last time.

Flutter said the second half has started in line with expectations and it expects full year adjusted Ebitda to be “broadly in line with market expectations,” with net revenue between £3.6-£3.9 billion and adjusted

7:02am: Bright start expected in London

The FTSE 100 is expected to rally at the open after US stocks closed off earlier lows while China slipped into deflation in July.

Spread betting companies are calling London’s premier index up by around 34 points after closing down 27.07 points at 7,527.42 on Tuesday.

In Asia, China slipped into deflation as consumer prices contracted last month for the first time in more than two years.

The consumer price index fell 0.3% in July, the National Bureau of Statistics said, having flatlined in June.

Michael Hewson at CMC said: “Chinese deflation has been the proverbial elephant in the room when it comes to recent tightening measures from the Federal Reserve, the ECB, and Bank of England.”

“How many more rate hikes can we expect in the coming months when there is a clear deflationary impulse coming from Asia, and where is the tipping point when it comes to the risk of overtightening.”

The Nikkei 225 index in Tokyo was down 0.4%. In China, the Shanghai Composite eased  0.6%, while the Hang Seng index in Hong Kong fell 0.4%.

It’s a busier day in the corporate calendar with Bellway, Coca-Cola HBC, Flutter, TUI and  4imprint all reporting numbers.

In the US on Tuesday, the Dow Jones Industrial Average closed down 0.5%, the S&P 500 down 0.4% and the Nasdaq Composite down 0.8%. All three ended well above the lows seen at London’s close.



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