FTSE 100 analysis: UK stocks muted in wake of US gains, mild China CPI

FTSE 100 muted

The FTSE 100 is trading marginally lower in early trade this morning.  

That follows on from a positive session in Asia. We discovered that annual inflation in China rose 0.2% year-on-year in May. While that accelerated from 0.1% in April, it still remains near zero at a time when inflation is running rampant around the world and came in below the 0.3% forecast. We saw China’s annual PPI, which measures the prices paid by wholesalers, drop by 4.6% year-on-year in May following the 3.6% drop seen in April. While China is avoiding inflationary pressure and keeping interest rates low, there are still concerns that it is struggling to invigorate the economy since abandoning Covid-19 restrictions.

Meanwhile, over the Atlantic, we found out yesterday that US jobless claims in the week to June 3 came in at 261,000. That was up 28,000 from the week before and hit its highest level since October 2021, coming in ahead of the 235,000 forecast. That has reinforced hopes that the Federal Reserve will hold interest rates steady following 10 consecutive increases when it meets next month. However, we have US CPI data out before that meeting and this could decide whether the central bank presses pause or pushes ahead with another hike.

Central banks take centre stage next week, when the European Central Bank and Bank of Japan will also be meeting. This comes in the wake of surprise lifts in interest rates in Canada and Australia. The Bank of England meets the week after.

Read more: Why is the FTSE 100 underperforming and are UK stocks undervalued?

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, has drifted between a ceiling of 7,650 and the June-low of 7,452 over the past two weeks. We are waiting for the index to break out of this range to decide where it is headed next.

A break above the ceiling would mean a move toward 7,710 is possible, marking the level of support that held throughout most of May. A move below the June-floor risks seeing it fall toward 2023-lows at around 7,307.

Top UK stock news

Network International Holdings is up 5.8% at 383.8p after Canada’s Brookfield Asset Management said it has struck a deal to buy the London-listed payments provider for £2.2 billion worth 400p per share. That it at a premium of around 64% compared to Network International’s share price on April 12, the day before initial interest was shown in the business. Network International said it has cancelled its $100 million share buyback programme as a result, although it has already returned some $93.8 million of it to investors.

UK oil producers such as Harbour Energy, Serica Energy and EnQuest are rising today amid reports that chancellor Jeremy Hunt could announce a plan to limit the windfall tax being applied to UK oil and gas companies in the coming days, according to Bloomberg. The 35% levy on profits could cease if prices fall below a pre-determined level, according to an unnamed source. Harbour Energy and Serica are both up over 3% in early trade while EnQuest is up 0.6%.

HSBC is trading broadly flat today after pulling all of its mortgages off the market after being overwhelmed by a rush of customers trying to lock-in deals before interest rates rise, according to the Telegraph. The bank has pulled all buy-to-let, residential and business mortgage deals.

Citigroup has removed Lloyds from its EMA focus list for the second half of 2023, replacing it with rival NatWest. Citi said Lloyds is facing headwinds such as deposit price changes and mortgage margin compression. Lloyds is up 0.6% today while NatWest is up 0.5%.

AstraZeneca is up 0.8% this morning. The pharmaceutical giant said a committee of the US Food & Drug Administration has overwhelmingly voted that nirsevimab has a favourable benefit-risk profile to prevent RSV lower respiratory tract disease in newborns and infants. The committee voted 21-0 in support of the drug, developed with partner Sanofi. Elsewhere, AstraZeneca has signed a deal with Quell Therapeutics to develop cell therapies targeting Type 1 diabetes and inflammatory bowel disease. This will use Quell’s toolbox of Treg cell engineering modules and the company will be paid $85 million upfront from AstraZeneca, which will be able to commercialise any successful outcomes.

Croda International is down 11.5% after it said pretax profit will be within a range of £370 million to £400 million in 2023. It reported an IFRS pretax profit of £780 million and an adjusted profit of £496.1 million in 2022. That comes after it made £143 million in profit in the first five months of the year, with Croda reiterating that the second half will be better than the first. Croda has been suffering from customer destocking due to an oversupply of goods. It has partially countered lower volumes in consumer care with higher prices while life sciences has seen destocking happen quicker than anticipated. Croda will release interim results on July 25.

S4 Capital is down 3% ahead of its annual general meeting today, when it will reveal like-for-like revenue growth has slowed in the first four months of 2023 compared to what we saw last year due to more modest demand in its core markets. The firm will reiterate its ambition to grow like-for-like net sales by 8% to 12% this year and deliver a steady improvement in operational Ebitda margins to 15% to 16%. It also said it will continue to evaluate potential acquisitions.

Hammerson is up 1.2% at 26.36p after receiving a double-upgrade from Barclays to Overweight from Underweight after becoming convinced that management have done what is necessary to improve the mall operator’s business. It said the earnings outlook is brighter after rent and values declined due to market conditions, which it described as a ‘painful transition’ for the company.

Chemring Group is down 0.6% at 298.35p after being downgraded to Hold by Panmure Gordon, which has a 320p price target on the supplier of sensors and other advanced tech components.

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