FTSE 100 firmer but off highs, EU inflation eases in February

FTSE 100 firmer but off highs, up 39 points

US banks pump US$30bn into First Republic

EU inflation eases to 8.5% in February, in line

10.44: London Stock Exchanged lifted by UBS upgrade

One prominent riser today is London Stock Exchange Group PLC (LSE:LSEG).

UBS has upgraded the stock to’buy’ from ‘hold’ and raised its price target 2% to £87.

The Swiss bank has taken a bullish view on revenue growth estimates predicting compound annual growth rates between 2022-25 of 8%, above the market consensus of 7.2%, largely driven by an upgrade to the outlook for the company’s Trading & Banking division.

“We argue LSEG shares are cheap at current levels, trading at the lower end of its 24-month trading range

of £70-85.” The broker noted the forward P/E multiple (using consensus estimates) of 20x is near a 5-

year low and given the improved messaging from the company following its full-year 2022 results, views the risk-reward profile to be very favourable at current valuations.

“We think LSEG can comfortably increase its revenue growth outlook to 6-8%, putting it inline with the targeted revenue growth rates of several of US Info Services companies which we think will drive multiple expansion,” analysts at UBS wrote.

Shares in London Stock Exchange rose 1.6% to 7,400p mid-morning on Friday.

Meanwhile the FTSE 100 has slipped back from earlier highs, now up 38 points.

10.38am: EU inflation cools in February, in line with forecasts

Inflation was confirmed to have cooled slightly in February, final figures showed, though core inflation edged up.

According to Eurostat, eurozone harmonised inflation eased just slightly to 8.5% in February from 8.6% in January.

Euro area annual #inflation at 8.5% in February 2023, down from 8.6% in January https://t.co/d0wI44Cps2 pic.twitter.com/M0qPToGjtm

— EU_Eurostat (@EU_Eurostat) March 17, 2023

On a monthly basis, harmonised prices rose 0.8% in February, more than reversing a 0.2% fall the previous month.

Core inflation – which excludes energy, food, alcohol & tobacco – ticked up to 5.6% annually, from 5.3% in January. Monthly core prices rose 0.8%, reversing a 0.8% fall the previous month.

The figures were unrevised from the flash estimate released on March 2.

10.30am: CMA finds Emis deal could hurt competition

The UK Competition & Markets Authority said its initial investigation has found that UnitedHealth Group Inc (NYSE:UNH)‘s £1.2bn deal to acquire Emis Group PLC could reduce competition in the UK health sector, “leading to worse outcomes for the NHS and ultimately patients and UK taxpayers”.

As part of its phase 1 probe, the CMA found competition in the fields of population health management and medicines optimisation software would be hurt by the deal. Both Emis and UnitedHealth-owned Optum Health Solutions (UK) Ltd provide software services to GPs in the UK.

The CMA said it is concerned that, if the merger went ahead, Optum could choose to limited digital connections to data that is held by Emis, which it said would “unfairly undermine competing businesses”, which would leave the NHS facing fewer options and higher prices or lower quality offerings.

Emis and UnitedHealth have until next week Friday to offer proposals to remedy the CMA’s concerns, after which the CMA will have 5 days to consider whether its concerns have been addressed, or to refer the case to phase 2 investigation.

9.55am: Credit Suisse falls, bucking firmer trend in banks

The Footsie is holding firm on hopes for a calmer day in the banking sector following the recent turmoil.

Shares prices of London banks are broadly higher, although off earlier best levels, but shares Credit Suisse Group AG (NYSE:CS) resumed their downward path, down 3.3% to Swiss Franc 1.95.

US shareholders of the embattled Swiss lender filed a class-action lawsuit against the Swiss bank on Thursday, accusing it of defrauding them by hiding issues related to its finances, according to multiple reports citing court papers.

The plaintiffs claim that Credit Suisse failed to reveal “significant” customer outflows and material weaknesses in its internal controls over financial reporting.

AJ Bell investment director Russ Mould said: ““Right now, the market’s fortunes appear to be tied to a prime slice of Zurich real estate which houses what seems to be Europe’s sickliest big bank. A merger with UBS at the behest of the authorities is apparently being resisted by both parties.”

“Whether the efforts on the part of the Swiss government to prop up the bank prove sufficient, whether Wall Street’s injection into troubled regional institution First Republic overnight works, and whether there are any other vulnerable banks are likely to remain key considerations for investors. The dreaded c-word, contagion, certainly remains in the air.”

“The pace and scale of the rate tightening cycle after a decade of virtually zero interest rates was always likely to reveal stresses and strains in the financial system but if central banks row back, they risk leaving inflation even more entrenched and fostering a sense of panic.”

9.24am: British banks picking up deposits from SVB fall-out, Reuters

British banks are seeing a pick-up in enquiries to switch cash between institutions after the collapse of US tech lender Silicon Valley Bank, as contagion fears prompt some depositors to try to figure out the safest harbours for their funds, according to a report on Reuters.

Barclays, one of the country’s biggest lenders, said it had seen an increase in enquiries to switch or open business accounts in the past few days. Virgin Money, Britain’s sixth largest bank, said in a statement it had also seen “net business deposit inflows in recent days”.

SVB’s failure has rocked global markets over the past week, with contagion concerns spreading to Swiss lender Credit Suisse, forcing the country’s central bank to shore up its liquidity on Thursday in a move that brought some respite.

The British government and the Bank of England have said the country’s banking system is safe, sound and well capitalised, while the UK arm of SVB was rescued by Europe’s largest bank HSBC on Monday.

In the US, leading banks have joined forces to support First Republic Bank, pumping US$30bn in to the troubled bank.

Banks have enjoyed a strong start on Friday helping push the FTSE 100 up to 7,474.43, up 64.40 points, or 0.87%.

9.00am: FTSE 100 extends gains as a degree optimism returns

The Footsie has extended its gains, now up 72.97, or 0.98%, at 7,483.00.

Analysts at Deutsche Bank led by Jim Reid said: “Some optimism has returned to markets over the last 24 hours, with bank stocks stabilising on both sides of the Atlantic and two-year yields surging back.”

“Even the European Central Bank’s decision to pursue a 50bp hike went without incident, and investors grew in confidence that the Fed would follow up with their own 25bps hike next week, so we’re starting to see a modest change in the mood music.”

“It’s also telling this morning that in Asia, US yields and equity futures are fairly stable.”

However Reid noted: “The concerns haven’t gone away though, as while Credit Suisse saw its equity price increase, its bonds/CDS were generally flat to weaker…”

In London, banks are firmer. Lloyds, Barclays and NatWest are up 2.4%, 1.8% and 1.4%. The European Stoxx 600 banks index is up 1.9% while the CAC 40 in Paris was up 1.1% and the DAX 40 in Frankfurt rose 0.9%.

Rising crude prices supported BP and Shell shares. The oil majors rose 4.2% and 3.5%, placing them top of the FTSE 100’s risers.

BP’s shares rose despite, a US federal investigation finding that a BP subsidiary violated workplace safety practices, leading to the deaths of two workers.

The investigation concerns an incident that caused fatal burns to two workers in an Oregon, Ohio refinery’s crude unit, operated by BP Products North America. The regulator proposed a fine of US$156,250.

Oil prices were supported by reports that Russian and Saudi Arabian officials met to discuss stabilising the market. Brent crude was trading 0.6% higher at US$75.09/barrel.

8.35am: GSK buoyed by Deutsche upgrade

GSK PLC (LSE:GSK, NYSE:GSK)’s shares jumped 1.4% in early exchanges in London supported by an upgrade by Deutsche Bank.

The German investment bank has put the FTSE 100-listed pharma giant on its ‘buy’ list and increased its price target by 13% to 1,700p.

Analyst Emmanuel Papadakis taken a look at the prospects for the group’s anti-viral drugs in HIV, RSV and hepatitis B and raised sales and EBITDA forecasts as a result.

The broker noted GSK trades at a 4% dividend/9% free cash flow yield, 9x financial year 2023 P/E for +3/+8% sales/EPS compound annual growth rates through 2022-26 which it thinks leaves GSK looking attractive.

“We think GSK is too cheap if there is any semblance of sustainability through FY27/28, something we now think is probable courtesy of long acting injectables in HIV and RSV, with potential upside from bepirovirsen in HepB.”

8.20am:

The FTSE 100 made strong early progress on Friday after gains in US and Asian markets as leading US banks joined forces to support ailing US regional bank First Republic.

At 8.15am London’s lead index was at 7,490.50, up 80.47 points, or 1.09%, while the FTSE 250 advanced to 18,859.82, up 101.24 points, or 0.54%.

Richard Hunter, head of markets at interactive investor, commented “Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion.”

US banks have joined forces to deposit US$30bn into First Republic Bank in an attempt to bolster its finances and contain the fallout from the collapse of two big lenders in the past week.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit US$5bn into First Republic, a California-based lender.

Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will put in US$2.5bn each while BNY Mellon (NYSE:BK), PNC Bank, State Street, Truist and US Bank are committing US$1bn apiece as part of the agreement.

The move supported UK bank share prices in early exchanges. Lloyds Banking Group PLC (LSE:LLOY), NatWest Group PLC (LSE:NWG) and HSBC Holdings PLC (LSE:HSBA) all rose by around 1%.

Heading the other way were shares in BT Group PLC (LSE:BT.A) which fell 1.2% after the communications regulator Ofcom put itself on a collision course with the telco’s network operator Openreach by saying it may use its powers to stall a new wholesale fibre offer due for launch on April 1.

In a letter issued via the stock exchange, it said a decision on Openreach’s Equinox 2 plan for telecom providers such as Sky, TalkTalk and Vodafone, due by the end of March, will be delayed by two months.

“To provide certainty and stability for industry, our view is that it would not be appropriate for the offer to launch until we issue our final decision,” Ofcom told the market.

Bodycote impressed the market with its annual results which sent shares 6.5% higher.

The FTSE 250-listed company reported strong growth in annual revenue as profit reflecting good momentum in higher growth markets.

In the 12 months to December 31 the heat treatment and thermal processing services firm posted a 21% increase in revenue to £743.6mln while statutory operating profit increased to £102.0mln from £83.8mln in the previous year.

Basis earnings per share advanced to 38.6p from 31.2p in 2021 while a final dividend of 14.9p, made the total payout for the year 21.3p compared to 20.0p in 2021.

Broker Peel Hunt was impressed: “These results further reinforce our confidence in Bodycote as a must-have Industrial stock, with the mix shift generated by the growing Specialist technology and emerging market content.”

GSK PLC (LSE:GSK, NYSE:GSK) was another share on the rise as Deutsche Bank upgraded the pharma giant to ‘buy’ from ‘hold’.

8.00am: Solid numbers from Bodycote

Bodycote PLC reported strong growth in annual revenue as profit reflecting good momentum in higher growth markets.

Basis earnings per share advanced to 38.6p from 31.2p in 2021 while a final dividend of 14.9p, made the total payout for the year 21.3p compared to 20.0p in 2021.

The FTSE 250-listed firm reported revenue growth in Specialist Technologies of 14%, in Emerging Markets of 16% and Civil Aerospace of 19%.

These three areas plus electric vehicles now represent more than half of the group’s revenue and 62% of headline operating profit, Bodycote said.

He firm said a key achievement in 2022 has been the recovery of energy cost increases through surcharges and the full recovery of other inflation through permanent price increases.

Chief Executive Stephen Harris said: “While there are near term macroeconomic uncertainties, we expect underlying volume to continue to grow ahead of the background markets, and margins are expected to expand as surcharges moderate.”

“Beyond 2023, we expect robust growth, leading to further margin expansion.”

7.37am: Deadline for bid for John Wood extended

John Wood Group PLC has given Apollo Global Management (NYSE:APO) more time to consider whether it wants to make a firm offer for the firm or not.

The FTSE 250-listed firm made the request to Panel on Takeovers and Mergers after talking to shareholders given full-year results are due on March 28.

The deadline for Apollo to make its move was March 22 but this has been pushed out to April 19. A further extension could be made with the Takeover Panel’s consent.

In a statement the company said results for the financial year 2022 are in line with expectations.

On March 7, John Wood rejected a fourth bid approach from Apollo which valued it at 237p per share, a 7p premium to the third and most recent attempt by Apollo to win over the company.

“The board believes this latest proposal continues to undervalue the group and is therefore minded to reject,” the company said at the time.

On 22 February, John Wood announced it had unanimously rejected three unsolicited proposals from Apollo.

7.00am: FTSE 100 seen higher after US rally

The FTSE 100 is expected to open higher on Friday after US stocks rallied as some of the largest US financial institutions joined forces to support ailing bank, First Republic.

Spread betting companies are calling London’s lead index up by around 53 points.

In the US at the close, all three major indices were in positive territory, with the Nasdaq leading the way at 11,717 points for a 2.5% gain, while the S&P 500 saw a 1.8% recovery to close at 3,960 and the Dow gaining 1.2% at 32,247 points.

Leading banks banded together to deposit US$30 billion into First Republic in an attempt to bolster its finances and contain the fallout from the collapse of two major lenders in the past week.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit US$D5 billion into First Republic, a California-based lender.

Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will put in US$2.5 billion apiece while BNY Mellon (NYSE:BK), PNC Bank, State Street, Truist and US Bank are depositing US$1 billion each.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a joint statement on Thursday.

The news supported shares in Asia as well. The Nikkei 225 in Tokyo rose 1.2% and the S&P/ASX 200 in Sydney added 0.5%. In China, the Shanghai Composite was 0.4% higher in late trade, while the Hang Seng in Hong Kong was up 1.1%.

Back in London and with little in the corporate diary attention will switch to EU CPI figures this morning and to Cheltenham this afternoon and the Gold Cup.