FTSE 100 live: London takes fright as Powell testimony scares off blue chip investors
London’s main index took another step back on Thursday as a second day of testimony in front of Washington lawmakers by Federal Reserve chair Jerome Powell largely stuck to the hawkish tone of the previous day.
The FTSE 100 was last at 7,868.64, down 61.28 points or 0.77 per cent while the FTSE 250 which includes more domestically-focused companies was at 19,631.47 down 220.50 points or 1.11 per cent.
Russ Mould, AJ Bell investment director said that while Powell had softened things a little by saying nothing had been decided, “the clear message is future rate decisions will be dependent on the data and for now that seems to be tilting things more towards a 50-basis point rather than 25 basis point rate rise later this month”.
“This would shatter the market’s comfortable illusion at the start of the year that rates were about to pivot and a soft landing for the US economy could be engineered.”
A bright spot on the UK market was offered by insurer Aviva, where current CEO Amanda Blanc has done an enviable job.
Mould added: “Streamlining operations and selling off underperforming businesses is a well-worn strategy, but one Blanc has executed well and that’s evident in the 2022 numbers which show a big increase in profit and dividends accompanied by a big share buyback.”
Victoria Scholar, head of investment, interactive investor said: “European markets have opened lower with US futures pointing to a softer open as markets digest a slew of corporate news and the testimony from Fed Chair Jay Powell.
“The FTSE 100 is leading the declines across Europe with miners like Rio Tinto languishing near the bottom of the basket following a drop in the Shanghai Composite and the Hang Seng overnight.
China’s inflation rate fell to 1 per cent in February from 2.1 per cent in January, reaching the lowest reading since February 2022.
“Producer prices fell 1.4 per cent, accelerating from a 0.8% per cent drop in the previous month to mark the fifth straight monthly of deflation. Despite the release of pent-up demand post the unwind of Beijing’s strict anti-covid measures, the inflation reading suggests that the economic outlook remains uncertain. However, with price pressures under control, this could embolden the authorities to carry out further stimulus as a way to boost demand.”
FTSE stocks to watch: Domino’s
Mould said the cost-of-living crisis has forced Domino’s Pizza to rethink how it does business.
“A £20 pizza is now off the menu for a lot of people, hence why it has been offering cheaper-priced deals. That puts pressure on the business to get customers to order more frequently, which is a tough ask in the current economic environment.
“Also eating into profits is ongoing investment into upgrading technology systems. Domino’s is eager for more customers to install its app on their phone, saying these types of users typically spend more with the business than those who only order via the website.
“With competition fierce and consumers watching their pennies, Domino’s could have a very difficult year ahead. The market seems to agree, given how the shares have been falling over the past few months.”
WANdisco dreams up in smoke
The credibility of WANdisco’s has been shattered after uncovering a potential fraud, said Mould.
“Over the past six months it has been shouting from the rooftops about significant revenue growth thanks to winning lots of contracts. Only three days ago it talked about listing in the US, something that many tech companies do to obtain a higher valuation.
“Now its dreams have gone up in smoke. The idea that someone in the company has potentially been fiddling the books is a nightmare for management and shareholders. To go from aspirations of a US stock market listing to having your shares suspended in less than a week is a total embarrassment.
“What’s concerning is the apparent lack of controls in the company. The idea that a single person has managed to inflate the revenue by significantly more than management now believes it will report goes to show there is something very wrong with how the business is run.
“References to ‘significant going concern issues’ is even more shocking. It suggests the company desperately needs a cash injection to keep going and it’s hard to see who would stump up the readies in light of a potential fraud. A heavily discounted fundraising now seems its only option.”
Harbour Energy takes windfall hit
Taken at face value windfall taxes completely wiped out profits at independent North Sea producer Harbour Energy but take a closer look and the story is a bit more complicated.
Mould said: “Effectively the company is putting all the tax implied by the new levy out to 2028 through its books for 2022 – notably Harbour still generated free cash flow of more than $2 billion and managed to halve its net debt while paying out a decent level of dividends.
“This situation is unlikely to engender a great deal of sympathy, particularly for those who are struggling with the cost of heating their homes.
“Whether cynical or not – amplifying what is essentially an accounting decision helps make Harbour’s case that UK oil and gas companies are being squeezed too hard.
“That doesn’t mean its argument should not be taken seriously. Tax on oil and gas in the UK is complex and has been subject to lots of changes over the years. This does make it difficult for companies to commit to long-term investment plans. Harbour is backing up its strong words with action, reducing its headcount in the UK and announcing plans to reduce domestic activity and ramp up overseas operations.
“Given businesses like Harbour Energy have the option of investing elsewhere, there is a risk of the UK’s energy security being undermined by understandable moves to tax profit which was indisputably boosted by the knock-on effects of the invasion of Ukraine.”