London close: Stocks higher despite grim economic outlook

by | Nov 22, 2022

London stocks remained well above the waterline by the close on Tuesday, with energy shares in the green as oil prices recovered.
The FTSE 100 ended the session up 1.03% at 7,452.84, and the FTSE 250 was ahead 0.05% at 19,422.37.

Sterling was also in positive territory, last trading up 0.38% on the dollar at $1.1868, and 0.11% higher against the euro to change hands at €1.1553.

“European markets have provided an area of optimism today, with equities outperforming their US counterparts despite growth concerns raised by the OECD,” said IG senior market analyst Joshua Mahony.

“Quite how much markets are listening to the OECD is questionable, with both the FTSE 100 and pound gaining ground despite claims that we will see a measly 0.2% 2024 after next year’s contraction.

“While the effects of Brexit have been largely masked by the Covid pandemic, the outlook remains bleak over our ability to grow our way out of this current crisis.”

Mahony said that with the Bank of England likely to take a “more accommodative stance” once inflation was under control, the ability to predict when the UK would return to health relied on driving down prices.

“Unfortunately, the OECD predicts that the UK energy price cap will serve to lift inflation, thus limiting the ability to combat the stagflation that is expected to dominate 2023.”

Indeed, in economic news it emerged that the UK was on track to be the worst-performing G20 country in the next two years apart from Russia according to the latest economic forecast from the OECD.

The Paris-based Organisation for Economic Co-operation and Development said economic growth was slowing in the UK earlier, forecasting GDP to grow 4.4% this year, and then contract by 0.4% in 2023 before growing by just 0.2% in 2024.

Only two other countries – Germany and Russia – were expected to see GDP contract in 2023, falling 0.3% and 5.6% respectively.

German GDP was then forecast to rise by 1.5% in 2024, with Russia’s economy contracting by 0.2%.

In particular, the OECD flagged the government’s Energy Price Guarantee, saying the “untargeted” policy would increase short term pressures on inflation, requiring monetary policy to tighten further and increasing debt service costs.

“Better targeting of measures to cushion the impact of high energy prices would lower the budgetary cost, better preserve incentives to save energy and reduce the pressure on demand at a time of high inflation,” it said.

In September, then-prime minister Liz Truss announced household energy bills would be capped on average at £2,500 for the next two years.

Under new chancellor Jeremy Hunt, the cap was set to raise to £3,000 from next April, with the policy shortened to just one year.

Globally, the OECD forecast that the economy would grow by 3.1% this year, by 2.2% in 2023 and by 2.7% in 2024.

“The global economy is facing serious headwinds,” said Mathias Cormann, the organisation’s secretary general.

“An end to the war and a just peace for Ukraine would be the most impactful way to improve the global economic outlook right now.

“Until this happens, it is important that governments deploy both short- and medium-term policy measures to confront the crisis, to cushion its impact in the short term while building the foundations for a stronger and sustainable recovery.”

Back on home shores, UK government borrowing rose in October but at a lower -than-expected cadence, after the government stepped in to help households and businesses with energy bills.

According to figures from the Office for National Statistics, public sector net borrowing excluding public sector banks – ‘PSNB ex’ – was £13.5bn in October, up from October 2021’s £9.2bn, but well below consensus expectations of £21.0bn.

It marked the second month in a row that borrowing exceeded last year’s monthly total and was the fourth-highest October figure since records began in 1993.

“October’s high borrowing figure largely is a consequence of the government’s decision to shield households from most of the surge in energy prices,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“The Energy Bills Support Scheme cost the government £1.9bn in October, while the Energy Price Guarantee was the main driver of a £1.1bn rise in subsidies.”

Tombs noted that the costs of the Energy Bills Relief Scheme for businesses was not included in October’s borrowing estimate, due to a lack of data.

“Social assistance payments also were £1.0bn higher than a year ago, reflecting the payment of some of the grants to help households with living costs announced in May.”

In equity markets, Harbour Energy was up 7.05%, BP added 6.52% and Shell gushed 4.84% higher as oil prices recovered, after Saudi Arabia denied a report that it and other OPEC countries were in talks about lifting output.

Brent crude futures were last up 2.1% on ICE at $89.29 per barrel, and the NYMEX quote for West Texas Intermediate was ahead 2.01% at $81.65.

“Saudi Arabia has rebuffed those suggestions with the energy minister Prince Abdulaziz bin Salman suggesting the complete opposite scenario was more likely and that another production cut could be on the cards,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“With the oil price hovering around $87 a barrel amid expectations of falling demand it does offer some relief for consumers and companies who have had to cope with painful price spikes in the spring and summer being passed on.”

BP got an added boost from an upgrade to ‘buy’ at Citi, which said it was its “key buy” in Europe along with Repsol.

Elsewhere, SSE was lifted 1.65% by an upgrade to ‘outperform’ at RBC Capital Markets, while ConvaTec Group reversed earlier gains after an initiation at ‘buy’ at Jefferies, closing down 1.03%.

Cranswick jumped 3.95% after the food producer said half-year profits fell, but posted a rise in sales as it worked to keep cost inflation under control.

Telecom Plus and Babcock International also gained after half-year results, ending the day up a respective 0.43% and 6.62%.

On the downside, Vodafone Group was knocked 3.17% lower by a downgrade to ‘underperform’ at Credit Suisse, while Severn Trent slipped 0.69% and building materials group CRH fell 1.33% after interim results.

TBC Bank Group tumbled 9.25% after the European Bank for Reconstruction & Development sold 850,000 shares in the company in a placing.

Energy services company Petrofac slumped 10.7% after chief executive Sami Iskander said he would leave the business at the end of March, to pursue other interests.

Petrofac said Tareq Kawash would be appointed CEO from 1 April, following an orderly handover, and would also be appointed as an executive director to the FTSE 250-listed group’s board.

Investment firm Petershill Partners slid 8.05%, even after reporting “strong” fundraising activity amid a “challenging environment” during the third quarter.

Reporting by Josh White for Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Abigail Townsend.

Market Movers

FTSE 100 (UKX) 7,452.84 1.03%
FTSE 250 (MCX) 19,422.37 0.05%
techMARK (TASX) 4,419.38 0.36%

FTSE 100 – Risers

Harbour Energy (HBR) 320.60p 7.05%
BP (BP.) 488.00p 6.52%
Entain (ENT) 1,365.00p 5.32%
Shell (SHEL) 2,382.50p 4.84%
Glencore (GLEN) 514.90p 3.63%
Frasers Group (FRAS) 852.00p 3.46%
Fresnillo (FRES) 886.00p 2.83%
JD Sports Fashion (JD.) 123.30p 2.66%
BAE Systems (BA.) 800.00p 2.30%
Rio Tinto (RIO) 5,387.00p 2.22%

FTSE 100 – Fallers

Airtel Africa (AAF) 115.60p -3.51%
Hargreaves Lansdown (HL.) 808.40p -3.42%
Vodafone Group (VOD) 95.00p -3.17%
Ocado Group (OCDO) 631.20p -2.17%
St James’s Place (STJ) 1,154.50p -2.04%
SEGRO (SGRO) 819.20p -1.85%
Schroders (SDR) 448.30p -1.67%
CRH (CDI) (CRH) 3,300.00p -1.33%
Intermediate Capital Group (ICP) 1,157.50p -1.32%
Croda International (CRDA) 6,828.00p -1.07%

FTSE 250 – Risers

Babcock International Group (BAB) 309.20p 6.62%
Oxford Instruments (OXIG) 2,185.00p 5.05%
Currys (CURY) 85.35p 4.09%
Cranswick (CWK) 3,208.00p 3.95%
Energean (ENOG) 1,420.00p 3.88%
Syncona Limited NPV (SYNC) 193.40p 3.53%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 91.40p 3.51%
Essentra (ESNT) 242.50p 3.41%
Synthomer (SYNT) 143.90p 3.23%
Kainos Group (KNOS) 1,733.00p 3.15%

FTSE 250 – Fallers

Petrofac Ltd. (PFC) 104.80p -11.71%
Wizz Air Holdings (WIZZ) 2,012.00p -9.57%
TBC Bank Group (TBCG) 2,060.00p -9.25%
Petershill Partners (PHLL) 180.80p -7.85%
Aston Martin Lagonda Global Holdings (AML) 121.95p -5.13%
Molten Ventures (GROW) 417.00p -4.62%
Liontrust Asset Management (LIO) 1,118.00p -3.62%
easyJet (EZJ) 375.90p -3.14%
Jupiter Fund Management (JUP) 120.70p -2.82%
Diploma (DPLM) 2,800.00p -2.57%

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