Cooler CPI data brings ECB cut closer into view

(Alliance News) - London's FTSE 100 made a tepid start to the day on Thursday, though large-cap peers in Paris and Frankfurt rose, as another inflation reading from the euro area took some sting out of European Central Bank interest rate expectations.

Still to come on Thursday is an official inflation reading for the whole of the eurozone, while the latest US personal consumption expenditures data is also reported. The core PCE reading is the Federal Reserve's preferred inflationary measure. A cooler reading could bring forward expectations for when the first rate cut by the US central bank will be.

According to FXStreet cited consensus, the eurozone inflation rate will cool to 3.9% in November from 4.2% in October. The US core PCE index is expected to have risen 3.5% in October, abating from a 3.7% hike in September.

"That means we might see a draw between the euro and the dollar. Even though the USD optimism is increasingly being priced out, the dollar will presumably only come under limited (new) pressure as the PCE deflator is unlikely to surprise. The euro on the contrary might come under pressure as a result of the euro zone inflation data," Commerzbank analyst Antje Praefcke commented.

As far as equities go, early exchanges continued a theme seen on Wednesday, with the FTSE 100 underperforming.

The FTSE 100 index opened down 20.12 points, 0.3%, at 7,403.34. The CAC 40 and DAX 40, the blue-chip benchmarks in Paris and Frankfurt, were flat and 0.2% higher, however.

The FTSE 250 was down 114.80 points, 0.6%, at 18,352.78, and the AIM All-Share was down 0.62 of a point, 0.1%, at 714.91.

The Cboe UK 100 was down 0.4% at 738.17, the Cboe UK 250 lost 0.8% at 15,899.10, and the Cboe Small Companies rose 0.2% to 13,429.49.

In Asia on Thursday, the Nikkei 225 index in Tokyo closed up 0.5%. In China, the Shanghai Composite added 0.3%, while the Hang Seng index in Hong Kong also rose 0.3%. The S&P/ASX 200 in Sydney closed up 0.7%.

Sterling was unmoved at USD1.2673 on Thursday morning, from USD1.2674 late Wednesday afternoon. The euro fell to USD1.0924 from USD1.0966. Against the yen, the dollar bought JPY147.09, down from JPY147.36.

France's annual consumer inflation rate eased to 3.4% in November from 4.0% in October, according to Insee on Thursday. The data followed similarly cooler readings in Germany and Spain on Wednesday. It suggests the reading for the whole of the eurozone will follow this downward trend.

The eurozone reading is due at 1000 GMT, alongside some unemployment data from the single currency area.

The US PCE data is reported at 1330 GMT, the same time as the latest jobless claims reading is due.

Analysts at Deutsche Bank noted an ECB rate cut by April is "now fully priced in". As far as the Fed goes, a cut in May is fully priced in, analysts at Deutsche added.

"When it comes to market pricing, a Q1 rate cut has gone from being a complete out-of-consensus view only a month ago, to a serious proposition now. It will be fascinating to see what Mr Powell makes of all this tomorrow," analysts at the German investment bank added.

Brent oil was trading at USD83.11 a barrel early Thursday, up from USD81.80 late Wednesday afternoon.

SPI Asset Management analyst Stephen Innes commented: "Oil prices have risen in response to a Wall Street Journal report indicating that Saudi Arabia is advocating an additional 1 million barrels per day insurance production cut evenly distributed among Opec+ producers. This move is a measure to limit a projected supply overhang during the first quarter of 2024. The Opec+ alliance, comprising 23 nations, has been engaged in negotiations for deeper production cuts, and the proposed additional cut could be as significant as 1 million bpd, effective for the first three months of 2024."

BP rose 0.9%, among the best FTSE 100 performers, tracking the oil price higher.

Water utility shares were on the decline, however. Severn Trent fell 3.5%, United Utilities lost 1.2%, while FTSE 250-listed Pennon gave back 1.7%. Pennon had fallen 2.1% on Wednesday after lifting a spending forecast.

Dr Martens was the worst FTSE 250 performer, sliding 20%, after the boot maker reported a fall in half-year earnings and said a recovery in the key US market will take longer than it first expected.

In the half-year ended September 30, revenue declined 5.4% to GBP395.8 million from GBP418.6 million 12 months earlier. Pretax profit fell by 55% to GBP25.8 million from GBP57.9 million.

Its direct-to-consumer performance in Europe, Middle East & Africa and the Asia Pacific regions was "strong". However, Dr Martens grappled with "an increasingly difficult consumer environment" in the US.

"We have strengthened the Americas leadership team and they are taking action, including refocusing marketing and improving our ecommerce trading capabilities. It is likely, however, that given the challenging backdrop it will take longer to see an improvement in USA results than initially anticipated. Notwithstanding the clear challenges we face in the USA market we remain very confident in our iconic brand and the significant growth opportunity ahead of us," Chief Executive Officer Kenny Wilson explained.

Auction Technology slumped 13% after posting a sharp drop in annual profit due to higher finance costs and despite a rise in overall revenue.

The London-based online auction operator said the economic environment has become "more challenging", hurting growth in the second half of its financial year. However, it predicted continued revenue growth in the new year, helped by burgeoning value-added services.

Pretax profit was GBP7.1 million in the 12 months that ended September 30, down 24% from GBP9.3 million the year before. Revenue rose by 13% to GBP135.2 million from GBP119.8 million.

Lender Metro Bank added 8.0% as it set out more cost-cutting plans, which will see 20% of its workforce axed.

It is reviewing its policy of keeping branches open seven days a week. The lender said that while it is "committed to stores and the high street" it will look to improving its digital channels.

"The company is reviewing seven day opening and extended store hours across the store network and is in discussions with the FCA about the customer implications of any such changes. The company continues to seek sites in the North of England for new stores as previously communicated. Metro Bank will also take action to simplify its operations and selectively streamline lending to focus on relationship banking and maximise risk-adjusted returns on regulatory capital," it added.

These measures will trim its workforce by 20%. Back in October, it said it planned cut costs by GBP30 million per year. It added on Thursday that these cost cuts will now go deeper.

"After further evaluation of the cost base, Metro Bank has now identified potential cost savings of up to GBP50 million per year. Implementation of the cost reduction plan is expected to complete during the first quarter of 2024 and a GBP10-15 million one-off restructuring charge is expected in 2023, which is lower than previously anticipated," Metro Bank said.

Analysts at broker Peel Hunt commented: "We have argued that at the heart of Metro's profitability problem is its bloated expense base, and signs that it is now reevaluating this are positive in our view."

Gold was quoted at USD2,042.03 an ounce early Thursday morning, up from USD2,041.08 late Wednesday.

By Eric Cunha, Alliance News news editor

Comments and questions to [e-mail]

Copyright 2023 Alliance News Ltd. All Rights Reserved.