FTSE hit by inflation shock and China disappointment, GSK sells more of Haleon, BP makes interim CEO permanent and 888 says earnings to be at lower end of expectations

“Investors have had to rip up their game plan after UK inflation went in the wrong direction to support the narrative for interest rate cuts,” says Russ Mould, Investment Director at AJ Bell.

“Coming at 4% versus a market forecast of 3.8%, it’s still double the long-term target for the Bank of England and could act as the deciding factor for the Monetary Policy Committee to sit on their hands at their next vote and keep rates higher for longer.

“If that backdrop wasn’t harsh enough, Chinese GDP data showed a country still struggling to maintain high levels of economic growth. The economy expanded by 5.2% in the fourth quarter, below market forecasts of 5.3%. Naturally, that spooked investors in mining stocks for fear that commodities demand from the Asian superpower could weaken.

“A bad day for mining stocks typically means a bad day for the FTSE 100 given the heavy weighting of the sector in the index, and low and behold that has proved correct with Glencore topping the FTSE fallers.

“The nasty cocktail of higher inflation and commodity demand fears led the FTSE 100 to fall 1.4% in early trading, putting the index at lows not seen since November 2023. That means the UK blue chip index is down nearly 4% since late December, showing that the start of 2024 has been challenging for investors.

“Only five stocks managed to rise on the FTSE 100 in early trading on Wednesday, led by engineer IMI which was the beneficiary of a positive broker note.

“Worries about delays to interest rate cuts sent tremors across the UK market. Among the biggest fallers were stocks that lose out if interest rates stay high including housebuilders Persimmon and Barratt Developments, mortgage lenders NatWest and Lloyds, and tech-related names including Ocado and investment trust Scottish Mortgage.

“Housebuilders will be furious at the data release as there have recently been tentative signs of a pick-up in the property market and potential buyers slowly regaining confidence. Mortgage rates have been coming down which makes home loans more affordable for many individuals.

“Now banks, building societies and mortgage brokers are going to be reaching for their third cup of coffee as they once again have to stomach adjustments to mortgage pricing and potentially having to disappoint more hopeful borrowers who won’t be able to afford higher rates on home loans.”

GSK/Haleon

“Elsewhere on the market, GSK sold another chunk of shares in consumer health products group Haleon. While GSK is still left with a 4.2% stake, this is seen as tiny in the context of what it used to own and therefore the market will stop viewing it as a major share overhang for Haleon.

“However, the same doesn’t apply to Pfizer which still owns 32% of Haleon. It has already signalled plans to sell down those shares at some point so until that completes, investors will always have it at the back of their minds that there will be active selling in Haleon shares, albeit spaced out in chunks rather than a daily dribble on the market.”

BP

“The decision to appoint Murray Auchincloss as chief executive of BP on a permanent basis was greeted with the shrug it deserved by the market.

“There will be some disappointment about the failure to appoint an external candidate for the first time in its history to shake things up and revive a business which has trailed behind its US counterparts in recent years.

“Mr Auchincloss is a continuity candidate in that he was on the board as CFO under Bernard Looney when the oil major drew up its plan to retreat more rapidly from hydrocarbons than its industry peers and that he was appointed interim CEO when Mr Looney was sacked. As such, the board must be happy with this strategy, even if it was subsequently refined and the pace of the switch toward renewables and away from oil and gas was slowed down, and the idea is presumably that Mr Auchincloss can continue to implement it.

“Investors have, thus far, been less pleased than the board, given how BP’s shares underperformed those of Shell as well as its American and European peers during Mr Looney’s tenure. Nevertheless, they may welcome some degree of calm in the company’s boardroom, given that three of its past four CEOs did not depart at a time of their choosing.

“Mr Auchincloss will still be expected to put his own stamp on the business and will get his first opportunity to introduce himself to the market properly with the company’s full year and fourth quarter results on 6 February.”

888

“The latest update from William Hill owner 888 reveals the material impact of tighter regulation on the gambling sector. This will only become more of an issue as time goes on, given the direction of travel on the rules the industry faces.

“The good news is the company is ahead of schedule on taking costs out of the business, but the plan to increase marketing spend off the back of it and therefore push earnings to the lower end of the consensus range has gone down like a lead balloon with investors.

“To some extent 888 is in limbo until March when Per Widerström is set to deliver a full update on strategy alongside full year results. Some of the recent hires for the management team hint at how the business is shaping up – with the betting shops acquired as part of the William Hill deal increasingly sticking out like a sore thumb.

“The presence of former GVC bosses on the shareholder register brings with it some level of pressure on Widerström, even if their bid to take control of the business was stymied by an intervention from the Gambling Commission last summer.”

These articles are for information purposes only and are not a personal recommendation or advice.