These five FTSE 100 dividend shares could be some of the best to watch next month. They are currently the highest yielding on the index.
Source Bloomberg
Indices Shares FTSE 100 Dividend Investment Dividend yield
Written by: Charles Archer | Financial Writer, London
The FTSE 100 may be continuing to underperform international indices, but the index nevertheless has risen by 2.3% year to date (excluding dividends) and nearly broke the symbolic 8,000-point barrier yesterday before correcting downwards.
FTSE 100 macroeconomics
In the recent budget, Chancellor Jeremy Hunt introduced the ‘British ISA,’ which when rolled out will allow UK-based investors an additional £5,000 allowance on top of the current £20,000, which can only be invested specifically in ‘UK companies.’
The government is trying to spur internal investment, in an attempt to stem UK delistings, the IPO drought, and continued private equity bids for ‘undervalued’ businesses listed in London.
On the macroeconomic front, the base rate remains at 5.25%, while CPI inflation stands at 3.4% and is expected to fall below 2% within the next few months. However, strong wage data and relatively low unemployment means inflation could start to rise again later on.
On the other hand, Bank of England Governor Andrew Bailey has advised that rate cuts are ‘on the way.’ But after Brexit, the pandemic, the inflation crisis, Russia’s invasion of Ukraine, Silicon Valley Bank and Credit Suisse, alongside several other black swans, investors may not be taking rate cuts for granted.
Then there’s the AI-fuelled surge of the US tech stocks to consider. This may be a sustainable rise given the tech advances at hand or may be a bubble that eventually bursts. If the latter, this excess capital may find itself within FTSE 100 dividend stocks until the storm blows over.
This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.
FTSE 100 dividend shares to watch
These shares are the highest yielding on the index as of 4 April 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.
Vodafone
British American Tobacco
Phoenix Group
M & G
Imperial Brands
Vodafone
Vodafone's recent Q3 results saw total organic revenue grew by 4.7%, a significant improvement on the 1.8% growth of a year ago. Meanwhile, global services revenue rose by 8.8% while the B2B division grew by 5% year-over-year.
The company remains one of the largest telecoms companies in Europe, and the current strategy may be delivering. For context, the all-important German sales rose by 0.3% in the quarter. However, the company is actually losing customers in the region, with the revenue growth driven by price increases.
The key risk could remain the debt mountain, which remains multiples of Vodafone’s market capitalisation. However, the FTSE 100 operator has agreed an €8 billion sale of Vodafone Italy to bolster cash reserves and also return €4 billion to investors via share buybacks.
CEO Margherita Della Valle enthuses that ‘Going forward, our businesses will be operating in growing telco markets - where we hold strong positions - enabling us to deliver predictable, stronger growth in Europe. This will be coupled with our acceleration in B2B, as we continue to take share in an expanding digital services market.’
Vodafone remains confident in previous guidance for future underlying earnings — and with a price to equity ratio of just 2 (despite this figure being affected by asset sales), it may be attractive to value investors.
Dividend Yield: 10.96%
British American Tobacco
British American Tobacco full-year results saw the FTSE 100 dividend company’s revenue fall by 1.3% at constant currency rates, though rise by 3.1% on an organic basis at constant rates. This was driven by ‘new categories’ growth with revenue from non-combustibles now worth 16.5% of group revenue.
CEO Tadeu Marroco enthuses that ‘2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment. New Categories delivered continued volume-led revenue growth and increased profitability.’
However, the FTSE 100 tobacco company will have to pivot fast, having written off £27.3 billion of its US brand portfolio after acknowledging they have ‘no long-term future.’ Compounding the weak combustibles growth, the UK recently announced a ban on disposable vapes which could hit BATS’ long-term ambitions in non-combustible categories — and is also imposing a specific vaping tax as well. This could hit margins if similar legislation is adopted more broadly.
Positively, the titan and competitor Philip Morris International have finally agreed an eight-year long resolution to long running patent disputes on their cigarette alternatives technology. And in addition to the elevated dividend, BATS is continuing with its share buyback programme, most recently buying 280,000 shares on 28 March that it plans to cancel.
Dividend Yield: 9.80%
Phoenix Group
Phoenix Group saw another excellent set of results in March, with total cash generation of more than £2 billion — in excess of its upgraded target of £1.8 billion for 2023. This included a significant benefit of circa £400 million from the previously announced part VII transfer of Standard Life and Phoenix Life.
And PHNX also generated just over £1.5 billion in incremental new business long-term cash generation, beating its self-imposed target two years early.
Despite the healthy dividend, the FTSE 100 insurer also maintains a strong balance sheet — a Solvency II surplus of £3.9 billion and a SII shareholder capital coverage ratio of 176%, towards the top end of its operating range of 140% to 180%.
The company now plans to reduce its debt pile by at least £500 million by the end of 2026 and recommended a 2.5% increase in its final 2023 dividend, bringing the total payout for the year to 52.65p. Phoenix also intends to grow its operating cash generation from £1.1 billion in 2023 to £1.4 billion in 2026.
CEO Andy Briggs notes that ‘Phoenix's vision is to be the UK's leading retirement savings and income business, and we are making great progress in delivering our strategy to achieve this, as our strong 2023 financial results demonstrate.’
Dividend Yield: 9.59%
M&G
M&G's recent full-year results saw adjusted operating profit before tax rise by 28% year-over-year to £797 million, reflecting ‘a resilient performance in Asset Management, and improved contribution from Life, Wealth and Corporate Centre.’
Accordingly, operating capital generation rose by 21% to £996 million, driven by strong underlying capital generation of £752 million. Over the course of 2022 and 2023, M&G generated £1.8 billion in operating capital — leaving the FTSE 100 company on course to achieve its three-year cumulative operating capital generation target of £2.5 billion by end of 2024.
The Shareholder Solvency II coverage ratio now stands at an impressive 203%, while the company announced a 2023 total ordinary dividend of 19.7p per share.
CEO Andrea Rossi enthuses that ‘This financial performance underscores the importance of our balanced and diversified business model, with strong growth achieved despite continued macroeconomic uncertainty… I am confident about the prospects for M&G as we remain focused on executing our strategic plan.’
Dividend Yield: 9.24%
Imperial Brands
Imperial Brands is the second FTSE 100 tobacco stock — and faces many of the same issues as BATS: regulatory clampdowns and changing consumer habits.
However in recent results, the company saw adjusted operating profit grow in line with its five year plan, including 10 basis points aggregate market share growth in its top-five priority combustible tobacco markets.
Further, next generation product net revenue rose by 26% — and increased by a whopping 40% in Europe. Accordingly, the dividend was hiked by 4% alongside a 10% increase in share buybacks, leaving investors with total FY24 returns of £2.4 billion.
CEO Stefan Bomhard enthuses that ‘means we are well placed to deliver on our commitment to enhance returns to investors, with increases to both our dividend and buyback programme. Looking ahead, we expect the continuing benefits of our transformation to enable a further acceleration in our adjusted operating profit growth in the final two years of our five-year strategy.’
Like BATS, Imperial is continuing to buy back shares, and recently kicked off the second half of its previously announced £1.1 billion program.
Dividend Yield: 8.34%
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Technical overview continues to struggle on the daily time frame even as it matches the weekly’s ‘bull average’, while traders both large and small are in majority short territory.
Source: Bloomberg
Indices Shares Nasdaq Inflation Nasdaq-100 Purchasing Managers' Index
Written by: Monte Safieddine | Market analyst, Dubai
Publication date: Thursday 04 April 2024 07:18
FOMC commentary and rate cut speculations
There was plenty of FOMC (Federal Open Market Committee) members speaking. The attention was largely on Chairman Powell. He did not stick to a timeline on rate cuts, stating it's "too soon to say whether the recent readings represent more than just a bump" when referring to inflation. Bostic mentioned a potential rate cut, but only in the fourth quarter of this year. Kugler expects the disinflationary path to continue but did not specify when the first interest rate reduction in the current cycle would start. Barr commented on the resilience of the banking system.
Economic data and market reactions
Market pricing (CME's FedWatch) doesn’t need much to no longer anticipate a rate cut this June. It is pricing in fewer cuts next year, aiding the ‘higher for longer’ narrative. As for Treasury yields, they finished the session little changed but edged higher on the further end and slightly so in real terms. Breakeven inflation rates are holding at/near recent higher levels.
Economic data out of the US showed the services PMI (Purchasing Managers’ Index) for March was a miss, dropping to 51.4. It remains in expansionary territory according to ISM (Institute for Supply Management). Its employment component is still sub-50. New orders dropped to 54.4, and prices paid decreased from 58.6 to 53.4. S&P Global's survey held at 51.7.
Before this, ADP's non-farm estimate showed growth of 184K for March, besting forecasts. This comes prior to tomorrow's market-moving Non-Farm Payrolls reading, expected to be around 200K. As for today, the focus is on the weekly claims and trade data for February. More FOMC members are speaking today and tomorrow.
Wall Street: winners, losers, and surprise moves
Sector performance by the close put communication on top. There were small gains for both consumer discretionary and tech. The results were not necessarily strong but helped the tech-heavy Nasdaq 100 (US Tech 100 on IG’s trading app and platform) avoid a red finish. This contrasted with the Dow 30, and in percentage terms, Nasdaq did better than the S&P 500.
Component performance by the close put Intel at the very bottom, with foundry business losses mounting. At the top was Micron Technology, with Warner Bros Discovery and Netflix not far off. In a session where (non-component) Disney was in retreat, this occurred after Peltz's Trian Partners failed to get a seat on the company's board.
Nasdaq technical analysis, overview, strategies, and levels
When it comes to its price action, it lacked a play yesterday. The intraday highs and lows were within Wednesday’s 1st levels, keeping both conformist and contrarian strategies at bay. Key technical indicators are mostly neutral in the daily time frame. They are largely positive on the weekly. Price action within a positive channel has kept its overview ‘bull average’. Here, buying on dips comes with caution for those in the conformist camp.
Source: IG
IG client and CoT sentiment for the Nasdaq
As for sentiment, slight price gains have naturally taken the retail traders' majority sell bias slightly higher, to 59% this morning from 57% yesterday. They continue to hold a significant short position in both the S&P 500 (at 68%) and the Dow 30 (at 65%).
CoT speculators recently shifted from a slight buy at 54% to a slight sell at 53%, according to last Friday’s report, where positioning is as of last Tuesday. We’ll get the latest figures tomorrow to see whether they’ve opted to remain in majority short territory.
Source: IG
Nasdaq chart with retail and institutional sentiment
Source: IG
*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 6am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
The holiday-shortened week may see a lighter front on the economic calendar, but nevertheless, eyes will be on a key US inflation data release this week, the US core PCE price index, to lay the path for the Fed’s rate outlook.
Source: Bloomberg
Indices Inflation Federal Reserve Personal consumption expenditures price index United States Technical analysis
Written by: Yeap Jun Rong | Market Strategist, Singapore
Publication date: Tuesday 26 March 2024
Holiday-shortened week to leave US inflation data on watch
The holiday-shortened week may see a lighter front on the economic calendar, but nevertheless, eyes will be on a key US inflation data release this week, the US core Personal Consumption Expenditures (PCE) price index, to lay the path for the Federal Reserve (Fed)’s rate outlook. Major US indices have been broadly taking a breather into the new week – perhaps an expected reaction to the lack of major data, but with traction still found in selected stocks on earning releases. Nonetheless, Wall Street has been remarkably resilient this year, shrugging off the usual weaker seasonality for March and the stronger US dollar to hover around fresh record highs.
What to watch: US core PCE price index
At the recent Fed meeting, policymakers have revealed some tolerance for slightly higher inflation, with Fed Chair Jerome Powell noting that higher inflation data lately has not changed its overall trend downward and that the path of inflation towards its 2% target will be a “bumpy road”.
As such, further easing in pricing pressures ahead will provide validation for the Fed’s decision to stick to its path of three rate cuts through 2024. The US core PCE price index, which is the Fed’s preferred inflation gauge, is expected to stay unchanged at 2.8% year-on-year. However, month-on-month, it is expected to tick lower to 0.3% from the previous 0.4% in January. On the other hand, the headline PCE price index is expected to tick slightly higher to 2.5% from a year ago, up from the previous 2.4%.
S&P 500 technical analysis: Upward trend resumes
The S&P 500 continues to trade within a rising channel pattern, with the formation of new higher high and higher lows validating the prevailing upward trend. For now, it seems that the bullish bias will remain, unless the lower channel trendline support gives way to prompt a deeper retracement. Its daily relative strength index (RSI) has also been trading above the key 50 level for the fourth straight month, reflecting buyers in control. On the daily chart, the index has been trading above its Ichimoku Cloud as well, alongside various moving averages (MAs) (50-day, 100-day, 200-day). The only catch is that divergences have occurred at the daily RSI (lower highs on index’s peaks), but the divergence has been playing out since the start of the year and buyers have been taking any opportunities for weakness to buy any dip.
Source: IG charts
Nasdaq 100 technical analysis: Another touch of record high territory
The Nasdaq 100 index has gained some ground after the recent Fed meeting, tapping on the weaker US Treasury yields and continued traction around the artificial intelligence (AI) hype to touch a new record high at around the 18,457 level. Its daily RSI has also been trading above the 50 level since November last year, with buyers successfully defending the key level in mid-March to keep the near-term upward bias intact. Ahead, a continuation of its prevailing upward trend may leave the 19,000 level on watch next, while on the downside, an upward trendline may be immediate support to hold around the 17,800-18,000 level.
Source: IG charts
Sector performance
Sector performance last week revealed outperformance in rate-sensitive growth sectors, as market participants took comfort in the view that the Fed is willing to tolerate some inflation persistence and continue to look forward to impending rate cuts over the coming months. The communication services sector was up 4.8%, with strength in Alphabet (+1.8%) and Meta (+1.2%), while the technology sector was once again heavy-lifted by Nvidia (+7.4%). Notably, in the semiconductor space, Micron surged 24.9% for the week, Broadcom was up 9.2% but AMD was dragged 6.3% lower. Other “Magnificent Seven” stocks were more mixed, with Apple (-1.7%) in the red while Microsoft (+1.3%) and Amazon (+3.0%) offered support. It has broadly been another week of risk-taking, with ten out of 11 S&P 500 sectors seeing gains, while defensives sector (consumer staples, healthcare) saw less traction from market participants.
Source: Refinitiv
Source: Refinitiv
Source: Refinitiv *Note: The data is from 19th – 25th March 2024.
Source: Refinitiv *Note: The data is from 19th – 25th March 2024.
Source: Refinitiv *Note: The data is from 19th – 25th March 2024.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
FTSE hits a 12-month high after the Bank of England's dovish pivot sparks rate cut expectations, shifting focus to German consumer confidence data.
Source: Bloomberg
Indices Shares Consumer confidence FTSE 100 Technical analysis DAX
Written by: Tony Sycamore | Market Analyst, Australia
Publication date: Tuesday 26 March 2024
Last week, the FTSE reached a 12-month peak, breaking free from its long-standing range following a dovish surprise at the Bank of England (BoE) meeting.
While the BoE kept rates on hold at 5.25% as widely expected, a dovish pivot was provided as two BoE members, Mann and Haskel, who had voted for hikes in February, removed their hawkish dissent.
The dovish pivot implies the bar to BoE rate cuts is much lower than previously thought and has resulted in the interest rate market pulling forward, the expected timing of the BoE's first rate cut to June (17 of 25bp priced) from August. There is currently a total of 72 bp of cuts priced for 2024, up from 66 pre-last week's BoE meeting.
With a light data calendar this week in the UK and Europe, the focus will be on the release of German consumer confidence data this evening.
What is expected from the GFK Consumer Confidence survey (Tuesday, 26 March at 6pm)
Heading into March, German Consumer Confidence increased to -29 from an eleven-month low of -29.6. Expectations of ECB rate cuts are starting to filter through into some business sentiment surveys, such as the ZEW, which recently jumped to its highest level in two years.
This impact, along with slowing inflation and rising household incomes, should also be observed in upcoming consumer confidence surveys. However as can be viewed on the chart below, a good deal of improvement is required before consumer confidence returns to positive territory.
GFK consumer confidence chart
Source: TradingEconomics
FTSE technical analysis
After many weeks of discussing the potential for the FTSE to break higher, it finally hit the after-burners last week, surging 2.63% to a 12-month high of 7961.
From here, we expect dip buyers to be active ahead of support, formerly resistance, in the 7760/20 area. We are looking for the FTSE to test and break its all-time high of 8047 before a push towards 8250.
Aware that if the FTSE were to lose support at 7760/20 on a sustained basis, it would warn that the break higher has failed and likely see a retest of the 200-day moving average at 7550.
FTSE daily chart
Source: TradingView
DAX technical analysis
The DAX has had a memorable month, gaining 4.85% in March. This makes it a candidate for some month-end/quarter-end rebalancing selling flows this week. While there are many moving parts to rebalancing, typically, it involves selling the best-performing stock markets, which for March would be Korea, Germany, Japan, and the US, and buying the laggards.
Weakness should be well supported initially at 18,000/17,900. However, the more important area of support is at 17,650, coming from the October 14,630 low. Providing this level holds, the uptrend remains intact and with-it expectations of a push towards 18,500.
DAX daily chart
Source: TradingView
Source: TradingView. The figures stated are as of 26 March 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
The Week Ahead
Read about upcoming market-moving events and plan your trading week
ESTABLISHED 1974313,000+ CLIENTS WORLDWIDE17,000+ MARKETS
Week commencing 25 March
Chris Beauchamp's insight
After the central bank action of last week, this week is quieter, with mostly second-tier data such as durable goods orders and US consumer confidence. Kingfisher, Ocado and ASOS are key companies to watch for this week for UK investors.
Economic reports
Weekly view
Monday
12.30pm – US Chicago Fed index (February): index expected to fall to -0.9. Markets to watch: USD crosses
3pm – US new home sales (February): expected to rise 3% MoM. Markets to watch: USD crosses
11.30pm – Australian Westpac consumer confidence (March): index expected to fall to 84.6. Markets to watch: AUD crosses
Tuesday
7am – German GfK consumer confidence (April): previous reading -29. Markets to watch: EUR crosses
12.30pm – US durable goods orders (February): orders forecast to rise 1.7% MoM. Markets to watch: USD crosses
2pm – US consumer confidence (March): index expected to hold at 106.7. Markets to watch: USD crosses
Wednesday
3.30pm – US EIA crude oil inventories (w/e 22 March): preceding week saw stockpiles fall by 1.95 million barrels. Markets to watch: Brent, WTI
Thursday
8.55am – German unemployment data (March): rate to rise to 6%. Markets to watch: EUR crosses
12.30pm – US initial jobless claims (w/e 23 March): claims expected to rise to 212K from 210K. Markets to watch: USD crosses
1.45pm – US Chicago PMI (March): index forecast to rise to 45. Markets to watch: USD crosses
2pm – US pending home sales (February): sales expected to rise 2.7% MoM. Markets to watch: USD crosses
11.30pm – Japan unemployment rate (February): expected to hold at 2.4%. Markets to watch: JPY crosses
Friday
Good Friday – US, UK and German Markets closed
1.30pm – US PCE price index (February): prices expected to rise 0.4% MoM from 0.3%, and 2.4% YoY, in line with last month. Markets to watch: US indices, USD crosses
3.30pm – Fed chair Powell speaks. Markets to watch: USD crosses
Company announcements
Monday
25 March
Tuesday
26 March
Wednesday
27 March
Thursday
28 March
Friday
29 March
Full-year earnings
Kingfisher
Flutter,
John Wood Group,
AG Barr,
Fevertree
EnQuest
Half/ Quarterly earnings
Carnival
Smiths Group,
Bellway
Nanoco,
H&M
Walgreens Boots Alliance
Trading update*
Pennon,
Pets at Home
Ocado
ASOS
Dividends
FTSE 100: Smith & Nephew, Taylor Wimpey, Melrose, Prudential, M&G
FTSE 250: Moneysupermarket.com, Travis Perkins, Volution, Ithaca Energy, Primary Health Properties
Dividends are applied after the close of the previous day’s session for each market. So, for example, the FTSE 100 goes ex-dividend on a Thursday, but the adjustment is applied at the close of the previous day, e.g. Wednesday. The table below shows the days in which the adjustment is applied, not the ex-dividend days.
Index adjustments
Monday
25 March
Tuesday
26 March
Wednesday
27 March
Thursday
28 March
Friday
29 March
Monday
1 April
FTSE 100
4.70
Australia 200
0.8
0.6
0.2
Wall Street
US 500
0.63
0.16
0.02
0.15
Nasdaq
1.15
0.17
1.62
Netherlands 25
0.25
EU Stocks 50
China H-Shares
Singapore Blue Chip
Hong Kong HS50
South Africa 40
190
Italy 40
Japan 225
266.4
Retail traders’ majority sell sentiment drops out of heavy short territory, while CoT speculators shift to the middle from a previous slight buy bias.
Source: Bloomberg
Indices Nasdaq Futures contract Technical analysis Nasdaq-100 Recession
Written by: Monte Safieddine | Market analyst, Dubai
Publication date: Thursday 14 March 2024 07:16
Tech sector retreats; Tesla suffers a downgrade
Most sectors managed to end yesterday's session in the green, yet tech found itself leading the pack in the red this time. While consumer discretionary experienced limited losses and communication saw modest gains, the overall result was a downturn for the tech-heavy Nasdaq 100. In percentage terms, it suffered more than the S&P 500 and contrasted sharply with the Dow 30's positive finish. Closing performance highlighted a decline in Nvidia's share price, partially undoing Tuesday's impressive gains, with Tesla facing even larger losses following a downgrade by Wells Fargo.
The US offered little in terms of economic data yesterday, though the weekly mortgage applications, reported by the MBA, showed a notable increase of 7.1%. However, the economic calendar is set to become busier later today with the release of producer prices and retail sales for February, alongside the weekly claims and January's business inventories.
Treasury yields ended the session higher, reflecting positively in real terms after a strong 30-year auction (following the previous night's disappointing 10-year auction). Market pricing (CME's FedWatch) continues to indicate a hold-hold-cut trajectory for the Federal Reserve's meetings in March, May, and June.
Nasdaq Technical analysis, overview, strategies, and levels
The Nasdaq's previous first Support level held firm on several occasions, ultimately benefiting conformist buy-after-significant reversal strategies as the key level was maintained, providing more advantage than contrarian sell-breakout strategies. Despite yesterday's movements, the Nasdaq's 'bull average' technical overview remains intact. However, price-indicator proximity on the daily timeframe has led to a few at-risk technical indicators adjusting somewhat effortlessly.
Source: IG
IG client and CoT sentiment for the Nasdaq
In terms of sentiment, retail traders have moved away from a heavy sell stance, with shorts capitalising on yesterday's price drop to decrease their sell bias to 61% from 66% in the morning. The shift is particularly significant among institutional traders, as CoT speculators moved from a slight buy bias of 54% to a neutral stance in the latest report released last Friday. This marks the first instance of a net sell bias among them since October of the previous year.
Source: IG
Nasdaq chart with retail and institutional sentiment
Source: IG
*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Recent data has laid the grounds for some speculations for an end to its NIRP as soon as the upcoming meeting, with the odds of a March rate move now seen as almost a coin flip.
Source: Bloomberg
Forex Indices Japanese yen Interest rate Japan Inflation
Written by: Yeap Jun Rong | Market Strategist, Singapore
Publication date: Wednesday 13 March 2024 09:01
What to expect at the upcoming Bank of Japan (BoJ) meeting?
At the previous meeting, the BoJ discussed the possibility of exiting from its negative interest rate policy (NIRP), with growing views among policymakers that the wage and inflation conditions for a policy pivot have ‘increasingly been met’. Since then, economic data has further validated the BoJ’s stance, with markets witnessing higher-than-expected Japan’s wage growth for January (2.0% versus 1.3% consensus), while Japan’s economy managed to skirt a technical recession in its updated 4Q gross domestic product (GDP).
That has laid the grounds for some speculations for an end to its NIRP as soon as the upcoming meeting, with the odds of a March rate move now seen as almost a coin flip. This suggests that either outcome from the BoJ meeting next week may likely trigger a huge wave of volatility for both the JPY and the Nikkei, as divided rate expectations realign.
Any policy inaction or indication of little urgency from the BoJ could suggest that markets have gotten ahead of themselves, which may tame hawkish rate bets and potentially weigh on the JPY. But given that policy normalisation remains a story of when and not if, any near-term pullback could still be a temporary move. The Nikkei has also seen an outsized downside reaction to any slightest hint of a policy pivot lately, declining by more than 5% over the past week. With that, any delayed unwinding of the BoJ’s ultra-accommodative policy settings will be well-received by equity investors, at least in the near term.
Source: Refinitiv, as of 12 March 2024.
BoJ Governor’s language, policy guidance on close watch as well
Economic projections from the BoJ will be absent at the upcoming meeting, which will leave rate expectations highly sensitive to the Governor’s language at the press conference. His latest comments have offered mixed views by acknowledging that the economy was recovering but weak consumption remains a concern, which will leave markets seeking for more clarity on how the BoJ sees current economic climate.
Focus will also be on how policymakers will address its current yield curve control policy, although subdued moves in the 10-year Japanese government bonds (JGB) VIX seems to suggest little surprise being priced for the upcoming meeting.
The BoJ has also previously emphasised the importance of the spring wage negotiations (Shunto) in its policy thinking and preliminary data has been encouraging thus far. Unions demanded average wage increase of 5.85% versus 4.5% last year, the highest in 30 years. Along with Japan’s core inflation touching the BoJ's 2% target in January, how all of these will feed into the BoJ’s conditions of ‘sustainable and stable inflation, accompanied by wage increases’ will be sought.
USD/JPY: Near-term bearish bias remain
Recent narrowing in the US-Japan bond yield differentials has pushed the USD/JPY to its one-month low, following a brief consolidation around its key psychological 150.00 level. A switch to near-term bearish momentum seems to be in place, with the daily relative strength index (RSI) dipping below the key 50 level for the first time this year, while its daily moving average convergence/divergence (MACD) eyes for a potential cross into negative territory.
Since its January 2023 low, retracements in the USD/JPY within its broader upward trend has been met with retracements at the 50% or 76.4% Fibonacci levels. Therefore, given recent retracement, potential support to watch may be at the 145.54 level, where a 50 % Fibonacci retracement level coincides with the lower edge of its daily Ichimoku cloud support.
Source: TradingView
Source: IG charts
Nikkei 225: Dipped to two-week low as hawkish bets brew
The Nikkei 225 has come under some downward pressure lately, as speculations brew for a quicker BoJ’s stimulus exit. The index has dipped more than 5% to its two-week low, although one may note that it is still up more than 16% year-to-date. For now, its daily RSI is back to retest its key 50 level for the first time since January this year, which may have to see some defending from buyers.
Ahead, immediate support to watch may potentially be at the 38,200 level, where a 23.6% Fibonacci retracement level stands. The broader upward trend may remain, with the index still trading above its daily Ichimoku cloud support, along with various moving averages (50-day, 100-day, 200-day).
Source: IG charts
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
These five FTSE 100 dividend shares could be some of the best to watch next month. They are currently the highest yielding on the index.
Source: Bloomberg
Indices Shares FTSE 100 Dividend Stock Dividend yield
Written by: Charles Archer | Financial Writer, London
The FTSE 100 continues to underperform comparable international indices, sliding by 0.6% year-to-date to 7,673 points. While investors in some of the high yielding dividend stocks on the index have of course benefitted from company payouts, improving the life of the London markets has been a central theme of 2024.
In today’s budget, Chancellor Jeremy Hunt has — among many measures — introduced the ‘British ISA,’ which will allow UK-based investors an additional £5,000 allowance on top of the current £20,000, which can only be invested specifically in ‘UK companies.’
Quite how this might work, and how long it might be until the account is widely available, will be common questions over the next few days. But the key takeaway is that the government is trying to spur internal investment, in an attempt to stem UK delistings, the IPO drought, and continued private equity bids for ‘undervalued’ businesses listed in London.
On the macroeconomic front, the base rate remains at 5.25%, while CPI inflation stands at 4%, double the official target. While inflation is now expected to hit 2% within the next few months, the Bank of England has warned it will then resurge due to moving comparators with energy bills. While rates may start to fall later in the calendar year, Governor Andrew Bailey has previously warned he wishes to see sustained low inflation before beginning cuts.
This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.
Best FTSE 100 dividend stocks to watch
These shares are the highest yielding on the index as of 1 March 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.
Vodafone
Phoenix Group
British American Tobacco
Imperial Brands
M & G
Vodafone
Vodafone's recent Q3 results saw total organic revenue grew by 4.7%, a significant improvement on the 1.8% growth of a year ago. Meanwhile, global services revenue rose by 8.8% while the B2B division grew by 5% year-over-year.
The company remains one of the largest telecoms companies in Europe, and the current strategy may be delivering. For context, the all-important German sales rose by 0.3% in the quarter. However, the company is actually losing customers in the region, with the revenue growth driven by price increases.
The key risk could remain the debt mountain, which remains multiples of Vodafone’s market capitalisation. However, the company has made several asset disposals to counter this risk — and is actively considering further sales of its Italian arm.
Vodafone remains confident in previous guidance for future underlying earnings — and with a price to equity ratio of just 2 (despite this figure being affected by asset sales), it may be attractive to value investors.
Dividend Yield: 10.94%
Phoenix Group
Phoenix Group's recent trading update saw the company deliver £1.5 billion of new business long-term cash generation in 2023, achieving its 2025 target much earlier than expected.
For context, new business net fund inflows rose by circa 80% year-on-year to £7 billion, driven by improved performances at the Standard Life branded Pension & Savings and Retirement Solutions segments.
CEO Andy Briggs remains ‘delighted that Phoenix Group has delivered another year of strong organic growth in 2023, with increased new business net fund flows supporting us… we have achieved our 2025 new business long-term cash target two years early, reflecting the focus and investment we have put into our growth strategy.’
Within pensions and savings, Phoenix’s workplace business saw net fund flows nearly double year-over-year to circa £4.5 billion. According to Briggs, this included ‘the transfer of one of the largest workplace schemes tendered in the UK market in recent years.’
Dividend Yield: 10.49%
British American Tobacco
British American Tobacco full-year results saw the FTSE 100 dividend company’s revenue fall by 1.3% at constant currency rates, though rise by 3.1% on an organic basis at constant rates. This was driven by ‘new categories’ growth with revenue from non-combustibles now worth 16.5% of group revenue.
CEO Tadeu Marroco enthuses that ‘2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment. New Categories delivered continued volume-led revenue growth and increased profitability.’
However, the FTSE 100 tobacco company will have to pivot fast, having written off £27.3 billion of its US brand portfolio after acknowledging they have ‘no long-term future.’ Compounding the weak combustibles growth, the UK recently announced a ban on disposable vapes which could hit BATS’ long-term ambitions in non-combustible categories — and is also imposing a specific vaping tax as well. This could hit margins if similar legislation is adopted more broadly.
Positively, the titan and competitor Philip Morris International have finally agreed an eight-year long resolution to long running patent disputes on their cigarette alternatives technology.
Dividend Yield: 10.22%
Imperial Brands
Imperial Brands is the second FTSE 100 tobacco stock — and faces many of the same issues as BATS: regulatory clampdowns and changing consumer habits.
However in recent results, the company saw adjusted operating profit grow in line with its five year plan, including 10 basis points aggregate market share growth in its top-five priority combustible tobacco markets.
Further, next generation product net revenue rose by 26% — and increased by a whopping 40% in Europe. Accordingly, the dividend was hiked by 4% alongside a 10% increase in share buybacks, leaving investors with total FY24 returns of £2.4 billion.
CEO Stefan Bomhard enthuses that ‘means we are well placed to deliver on our commitment to enhance returns to investors, with increases to both our dividend and buyback programme. Looking ahead, we expect the continuing benefits of our transformation to enable a further acceleration in our adjusted operating profit growth in the final two years of our five-year strategy.’
Dividend Yield: 8.81%
M&G
In September’s half-year results, M&G increased its interim dividend by 5% to 6.5p per share. For context, it saw positive net client inflows of £700 million — remaining positive into a third consecutive year. M&G also saw operating capital generation rise by 17% year-over-year to £505 million, driving adjusted operating profit 31% higher to £390 million.
M&G plans to generate operating capital amounting to £2.5 billion by the end of 2024 and had achieved more than 50% of this three-year target, 18 months in. Moreover, its shareholder Solvency II Coverage ratio remains at the top end of the target range at 199%, with no defaults in the first half of the year.
CEO Andrea Rossi enthused that the results ‘demonstrate the underlying strength of our business model, the resilience of our balance sheet… we have made progress against all three pillars of the strategy that we launched in March.’
Full-year results will be released on 21 March 2024.
Dividend Yield: 8.71%
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Greggs, ITV, Ocado, Greencoat UK Wind and Direct Line could be the best FSTE 250 shares to watch next month. These shares have been selected for recent market news.
Source: Bloomberg
Indices Shares Dividend FTSE 100 United Kingdom Ocado
Written by: Charles Archer | Financial Writer, London
The FTSE 250 is now essentially flat, both over the past year and year-to-date, at 19,592 points. Unlike its older brother — the FTSE 100, whose constituents derive the majority of their income from overseas — the FTSE 250 is far more domestically focused.
And the economic trajectory of the UK remains perhaps as uncertain as it looked throughout 2023. CPI inflation remains at 4% and is expected to fall to 2% relatively soon — though analysts then expect the crucial measure to start rising thereafter.
With the base rate at 5.25%, investors are looking to rate cuts in 2024. However, Bank of England Governor Andrew Bailey has previously noted that ‘we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.’ This implies rate cuts may come later than the market currently expects — though central banks do pivot as evidence changes.
With an election likely coming within the next few months after the budget which saw another, potentially unaffordable long-term, two percentage points cut from National Insurance, the winds of political and economic change continue to blow for the best FTSE 250 shares.
Best FTSE 250 shares to watch
These shares have been selected for recent market news.
Greggs
ITV
Ocado
Greencoat UK Wind
Direct Line
Greggs
Greggs has once again impressed the market — full-year results saw the baker’s profit before tax rise by 27% year-over-year to £188.3 million — with a year-end cash position of £195.3 million. Accordingly, the FTSE 250 operator is paying a 40p per share special dividend on top of the ordinary 46p special dividend.
The company opened a record 220 new shops in 2023, a net increase of 145 to 2,473 locations. And looking forward, it expects to open between 140 and 160 net shops in 2024, with a target to have more than 3,000 Greggs locations open by 2026.
With inflationary pressures ‘reducing,’ the company also saw total sales rise by 19.6% year-over-year to £1.8 billion. CEO Roisin Currie enthused that ‘we are very much on track to deliver our bold five-year growth plan to double sales by 2026 and to have significantly more than 3,000 shops in the UK over the longer term.’
ITV
ITV shares have jumped a couple of times recently. To start with, it announced that it has sold its stake in BritBox to BBC Studies for £255 million — with the £235 million net of loan repayments and tax to be used to fund share buybacks.
Then the media company delivered mixed full-year results; 2023 revenue fell by 2% to £4.3 billion as advertising revenue dipped by 8% to £1.6 billion. Accordingly, pre-tax profits crashed by 41% to just £396 million — with the ‘challenging advertising market’ blamed for the financial adversity.
However, production arm ITV Studios saw revenue rise by 4% to a record £2.2 billion — while adjusted EBITDA increased by 10% to £286 million. And having disposed of BritBox, investors were also cheered by growth in ITVX.
And the company is also delivering on its cost cutting promises. It had originally planned to deliver £150 million of savings by 2026 and hit £130 million by the end of 2023. At the end of this calendar year, ITV expects to have generated annualised gross savings of al least £50 million per annum.
Ocado
Ocado also enjoyed some mixed results; adjusted earnings came in at £51.6 million, up from a £74.1 million loss in 2022. Importantly, this was driven by a maiden £15.4 million underlying profit from Ocado’s Technology Solutions segment — where the investment in robot-operated warehousing is finally delivering. Indeed, CEO Tim Steiner noted that opening these customer fulfilment centres were key to cost efficiencies.
The Joint Venture with Marks & Spencer — which is now subject to some legal issues — returned to positive adjusted EBITDA of £10.4 million.
However, the FTSE 250 company still generated a loss before tax of £393.6 million — while a £100 million improvement, this includes the £187 million settlement received from Sweden’s AutoStore. While Steiner argues, perhaps fairly, that the business has made ‘tangible steps forward,’ there remains some way to go to group profitability.
Greencoat UK Wind
Greencoat UK Wind has delivered strong results; increasing its dividend to 10p per share against a target of 8.76p, and informing investors it is now confident it will pay the same dividend in 2024.
As one of the UK’s largest windfarm operators — it generated 1.5% of total UK demand last year — the trust saw total shareholder return hit 5.4%. On the other hand, net asset value fell by 3p per share to 164.1p, in common with many renewable energy trusts. But cash generate hit £405 million — and the dividend is covered more than two times over.
Chair Lucinda Riches enthuses that ‘with our continuing strong cash flow and dividend cover, we can confidently target a dividend of 10p per share with respect to 2024, extending our track record of attractive dividends and returns. We are now delivering net returns to investors of 10% on NAV, and we remain confident in our ability to continue to meet our objectives of dividend growth in line with RPI and capital preservation in real terms.’
The company invested £821 million into windfarms in the year, increasing its net generating capacity by 397MW and taking the gross value of its portfolio to some £6.2 billion.
Direct Line
Direct Line shares recently surged after reports that Belgium-based insurer Ageas has made a bid for the FTSE 250 company. While management has rejected the advance, it is the latest in a line of potentially undervalued UK companies which have received offers in the recent past — including Hotel Chocolat and Currys.
Indeed, Ageas is potentially considering a follow-up bid worth some £3.1 billion. For context, Direct Line has suffered through several profit warnings and a CEO exit in 2023. But recent quarterly results may demonstrate an improvement in the business, with motor insurance growing by some 115%.
And the company is shortly set to welcome ex-Aviva stalwart Adam Winslow as CEO — though if the takeover occurs, this may be a moot appointment before long.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
The Week Ahead
Read about upcoming market-moving events and plan your trading week
ESTABLISHED 1974313,000+ CLIENTS WORLDWIDE17,000+ MARKETS
Week commencing 11 March
Chris Beauchamp's insight
US consumer price index (CPI) data dominates the week, as investors await the latest set of price figures for the US economy and assess its impact on the Federal Reserve bank's (Fed) moves in coming meetings. UK employment data is also worth watching, along with full-year figures from housebuilder Persimmon. Please note: US Daylight Savings Time begins 10 March, so all US data is one hour earlier for UK traders.
Economic reports
Weekly view
Monday
None
Tuesday
12.30am – Australia NAB business confidence (February): index forecast to fall to -1 from 1. Markets to watch: AUD crosses
7am – UK employment data (January): unemployment rate to hold at 3.8% and average earnings expected to rise 5.8% for the three months to January, in line with December. Markets to watch: GBP crosses
12.30pm – US CPI (February): prices expected to rise 0.3% month on month (MoM) and 3.1% year-over-year (YoY), from 0.4% and 3.1% respectively. Core CPI forecast to rise 0.4% MoM and 3.9% YoY, compared to 0.3% and 3.7%. Markets to watch: US indices, USD crosses
Wednesday
7am – UK GDP (January): growth expected to be 0% in January, compared to 0.1% in December. Markets to watch: GBP crosses
2.30pm – US EIA crude oil inventories (w/e 8 March): Markets to watch: Brent, WTI
Thursday
12.30pm – US initial jobless claims (w/e 9 March), PPI, retail sales (February): claims …. while producer price index (PPI) expected to rise 0.3% MoM, in line with January. Retail sales to rebound 0.3% in February from January’s 0.8% fall. Markets to watch: USD crosses
Friday
12.30pm – US Empire State manufacturing index (March): index forecast to rise to 10 from -2.4. Markets to watch: USD crosses
2pm – US Michigan consumer confidence (March, preliminary): index to rise to 78 from 76.9. Markets to watch: US crosses
Company announcements
Monday
11 March
Tuesday
12 March
Wednesday
13 March
Thursday
14 March
Friday
15 March
Full-year earnings
Persimmon,
Domino's Pizza
Metro Bank,
Balfour Beatty,
Volkswagen
Savills,
Vistry
Half/ Quarterly earnings
Oracle
Adobe
Trading update*
Assoc. British Foods
AO World
Moonpig
Berkeley Group
Dividends
FTSE 100: NatWest, Segro, Anglo American, Haleon, Entain
FTSE 250: Dunelm, Abrdn, Tritax Big Box, Apax Global, Lancashire Holdings
Dividends are applied after the close of the previous day’s session for each market. So, for example, the FTSE 100 goes ex-dividend on a Thursday, but the adjustment is applied at the close of the previous day, e.g. Wednesday. The table below shows the days in which the adjustment is applied, not the ex-dividend days.
Index adjustments
Monday
11 March
Tuesday
12 March
Wednesday
13 March
Thursday
14 March
Friday
15 March
Monday
18 March
FTSE 100
7.15
Australia 200
0.3
1.5
0.6
0.4
0.3
1.1
Wall Street
2.6
9.6
US 500
0.19
0.21
1.31
0.17
0.07
0.30
Nasdaq
0.35
2.36
3.28
Netherlands 25
EU Stocks 50
0.8
China H-Shares
1.0
Singapore Blue Chip
Hong Kong HS50
2.2
9.2
South Africa 40
196.8
17
71
Italy 40
36.9
Japan 225
0.5
Q4 earnings season is nearly done, and we look at the main trends arising from the reporting period for US stocks.
Source: Bloomberg
Indices Average S&P 500 Price–earnings ratio Valuation Economic growth
Written by: Chris Beauchamp | Chief Market Analyst, London
Publication date: Friday 08 March 2024 04:10
As the fourth quarter (Q4) 2023 earnings season drew to a close, S&P 500 companies delivered a performance that was satisfactory overall but fell short of historical averages in several key metrics. While profit growth remained positive, both the proportion of companies beating estimates and the magnitude of positive surprises lagged behind recent trends.
Slight drop in earnings beats
Overall, 73% of S&P 500 companies reported actual earnings per share (EPS) above analysts' mean estimates for Q4 2023. This percentage trails the 5-year average of 77% and the 10-year average of 74% for companies beating projections.
Tech stocks did well, while real estate struggled
At the sector level, there was a wide dispersion in the percentage of companies surpassing earnings expectations.
The Information Technology sector led the way, with an impressive 88% of companies reporting positive EPS surprises.
On the opposite end, only 55% of companies in the Real Estate sector topped EPS forecasts - the lowest across all sectors.
Size of earning & revenue surprises well below historical average
Not only were there fewer EPS beats, but the aggregate earnings surprise was also subdued compared to historical norms. In aggregate, S&P 500 companies reported earnings 4.1% above estimates - below the 5-year average of 8.5% and the 10-year average of 6.7%.
The revenue side of the equation showed a similar trend, with fewer companies beating top-line estimates and a muted surprise percentage compared to prior periods.
64% of S&P 500 companies reported actual revenues above estimates, short of the 5-year average of 68% (though in line with the 10-year average).
Collectively, companies reported revenues just 1.2% above expectations - lagging both the 5-year average of 2.0% and the 10-year average of 1.3%
Investors reward earnings surprises & forgive earnings misses
Despite the somewhat muted results, companies that managed to exceed earnings estimates were rewarded by investors more generously than historical averages would suggest.
Companies reporting positive EPS surprises saw their stock prices rise 1.4% on average surrounding the earnings release window. This exceeds the 5-year average price increase of 1.0% for companies beating bottom-line estimates. Conversely, negative earnings misses were punished less severely than usual, with those companies averaging a 1.0% stock price decline compared to the 5-year average of 2.3% for EPS misses.
Winners & Losers
While most sectors contributed positively to the overall earnings growth number, there were a few clear outperformers and underperformers in Q4, as seen in the chart below:
Source: FactSet
Big names like Ford, Marriott, Amazon, Marathon Petroleum and Valero Energy drove large positive surprises in consumer, energy and industrials. Healthcare was boosted by companies like Illumina, Moderna and Pfizer.
The financial sector stood out as a weak spot, with names like Citigroup, Truist and Comerica missing estimates due to impacts from FDIC assessments. This sector reported the largest aggregate negative earnings surprise.
Pace of profit growth slows
Despite the below-average metrics, S&P 500 earnings still grew year-over-year (YoY) for the second consecutive quarter. The blended earnings growth rate for Q4 2023 currently stands at 4.0%.
However, this growth rate is noticeably slower than prior quarters.
Analysts expect the deceleration to continue in Q1 2024 with projected earnings growth of just 3.6%, before potentially re-accelerating to 9.2% in Q2 2024 and 11.0% for full-year 2024.
Valuations still higher than average
The somewhat tepid earnings performance comes against the backdrop of relatively elevated stock valuations for the S&P 500. The forward 12-month price-to-earnings (P/E) ratio currently stands at 20.4 - well above both the 5-year average of 19.0 and the 10-year average of 17.7. This lofty valuation implies that investors remain optimistic about future earnings growth materialising.
Outlook for Q1 2024
As companies enter the Q1 2024 reporting period, they will need to clear a higher profitability bar to sustain current stock prices and valuations. While the Q4 earnings season kept the profit growth streak alive, the path ahead appears more challenging amid economic uncertainties.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
It’s an ongoing bullish technical overview despite recent struggles, with retail traders opting to retain a majority sell bias while CoT speculators reduce their majority buy sentiment.
Source: Bloomberg
Indices Federal Reserve Futures contract Inflation Price Nasdaq
Written by: Monte Safieddine | Market analyst, Dubai
Publication date: Thursday 07 March 2024 07:45
Tech outperforms, cautious Fed member speak, and mixed US data
Nearly all sectors finished yesterday's session in the green, with tech in second place, though the two in the red were consumer discretionary and communication, albeit with limited losses. The performance for the tech-heavy index ultimately surpassed both the Dow 30 and the S&P 500 for the session, yet the gains failed to offset the losses suffered on Tuesday, and futures are struggling as of this morning.
There was plenty of attention on the Federal Reserve’s (Fed) Chairman Powell, who stated that rates are "likely at their peak for this tightening cycle", though "the economic outlook is uncertain" and reaching their 2% "inflation objective is not assured". He cautioned against cutting too soon and failed to provide an exact timeline on rate cuts that will "likely be appropriate... at some point this year". After that, Daly emphasized that they are "focused and resolute on getting inflation down", and Kashkari mentioned the possibility of two or even just one rate cut this year.
As for Treasury yields, they finished the session lower on the further end of the curve, though unchanged in real terms, and market pricing (CME's FedWatch) remained unchanged as the majority anticipate a hold-hold-cut scenario for the March-May-June meetings.
Economic data out of the US was mixed, with ADP's non-farm estimate for the month of February slightly missing expectations at 140K (vs. 150K estimates), job openings for January out of JOLTS falling to 8.86 million, not far off forecasts, and wholesale inventories for the same month dropping by 0.3%. The weekly claims, Challenger's job cuts, and unit labor costs are among the data releasing later today before tomorrow's market-moving Non-Farm Payrolls.
Nasdaq technical analysis, overview, strategies, and levels
Price spent most of yesterday’s session above its previous 1st Resistance, easily giving conformist buy-breakouts, the edge before the moves as of writing this morning that took it back beneath the key level. Its technical overview remains a ‘bull average’ in both weekly and daily time frames and means added caution via ‘significant reversal’ for conformists buying off dips when price reaches the 1st (or even 2nd) Support levels.
Source: IG
IG client* and CoT** sentiment for the Nasdaq
The higher close took sentiment amongst retail traders closer to heavy sell territory, rising from 58% yesterday to 64% as of this morning. Any pullback in price would make them beneficiaries, given they generally shorted into price gains. CoT speculators have been majority buy throughout this period, but there’s no denying the recent unwind, taking the long bias amongst them to a slight buy 54% on an increase in short positions, and a simultaneous drop in longs. Another drop in percentage terms like that and they’ll shift to slight sell.
Source: IG
Nasdaq chart with retail and institutional sentiment
Source: IG
*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Bitcoin skyrockets to record heights. Unpack the cryptocurrency's monumental surge and its potential to sustain the boom or face a bust.
Economic bubble Ethereum
IG Analyst
Publication date: Tuesday 05 March 2024 07:00
Article written by Juliette Saly (ausbiz)
Bitcoin's boom
In this week’s edition of IG Macro Intelligence, we take a look at the recent surge in bitcoin, and whether it’s set for a BOOM or a BUST.
Bitcoin is back
The world's largest cryptocurrency has reached an all-time high, propelled by strong demand for Bitcoin ETFs.
The token has climbed above US$69,000 for the first time. In Australian dollar terms, bitcoin has also hit a record, exceeding AUD$100,000.
Bitcoin daily chart
Source: IG
Bitcoin's breakthrough in Aussie dollars
Kraken MD Jonathan Miller told ausbiz, the record in Aussie dollar terms is “a truly historic moment for the asset and the crypto industry as a whole.”
Driving the momentum is ongoing bullishness for spot Bitcoin ETFs, which launched in January. These ETFs now own 4% of all bitcoins, and have almost $50 billion in assets according to Bernstein data.
The demand for bitcoin has also stoked interest in smaller coins like ether and dogecoin, sending the value of the crypto market above US$2 trillion for the first time in two years.
CoinGecko estimates bitcoin's total market capitalisation at US$1.3 trillion, more than tripling its US$320 billion market cap at the end of 2022, known as the "Crypto Winter."
Global crypto market cap chart
Source: Bloomberg, CoinMarketCap
The FOMO fever that fuels the crypto surge
The rally is not solely driven by demand for Bitcoin ETFs. The forthcoming halving, which curtails the growth of bitcoin's supply, contributes to the optimistic sentiment.
Additionally, speculation that the US Securities regulator might green-light more spot-ETFs, such as for Ethereum, is fuelling the rally.
Ethereum has surged over 50% year-to-date, trading above the crucial resistance level of US$3,500. It remains about US$1,000 below its all-time high of US$4,721 reached in November 2021.
Investor fear of missing out (FOMO) has also escalated demand, subsequently inflating prices for crypto assets. The "Crypto Fear and Greed Index," which gauges market sentiment based on the trading positions of bitcoin and other significant cryptocurrencies, is currently at 90. A score between 75 to 100 indicates "Extreme Greed."
Ether daily chart
Source: IG
Crypto fear and greed index
Source: Cointree
Wall Street's warning: echoes of the dot-com bubble in bitcoin's surge
Analysts are split on whether bitcoin's recent rally signals sustained momentum or a looming bubble.
JP Morgan's Marko Kolanovic views the surge past US$60,000 and the dramatic equity rally as signs of market froth. Kolanovic is among several Wall Street analysts warning that the rapid ascent resembles the dot-com bubble or the market crash in late 2021 following post-pandemic euphoria.
Conversely, some analysts argue that this rally is different due to institutional interest spurred by the approval of spot-ETFs and the anticipated demand for bitcoin preceding April's halving.
Historically, bitcoin's value has spiked following each halving event, with some predictions suggesting bitcoin could reach US$80,000 by August.
Julius Baer's digital assets analyst, Manuel Villegas, is optimistic, noting the halving-induced shortage will spike demand. “All in all, we see a very sound fundamental backdrop for bitcoin and believe that prices are well supported around current levels with further upside potential,” he wrote.
Long-term bitcoin advocate, Ark's Cathie Wood, asserts that bitcoin is steadily replacing gold.
As of March 2024, bitcoin has outperformed traditional safe-haven assets like gold, marking a significant milestone in its journey.
Bitcoin vs gold's performance 2021 - 2024
Source: Bloomberg
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Technicals remain bullish even as it avoids record highs, while CoT speculators are back to raising their majority buy bias.
Source: Bloomberg
Indices Federal Reserve Inflation Monetary policy Central bank Purchasing Managers' Index
Written by: Monte Safieddine | Market analyst, Dubai
Publication date: Monday 04 March 2024 07:28
Manufacturing data diverges, cautious Fed members, and the monetary policy report
Quite a bit to digest late last week where manufacturing data painted a conflicting picture, with ISM’s (Institute for Supply Management) PMI (Purchasing Managers’ Index) still in contracting territory and worsening to 47.8 from 49.1, even as S&P Global’s was expansionary and improved to 52.2.
Federal Reserve (Fed) members spoke remained cautious, Daly on cutting rates quickly risking inflation getting stuck, Bostic once more on easing likely appropriate this summer, Kugler “cautiously optimistic” of ongoing progress regarding “disinflation without significant deterioration of the labor market”, Williams again expecting rate cuts later this year, and Mester that the January PCE prints won’t “really change my view” regarding getting to the central bank’s inflation target but shows “there is a little more work for the Fed to do here”.
There was also the release of the Fed’s Monetary Policy Report, in it citing the banking system that “remains sound and resilient” overall but that “a few areas of risk warrant continued monitoring”.
Week ahead: Services PMIs, NFP, and the Fed’s Powell testifies
As for the week ahead, it’s a light start out of the US and picks up tomorrow with services PMIs where it’s been a story of expansionary readings be it out of S&P Global or healthier out of ISM, and noting not just the sector but its pricing component that experienced a surge last time around to 64 from 56.7 before that.
If we’re still talking about the data, expect the attention to shift towards the US labor market with ADP’s non-farm estimate and job openings out of JOLTS on Wednesday, Challenger’s job cuts and the weekly claims on Thursday, and leading up to the market-impacting Non-Farm Payrolls (NFP) on Friday. Expectations are we’ll see growth of around 190K for the month of February, and for the unemployment rate to hold at 3.7%, with added focus on any weakness under the hood after what has been divergence between the establishment and household surveys.
Plenty of central bank members speaking, but expect the attention to be on Chairman Powell’s testimony on Wednesday before the House Financial Services Committee, and if there’s anything to add when he testifies before the Senate Banking Committee the day after. On the political front, the government shutdown has been avoided, but the deadlines pushed out to just March 8 and 22 means nowhere near out of the woods even as congressional negotiators unveil a bill for funding the remainder of the fiscal year. There’s also ‘Super Tuesday’ and the State of the Union Address.
Dow technical analysis, overview, strategies, and levels
Lacking a record high meant there wasn't as much focus on this index compared to the S&P 500 and Nasdaq 100. On the weekly time frame, there was a lack of a play for both conformists and contrarians, as the intraweek lows were within its previous weekly 1st Support. As for the daily late last week, same story on Thursday. It needed Friday's gains to offer little for both conformist buy-breakouts and contrarian sell-after-reversals off the daily 1st Resistance, where it also has a 'bull average' technical overview matching the weekly, but where action within its channel can tilt the narrative more easily in the shorter term.
Source: IG
IG client* and CoT** sentiment for the Dow
CoT speculators are heavy buy and up a notch to 70% (longs +542 lots, shorts -838), yet to reverse the pullback a couple weeks ago, and in all still cautious about upping their long bias significantly further at this stage. IG clients continue to look for a chance to unwind what was extreme sell bias amongst them at the start of last week, the Dow's pullback providing partial relief.
Source: IG
Dow chart with retail and institutional sentiment
Source: IG
*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of the start of this week for the outer circle. Inner circle is from the start of last week.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
The Week Ahead
Read about upcoming market-moving events and plan your trading week
ESTABLISHED 1974313,000+ CLIENTS WORLDWIDE17,000+ MARKETS
Week commencing 4 March
Chris Beauchamp's insight
The European Central Bank (ECB) meeting and US non-farm payrolls are the major event of the week, with the ECB’s rate decision likely to set the tone for eurozone assets for the rest of the month. Insurers are the main UK corporate news this week, while US earnings season continues to wind down, though retailers Target, Costco and Gap report figures.
Economic reports
Weekly view
Monday
None
Tuesday
1.45am – China Caixin services PMI (February): previous reading 52.7. Markets to watch: CNH crosses
3pm – US ISM services PMI (February): index expected to fall to 53.3. Markets to watch: USD crosses
Wednesday
12.30am – Australia GDP (Q4): QoQ rate expected to be 0.2%, YoY to slip to 1.5%. Markets to watch: AUD crosses
9.30am – UK construction PMI (February): previous reading 48.8. Markets to watch: GBP Crosses
12.30pm – UK Spring Budget. Markets to watch: GBP crosses
1.15pm – US ADP employment report (February): previous reading 107K. Markets to watch: USD crosses
2.45pm – Bank of Canada rate decision: rates expected to remain at 5%. Markets to watch: CAD crosses
3pm – Canada Ivey PMI (February): expected to fall to 56. Markets to watch: CAD crosses
3.30pm – US EIA crude oil inventories (w/e 1 March): stockpiles rose by 4.2 million barrels in the preceding week. Markets to watch: Brent, WTI
5pm – FOMC member Daly speaks. Markets to watch: USD crosses
Thursday
3am – China trade data (January & February): exports rose 2.3% in December. Markets to watch: CNH crosses
1.15pm – ECB rate decision: rates expected to remain at 4.5%. Markets to watch: EUR crosses
1.30pm – US initial jobless claims (w/e 2 March): claims to rise to 217K. Markets to watch: USD crosse
Friday
1.30pm – US non-farm payrolls (February): payrolls expected to slip to 188K from 353K. Unemployment rate to remain at 3.7%. Average hourly earnings forecast to rise 0.2% MoM. Markets to watch: US indices, USD crosses
Company announcements
Monday
4 March
Tuesday
5 March
Wednesday
6 March
Thursday
7 March
Friday
8 March
Full-year earnings
Clarkson
Fresnillo,
Travis Perkins,
Reach,
Greggs,
Foxtons
Legal & General,
Rathbones,
Tullow Oil
Admiral,
Aviva,
Entain,
Rentokil,
ITV,
PageGroup
Just Group
Half/ Quarterly earnings
Ashtead,
Ferguson,
Target
Trading update*
Assoc. British Foods
DS Smith
Kier,
Costco,
Broadcom,
Gap
Dividends
FTSE 100: Rio Tinto, HSBC, Standard Chartered
FTSE 250: Safestore, Renishaw, PZ Cussons, Energean
Dividends are applied after the close of the previous day’s session for each market. So, for example, the FTSE 100 goes ex-dividend on a Thursday, but the adjustment is applied at the close of the previous day, e.g. Wednesday. The table below shows the days in which the adjustment is applied, not the ex-dividend days.
Index adjustments
Monday
4 March
Tuesday
5 March
Wednesday
6 March
Thursday
7 March
Friday
8 March
Monday
11 March
FTSE 100
29.33
Australia 200
4.8
3.9
30.9
0.4
3.4
0.3
Wall Street
14.7
6.6
12.3
US 500
0.12
0.38
0.76
0.36
0.03
0.17
Nasdaq
0.13
1.99
0.35
Netherlands 25
EU Stocks 50
China H-Shares
Singapore Blue Chip
Hong Kong HS50
3.8
56.5
3.8
2.2
South Africa 40
50.2
Italy 40
Japan 225
Bitcoin's explosive 2024 rally sees a nearly 50% increase and with anticipation of the halving event, the king of crypto leads a potential alt-coin rally.
Source: Bloomberg
Forex Bitcoin Cryptocurrency Ethereum Currency
Written by: Tony Sycamore | Market Analyst, Australia
Publication date: Thursday 29 February 2024 03:52
Bitcoin reigns supreme: the 2024 surge
Bitcoin, the king of crypto, is back! After surging 20% this week, it is now up almost 50% calendar year to date, leaving all comers in its wake in the early months of 2024, including the resurgent nikkei.
Where it took the nikkei a mere thirty-four years to reclaim its 1989 high, bitcoin seems set to retake its November 2021 $69,000 high in just 27 months.
Bitcoin's resurrection from the crypto winter is comparable to that of the mythical Phoenix of Greek legend. But here we have a new legend taking shape, and whether it lasts for 500 years like the Phoenix, as bitcoin's proponents might hope, remains to be seen.
Fueling the rally: influx of bitcoin ETFs
Bitcoin's gains in recent weeks have been fuelled by record client inflows into the newly launched Bitcoin ETFs. Contributing factors include anticipation of the Bitcoin halving event in April, concerns over a partial US government shutdown, and MicroStrategy's Michael Naylor acquiring an additional 3,000 bitcoin for his already significant holdings.
Significantly, bitcoin's ascendancy has begun to extend into the altcoin space, supported by speculation that ETFs for some alternative cryptocurrencies, including Ethereum, Ripple, and Solana, may soon be introduced.
The next frontier: Altcoins on the rise
Ethereum is now firmly entrenched above $3,000, admittedly still with some work to do to reclaim its $4,868 November 2021 high. Solana at $118 is a long way from its November 2021 high. Once a pullback in bitcoin commences, traders will likely cycle into the alts, looking for the next outsized move within the crypto ecosystem.
Bitcoin technical analysis
This week's sharp increase in bitcoin is indicative of a Wave iii of III, the most dynamic phase of an impulsive move within our Elliott Wave framework.
Declines into the mid $50,000 range are expected to be strongly supported as the market prepares for a test and likely breach of the November 2021 all-time high of $69,000.
Bitcoin weekly chart
Source: TradingView
Ethereum technical analysis
A similar narrative unfolds for Ethereum. The recent surge in Ethereum's price is characteristic of a Wave III — the most dynamic phase of an impulsive move within our Elliott Wave framework.
Pullbacks towards $3,000 are expected to find strong support as the market prepares for a challenge and probable surpassing of the November 2021 high of $4,868.
Ethereum weekly chart
Source: TradingView
Source: TradingView. The figures stated are as of 29 February 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
European equities, particularly the German DAX, soar to new heights fueled by Nvidia's robust earnings, while investors await Euro area inflation data for further market cues.
Source: Bloomberg
Forex Indices Inflation Euro DAX European Central Bank
Written by: Tony Sycamore | Market Analyst, Australia
Publication date: Tuesday 27 February 2024 04:58
Riding the wave of Nvidia's impressive earnings report, European equities, including the stalwart German stock market, witnessed a surge to unprecedented highs last week.
While the Nasdaq and the Nikkei have hogged the spotlight with their stellar performances this year, the German stock market has quietly carved its path to success. With a solid 13.4% gain in 2023, the DAX has continued its ascent, boasting a 4% increase year-to-date, even amidst the absence of notable AI players.
As highlighted previously, the DAX's upward trajectory can be attributed to various crucial factors, such as a resurgence in manufacturing, a positive shift in sentiment towards China, and the resolution of the energy shock triggered by the Russian invasion of Ukraine.
Equally significant has been the rapid decline in Euro Area inflation over the past sixteen months, positioning the ECB as a frontrunner among central banks expected to implement rate cuts in 2024. Insights into the timing of these potential rate adjustments will be gleaned from this week's Euro Area inflation data, as outlined below.
What's on the horizon for Euro area inflation (Friday, 1 March 9:00pm)
In January, headline inflation in the Euro area dipped to 2.8% YoY from December's 2.9%. Core inflation also saw a decline, settling at 3.3% YoY, marking its lowest level since March 2022. This month, expectations point to a further decrease, with headline inflation projected to drop to 2.7% YoY and core inflation anticipated to decline even further to 2.9% YoY.
The minutes from the January ECB meeting, unveiled last week, underscored a widespread consensus that it was premature to broach the subject of rate cuts, emphasizing the fragile nature of the disinflationary process. This sentiment was reinforced by hawkish remarks from ECB Governing Council members Stournaras and President Lagarde, who echoed, "We are not there yet" regarding inflation.
Nevertheless, the rates market is already factoring in a 25bp ECB rate cut slated for April, with a total of 88bp in cuts projected for 2024.
EA annual headline inflation rate chart
Source: BoE
FTSE technical analysis
It's the same old story for the FTSE, as it starts the new week eying resistance at 7750/65ish, which has capped for the past nine months. If the FTSE can see a sustained break above 7750/65ish, it would warrant a positive bias and open a test of the April 7936 high, with scope to the 8047 high.
However, while the FTSE trades below resistance at 7750/60ish, there remains a high likelihood of further sideways rotating back towards the support at 7550/00, coming from the 200-day moving average and the mid-February 7492 low.
FTSE daily chart
Source: TradingView
DAX technical analysis
In our updates in mid to late January, we noted that due to the nature of the three-wave decline from the early January 17,123 high to the mid-Jan 16,464 low, it was likely a correction, and the DAX would push to new highs.
The Dax has since made a fresh record high at 17502, and while it remains above uptrend support at 17,200 from the October 14,666 low, the path of least resistance is for higher prices to follow.
Aware that should the DAX fall below support at 17,200 and below a cluster of horizontal support at 17,100, it would warn that a deeper pullback towards the 200-day moving average at 16,127 is underway.
DAX daily chart
Source: TradingView
Source: Tradingview. The figures stated are as of 27 February 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Rolls Royce’s impressive numbers have pushed the stock ever higher. Can the FTSE 100 blue-chip fly above 400p?
Source: Bloomberg
Indices Shares FTSE 100 Stock Free cash flow Roll-Royce
Written by: Charles Archer | Financial Writer, London
Publication date: Tuesday 27 February 2024 12:50
Rolls-Royce (LON: RR) shareholders have enjoyed an excellent couple of years. Despite the value destruction down to less than 39p per share at the start of October 2020, the stock has now recovered to 361p — and has risen by 21.2% year-to-date alone.
With some analysts predicting a rise to 400p amid excellent full-year results, Rolls-Royce shares may once again become the best-performing FTSE 100 stock of this year.
Rolls-Royce share price: 2023 full-year results
With CEO Tufan ‘Turbo’ Erginbilgic taking the reins at the start of last year, few would have guessed the impact. Of course, while the FTSE 100 company has benefitted from the wider recovery of civil aviation, Rolls has improved on almost every metric.
Underlying operating profit more than doubled from £652 million to £1.6 billion, driven by the recovering civil aerospace division, and reflecting the impact of ‘strategic initiatives, with commercial optimisation and cost efficiency benefits across the group.’ For context, the average analyst forecast had been for £1.4 billion, and in further good news, Rolls delivered an underlying margin of 10.3%.
Free cash flow rose to a record £1.3 billion, driven by operating profit and continued LTSA balance growth — while return on capital more than doubled to 11.3%. Statutory net cash flow from operating activities also increased, by £1 billion to £2.5 billion. And importantly in a time of elevated interest rates, the FTSE 100 operator saw net debt fall from £3.3 billion to a much more manageable £2 billion.
Erginbilgic enthused that the company’s ‘transformation has delivered a record performance in 2023, driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives. This step-change has been achieved across all our divisions, despite a volatile environment with geopolitical uncertainty, supply chain challenges and inflationary pressures.’
Where next for Rolls-Royce shares?
While supply chain challenges are expected to persist for the next 18 to 24 months, Rolls-Royce still expects underlying operating profit to be between £1.7 billion and £2 billion in 2024 — with free cash flow to rise to between £1.7 billion and £1.9 billion.
Erginbilgic notes that ‘our strong delivery in 2023 gives us confidence in our 2024 guidance and is a significant step towards our mid-term targets. We are unlocking our full potential as a high-performing, competitive, resilient, and growing Rolls-Royce.’
In the key civil aerospace division, the company expects that 2024 large EFHs will grow to between 100 and 110% of its pre-pandemic level, based on civil net LTSA creditor growth at the low end of the mid-term range of between £800 million and £1.2 billion — compared to £1.1 billion in 2023.
And the 2023 performance and 2024 guidance on operating profit and free cash flow means that by 2024 Rolls will have delivered more than 50% of the improvement set out in our mid-term targets.
For context, it continues to target underlying operating profit of between £2.5 billion and £2.8 billion, operating margin of 13% to 15%, free cash flow of £2.8 billion to £3.1 billion and return on capital of circa 16-18% in the mid-term — all based on expectations for a 2027 timeframe.
Despite widespread speculation, the company has chosen not to make any shareholder payouts for 2023. No dividends is often poorly received by the markets, but not in this case. Rolls did recommit to reinstating and growing shareholder distributions once it’s ‘comfortably within an investment grade profile and the strength of our balance sheet is assured.’
On the other hand, the CEO recently told The Telegraph that he was not ‘ruling out’ building the first small modular nuclear reactors outside of the UK due to the slow pace of approval. The company — in which the government owns a golden share — is one of only three that have submitted plans for regulatory approval in the UK so far and Erginbilgic notes that ‘we are ahead of everyone else.’
For context, SMRs are expected to be partially publicly funded via new body Great British Nuclear and may become a core component of the country’s energy strategy.
Rolls-Royce may continue to rise through the FTSE 100 regardless. JP Morgan has a 400p price target on the stock, noting that ‘a much higher percentage of Rolls-Royce’s long-term service agreements will convert into profit.’ Goldman Sachs has a 370p target — and Citi are most bullish, with 431p the goal.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Consumer staples stocks are popular defensive portfolio investments, with a unique set of advantages and drawbacks. These five are the largest on the FTSE 100.
Source: Bloomberg
Indices Shares Reckitt Diageo Haleon Consumer
Written by: Charles Archer | Financial Writer, London
Consumer staples stocks are shares in companies which specialize in selling daily essentials — food and drink, hygiene and household products, cosmetics, alcohol and tobacco. These stocks are classified as ‘defensive’ — consumers will continue to buy them regardless of the state of the economy — meaning the companies benefit from inelasticity of demand.
These are non-cyclical businesses, which means sales, revenue and at least some profit is generally expected. However, consumer staples stocks are unlikely to make headlines for capital growth or explosive revenue increases.
Instead, they offer low price volatility, dividends, and defensive positioning within a wider portfolio. And a key trade-off is that consumer staples companies can be better able to pass on inflation-matching cost increases to customers — this is a huge advantage in inflationary periods which is becoming more apparent.
Given the perceived lower risk, lower return, consumer staples stocks are often popular with investors closer to retirement, or else investors starting to venture outside the diversification offered by ETFs.
Perhaps a core advantage that is often ignored is the heritage and branding power of most larger consumer staples companies. Many have been in operation for decades or more due to the defensive nature of the sector, and this can have a positive ongoing effect on investment attractiveness.
Of course, past performance is not an indicator of future returns.
Top consumer staples stocks to watch
The following five shares are the largest FTSE 100 consumer staples stocks by market capitalisaiton. There is an element of subjectivity to inclusion as there is no standardised ‘consumer staples’ definition.
Unilever
Diageo
British Amercan Tobacco
Reckitt Benckiser
Haleon
Unilever
Unilever is a very well-known transnational consumer staples business which produces a dizzying array of products including food, drinks, cleaning agents, beauty and personal care products. Some of its well-known brands include Dove, Ben & Jerry’s, Cornetto, Domestos and Hellmann's.
Full-year 2023 results saw underlying sales growth at the FTSE 100 company rise by 7% — with a turnover of €59.56 billion. Encouragingly, the business’s underlying operating margin rose by 60bps to 16.7%. CEO Hein Schumacher argues that ‘2023 Full Year results show an improving financial performance, with the return to volume growth and margins rebuilding. We are moving with speed and urgency to transform Unilever into a consistently higher performing business.’
Unilever shares have remained almost flat over the past five years, with some investors arguing it has underperformed the wider market. However, it is in the midst of a turnaround plan; Schumacher took the reins in July 2023 noting that it is not ‘reaching its potential’ and that productivity and returns have ‘under-delivered.’
Diageo
While some consider alcohol not to be a consumer staple, it is a consumer product that people tend to buy regardless of the wider economic climate. Diageo is one of the largest alcoholic drinks manufacturers in the world, and controls a premium brand portfolio covering Johnnie Walker, Guinness, Smirnoff, Baileys, Captain Morgan, Tanqueray and Gordon's.
In recent interim results, CEO Debra Crew did note that ‘the first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year…looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level.’
For context, an unfavourable foreign exchange market and the declines in Latin America and the Caribbean saw net sales decline by 1.4% to $11 billion. Accordingly, operating profit fell by 11.1% to $3.3 billion — though this fall was just $205 million when excluding the LAC region.
In more bad news, the stock has fallen to its lowest level in four years as news of China’s ‘anti-dumping’ investigation into brandy from the EU heats up.
British American Tobacco
Debate it if you must, but tobacco is also commonly thought of as a consumer staple. Smokers and vapers typically buy their favourite product — with the addictive component of nicotine an ethical question for individual investors to consider.
British American Tobacco is one of the world’s biggest tobacco companies, with a significant brand portfolio of famous names. However, the business is dealing with changing consumer preferences and government intervention. It wrote off circa £25 billion in value of its US-based cigarette portfolio in December 2023 — while the UK is planning to implement a ban on disposable vapes soon.
For context, revenue fell by 1.3% in full-year results (though rose by 3.1% at constant rates). ‘New category’ revenue grew by 21% — and revenue from non-combustibles now makes up 16.5% of the group’s overall revenue. Best of all, new categories achieved profitability in 2023 after years of losses and two years ahead of target.
But longer-term, combustibles revenue is expected to continue to fall, while some investors think replacing this revenue with vaping may be harder than the company expects. CEO Tadeu Marocco contends that the ‘refined strategy commits us to 'Building a Smokeless World', a predominantly smokeless business, with 50% of our revenue from Non-Combustibles by 2035.’
Reckitt Benckiser
Like Unilever, Reckitt Benckiser has been effectively flat over the past five years. The company owns many famous brand names, including Dettol, Strepsils, Veet, Gaviscon, Calgon and Air Wick. It’s widely assumed that consumers are prepared to pay a price premium for cleaning products and medications compared to other categories.
In Q3 results, Reckitt saw like-for-like net revenue growth rise by 3.4%, led by strong a broad-based growth of 6.7% across its hygiene and health segments. While overall volume declined by 4.1% year-over-year, the company remains the market leader in the US nutrition business — and with its recent strategic update, the company expects to target sustained mid-single digit life-for-like sales growth in the medium term.
In further good news, the company has initiated a £1 billion share buyback programme. CEO Kris Licht notes that ‘we are firmly on track to deliver our full year targets, despite some tough prior year comparatives that we continue to face in our US Nutrition business and across our OTC portfolio in the fourth quarter.’
Haleon
Like Reckitt Benckiser, Haleon is a consumer healthcare multinational which controls its own famous brand portfolio — including Sensodyne, Panadol and Centrum vitamins. And it’s widely regarded as one of the largest over-the-counter medicines operators in the world.
Spun off from GSK, the company could remain a stalwart of the FTSE 100 for decades to come. In Q3 2023 results, Haleon saw 5% organic revenue growth, while adjusted operating profit rose by 8.8% at constant currency rates. And the company saw an adjusted operating profit margin of 24.6%.
CEO Brian McNamara enthuses that the results ‘demonstrate continued strong momentum across the business. Despite challenging markets, we have delivered another quarter of strong organic growth…our FY guidance remains unchanged and we expect to deliver strong growth in both organic revenue and adjusted operating profit constant currency.’
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Explore how gold outperformed other commodities in 2023 and what investors can expect in 2024 amidst economic uncertainties and geopolitical tensions.
Source: Bloomberg
Forex Shares Commodities Inflation United States Gold as an investment
IG Analyst
Publication date: Wednesday 21 February 2024 01:21
Tom Bailey, Head of ETF Research at HANetf
Gold's stellar performance in 2023
Gold showcased remarkable resilience in 2023, surpassing expectations in a high-interest-rate environment and outperforming commodities, bonds, and global equities (excluding US stocks). Before examining the prospects of the yellow metal in 2024, let's first understand the investment case for gold and its key price drivers.
The unique appeal of gold
Gold is a unique asset class. During periods of economic uncertainty, investment demand for a safe-haven asset drives gold prices. At the same time, during periods of economic expansion, pro-cyclical consumer demand can support gold price performance. These two factors give gold the ability to provide stability in a range of economic environments. Most other commodities typically do not have this unique profile.
We can divide gold demand into three categories:
Economic expansion: positive for gold consumption as an expanding economy increases demand for jewellery and electronics
Risk and uncertainty: gold tends to shine in times of heightened risk and uncertainty, attracting investors seeking a safe haven
Opportunity cost: gold faces headwinds when bonds provide higher yields, and tailwinds when bonds provide lower yields.
2024 outlook: the US economy's impact on gold
The first factor to consider for gold’s outlook, therefore, is the outlook for the US economy. Gold’s fortunes in 2024 will partially depend on whether the US economy achieves a soft landing, hard landing, or no landing. In its latest outlook, the World Gold Council detailed which aspects of gold demand will be positive or negative in the three potential economic scenarios, as shown in the table below.
The global economy faces three likely scenarios in 2024
Source: World Gold Council
The dynamics of a soft landing
A soft landing is now widely expected, meaning the opportunity cost becomes a potential driver of gold prices. In such a scenario, the Federal Reserve will be in a position to cut interest rates and bring down US bond yields. That makes gold, a non-income producing asset, relatively more appealing. However, such a scenario could potentially detract from gold prices as risk and uncertainty recede, meaning less demand for gold as a safe-haven asset.
Balancing act: risk vs. reward in gold investment
According to the World Gold Council, these two competing factors may balance each other out, with gold prices potentially flat, assuming a soft landing is achieved. But, as the World Gold Council also notes, there is some upside potential. That potential upside, we believe, could come in the form of geopolitical risk.
A geopolitically unstable world
While investors have always considered geopolitical risk, the urgency was less in recent decades. As academic studies have shown, the end of the Cold War marked a more benign geopolitical environment, with conflicts declining.
However, this benign geopolitical environment, many fear, may now be coming to a close. With the global order potentially in flux, there is a sense that the world is now beset by growing tensions between major powers and, with it, greater risk of geopolitical shocks.
Gold: a safe haven amidst global uncertainty
Gold is a potential hedge against geopolitical shocks. This was exemplified by the outbreak of the Israel-Hamas conflict in 2023. Between 3% and 6% was added to gold's overall performance in that year, according to the World Gold Council. Historical data shows that gold has a strong correlation with geopolitical risk. As Mark Rosenberg, founder and CEO of GeoQuant notes, gold has a strong correlation with the GeoQuant Global Political Risk Index, sitting at around 0.72.
Correlations (day-on-day): 1 Jan 2017-7 Dec 2020
Source: Correlations (day/day) between GeoQuant geopolitical risk indicators
Election year uncertainties: gold's role amid political risks
2024 is also a year marked by major global elections, including those in the US, the EU, and India. The current US election poses a notable political risk to investors, with the prospects of Donald Trump's return to the White House or disputes over the validity of the election. As data from GeoQuant shows, US political risk is also very tightly correlated with gold.
The geopolitical case for gold in a shifting world order
But the current geopolitical environment adds a longer-term potential case for holding gold. Following Russia's invasion of Ukraine, the US responded with robust sanctions, leveraging the central role of the US dollar to the global financial system. Some have accused the US of "weaponising" the US dollar.
This, some argue, risks chipping away at the US dollar's global reserve status, as countries decide to diversify away from the dollar. Economic historian Barry Eichengreen has warned that the more the US uses the dollar to pursue its geopolitical interests, "the stronger the incentive for governments to invest in alternatives, and the faster the movement will be."
As a result, following sanctions on Russia in 2022, there has been growing talk of de-dollarisation. This has been spearheaded by Russia and China, alongside some members of the BRICS Group.
While the prospect of another currency replacing the global dominance of the US dollar looks unlikely, it is an added risk to consider in the face of geopolitical shocks and a world of increased international tensions. Gold, therefore, offers a potential hedge against this.
Central Banks and the rush to gold amid currency concerns
Indeed, in the absence of any other contender for reserve currency status, countries diversifying away from the dollar have opted for gold. Accordingly, central banks have been buying gold at record rates in recent years, with the People's Bank of China leading the way.
Potential geopolitical shocks, therefore, may further add to this sense of de-dollarisation, particularly if such shocks come in the form of growing US-China tensions. This will potentially be constructive for gold prices, adding to its appeal as a hedge.
Is inflation defeated? The enduring value of gold
Longer term, the case for gold as an inflation hedge should still be considered. The world's major economies have made significant progress in bringing down the inflation spikes experienced in 2021 and 2022. But are we now set to return to the low inflation environment of the past 30 years? There are reasons to believe not.
After all, a key driver of lower inflation was globalisation, with the entry of China and former Communist countries into the global economy in the 1990s. We are now potentially faced with a period of deglobalisation, with terms such as "reshoring" or "friendshoring" growing in popularity. Related to this, we have seen a return to industrial policy, such as with the US' Inflation Reduction Act. Such policies have the potential to be inflationary. So, if such an outlook is correct, gold and other commodities offer the potential to act as a store of value while inflation erodes the value of paper currency.
Gold's resilience in high inflation: a historical perspective
According to research from PGIM, while higher inflation periods proved challenging for equities and bonds, they have been positive for precious metals such as gold. PGIM's research paper 'Portfolio Implications of a Higher US Inflation Regime' compared returns of different asset classes in periods between 1973 and 2021 when inflation was above 4%. During such "high inflation regimes", real returns for stocks and bonds were negative while real returns for precious metals were positive.
During the 1973-2021 timeframe, across the periods of high inflation, the average inflation rate was 7.4%. Over those periods, precious metals returned, in nominal terms, 7.9%, and in real terms, 0.5%. If we are due a period of structurally higher inflation, gold is a potentially attractive asset class.
Historical return outcomes in low- and high-inflation regimes Q2 1973 – Q4 2021
Source: Datastream; Bloomberg; FactSet; PGIM Quantitative Solutions. Data as of 31.12.2021.
Source: Datastream; Bloomberg; FactSet; PGIM Quantitative Solutions. Data as of 31.12.2021.
Source: Datastream; Bloomberg; FactSet; PGIM Quantitative Solutions. Data as of 31.12.2021.
How to gain exposure to gold?
Investors looking for gold exposure may wish to consider the Royal Mint Responsibly Sourced Physical Gold ETC (RMAU). This ETC was the first financial product to be sponsored by the Royal Mint and the first gold ETC to be launched in partnership with a European Sovereign Mint.
All the gold within the ETC is custodied at the Mint rather than a bank's vault. Uniquely, retail investors can redeem for physical bars and coins, adding to its appeal as a safe-haven asset. Crucially, all the bars are London Bullion Market Association (LBMA) post-2019 responsibly sourced good delivery bars – the highest standard available.
A green twist: recycled gold bars
The ETC was also the first gold ETC to introduce recycled gold bars. Recycled gold is less carbon-intensive than mined gold, adding to its sustainable appeal.
Alternatively, investors may wish to consider gold mining stocks. Typically, in a bull market for gold, mining stocks have outperformed the price of the commodity itself.
ESG-focused gold mining investments
The AuAg ESG Gold Mining UCITS ETF (ESGO) offers exposure to an equal-weighted basket of 25 ESG-screened companies that are active in the gold mining industry. The gold mining ETF tracks the Solactive AuAg ESG Gold Mining Index, which focuses on companies that have low ESG risk characteristics.
The fund uses Sustainalytics to screen the mining universe for their ESG credentials, attributing a risk score based on their findings. Only the top 25 companies with the lowest ESG risk are included within the index.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
A short description of defensive stocks, and five of the best defensive stocks to watch in 2024. These are the five largest defensive FTSE 100 companies.
Source: Bloomberg
Shares GSK plc Market trend Diageo AstraZeneca Unilever
Written by: Charles Archer | Financial Writer, London
Defensive stocks are companies whose underlying business is expected to generate reliable revenue and profits regardless of the wider economic environment. This could be because they hold a dominant market position, hold a reputation for value for money, or even simply provide the bare necessities.
Accordingly, they are usually blue-chip companies benefitting from inelasticity of demand, making them ‘safe havens.’ In other words, if they raise prices to match inflation, consumers will continue to buy the products regardless.
Defensive companies rarely deliver significant capital growth, and therefore tend to underperform during bull markets, even underperforming passive investment in indices such as the FTSE 100. But in bear markets, they can appear more attractive for the consistent earnings.
By contrast, cyclical stocks are businesses which tend to outperform in the good times and fall sharply during downturns. These might include consumer discretionary stocks, miners, or oilers, all of which depend on a healthy economy to thrive.
Investing in defensive stocks — and particularly the timing of an investment — is not simple. If you reposition your portfolio too early, you might miss out on additional growth before a downturn becomes too severe. And when the economy recovers, defensive stocks can become undervalued as investors sell in favour of growth.
This makes buying these types of shares in a bull market and then selling them in bear market a popular contrarian investing strategy; though as always, this is harder to do than it sounds.
The following FTSE 100 dividend stocks can be considered to be some of the more popular defensive companies to own in the UK as many have a reliable history of paying out. But remember, past
performance is not an indicator of future returns.
The best defensive stocks to watch
These stocks are the largest defensive stocks on the FTSE 100, if you consider defensive sector companies to be only those which deal in healthcare, consumer staples, utilities or tobacco.
AstraZeneca
Unilever
GSK
Diageo
British American Tobacco
AstraZeneca
AstraZeneca is a multinational pharmaceutical titan which focuses on the development and commercialisation of novel prescription medicines. It works in areas such as cardiovascular, oncology, and respiratory medication — though has a presence across almost the entire development market.
Healthcare sector stocks remain highly defensive, and AstraZeneca is no exception.
In FY23 results, total revenue rose by 6% to $45.8 billion, despite a decline of over $3.7 billion in covid-19 medication sales. When excluding covid-10 medicines, revenue rose by 15%, with oncology revenue up by 21%. And the company boasted a core product sales gross margin of 82%.
CEO Pascal Soriot enthuses that he expects ‘another year of strong growth in 2024, driven by continued adoption of our medicines across geographies. Our differentiated and growing portfolio of approved medicines, global reach and rich R&D pipeline give us confidence that we will continue to deliver industry-leading growth.’
Excitingly, the company recently reported success in its Laura Phase III trial for its Tagrisso treatment, which showed a ‘statistically significant and highly clinically meaningful improvement’ in progression-free survival.
Unilever
Unilever is a multinational consumer goods company which produces a wide range of products including food, drinks, cleaning agents, beauty and personal care products. Some of its well-known brands include Dove, Ben & Jerry’s, and Hellmann's. While the company has arguably underperformed in recent years, it is working at a turnaround plan.
FY23 results saw underlying sales growth at the FTSE 100 defensive company rise by 7% — with a turnover of €59.56 billion. Encouragingly, the business’s underlying operating margin rose by 60bps to 16.7%.
CEO Hein Schumacher notes that ‘2023 Full Year results show an improving financial performance, with the return to volume growth and margins rebuilding. We are moving with speed and urgency to transform Unilever into a consistently higher performing business.’
GSK
GSK — formerly GlaxoSmithKline — is a global biopharma company which aims to positively impact the health of 2.5 billion people by the end of 2030. After spinning out consumer healthcare company Haleon, GSK’s R&D focus is on four therapeutic areas: infectious diseases, HIV, respiratory/immunology and oncology.
FY23 sales rose by 5% year-over-year to £30.3 billion, and by 14% when excluding covid-19 based sales. Top vaccine patent Shingrix, which protects against shingles, generated £3.4 billion alone. Further, adjusted operating profit rise by 12%, reflecting ‘strong sales ex COVID and higher royalty income, partly offset by increased investment in R&D and new product launches.’
With 71 vaccines and specialty medicines now in clinical development, CEO Emma Walmsley notes the company is ‘now planning for at least 12 major launches from 2025, with new Vaccines and Specialty Medicines for infectious diseases, HIV, respiratory and oncology. As a result of this progress and momentum, we expect to deliver another year of meaningful sales and earnings growth in 2024.’
Diageo
Diageo is a global leader in premium alcoholic drinks, controlling over 200 brands and with sales in nearly 180 countries. The company owns distilleries which produce 40% of all Scotch whisky including Johnnie Walker — and it also owns Guinness, Smirnoff, Baileys, Captain Morgan, Tanqueray and Gordon's.
In recent interim results, net sales declined by 1.4% to $11 billion, driven by an unfavourable foreign exchange impact and the widely reported net sales declines in Latin America and the Caribbean. Accordingly, operating profit fell by 11.1% to $3.3 billion — though this fall was just $205 million when excluding the LAC region.
CEO Debra Crew admitted that ‘the first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment…looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level, compared to the first half.’
British American Tobacco
British American Tobacco is one of the world’s largest tobacco companies, boasting a brand portfolio including Lucky Strike, Dunhill, and Pall Mall. In terms of defensiveness, tobacco is a popular investing theme given the addictive nature of nicotine — though of course there is an ESG element to consider.
However, the company is contending with changing consumer preferences and government intervention. It wrote off circa £25 billion in value of its US-based cigarette portfolio in December 2023 as smoker rates fall — while the UK is planning to implement a ban on disposable vapes soon.
In full-year results, revenue dropped by 1.3% (though rose by 3.1% at constant rates). For context, ‘new category’ revenue grew by 21% — and revenue from non-combustibles now makes up 16.5% of the group’s overall revenue. Importantly, new categories achieved profitability in 2023 after years of losses and two years ahead of target, contributing £398 million to the profit pile.
CEO Tadeu Marocco notes that the ‘refined strategy commits us to 'Building a Smokeless World', a predominantly smokeless business, with 50% of our revenue from Non-Combustibles by 2035.I am confident that the choices we have made will drive our long-term success and create sustainable value for all our stakeholders.’
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Microsoft, Apple, Nvidia, Alphabet and Amazon could be the best AI stocks to watch next month. These stocks are the largest AI stocks in the US based on market capitalisation.
Source: Bloomberg
Shares Artificial intelligence Microsoft Amazon Nvidia Apple Inc.
Written by: Charles Archer | Financial Writer, London
2023 was arguably the year of AI — the NASDAQ Composite rose by 43% in the calendar year, driven by AI-fuelled bubbles in Nvidia alongside the rest of the so-called ‘magnificent seven.’
The year was immediately preceded by the launch of revolutionary — and crucially, free to use — ChatGPT, which was swiftly followed by a response from both Alphabet in the form of Bard (now Gemini) while many other tech companies soon followed.
In March 2023, the more advanced GPT-4 hit the market, which was swiftly followed by multiple AI-generated imagery tools — in one case, a realistic fake image of Pope Francis wearing a certain clothing brand circulated the internet, highlighting the openness of AI to abuse. That same month, tech leaders from across the US spectrum signed an open letter urging a pause on AI development for six months to assess the risks.
A couple of months later, ChatGPT gained internet connectivity — and was soon incorporated into Bing, Microsoft’s search engine. For context, Microsoft has a significant stake in ChatGPT’s parent, OpenAI.
Add in the constant stories of academic controversies, and the months-long Writers Guild of America strike over concerns that AI had the potential to replace human writers, and it’s easy to see how AI is already embedded throughout the global markets.
AI is already in use across a wide variety of real-world applications, including in entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.
Every Netflix recommendation, every supermarket rewards purchase, and every football match is analysed ever more relentlessly in order to provide more and better data. And analysts think the sector will only grow.
Of course, there will be casualties; whether Microsoft or Meta, virtually every tech company is engaged in layoffs. While much of this can be blamed on higher interest rates, arguably AI is already replacing some workers.
Best AI stocks to watch
There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.
Microsoft
Apple
Nvidia
Alphabet
Amazon
Microsoft
Microsoft is the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business already had a strong relationship with OpenAI prior to the ChatGPT launch and has invested $13 billion into the company since 2019.
In Q2 results, revenue increased by 18% year-over-year to $62 billion, while net income rose by 33% to $21.9 billion. CEO Satya Nadella enthuses that ‘we’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.’
Most recently, the US titan has agreed a decade-long partnership with Vodafone to bring generative AI, digital, enterprise and cloud services to more than 300 million businesses and consumers.
Vodafone will invest $1.5 billion in customer-focused AI developed with Microsoft's Azure OpenAI and Copilot technologies and will replace its physical data centres with Azure cloud services — meanwhile, Microsoft plans to become an investor in Vodafone's managed IoT platform. On the other hand, Copilot has reportedly disappointed some early adopters.
Market Capitalisation: $2.90 trillion
Apple
Apple is in the middle of a sea change — it’s now topped Samsung as the largest smartphone maker by volume in the world but has lost its crown to Microsoft as the largest company on the planet.
Investor hopes for continued growth may lie in future innovation, and in particular, the long-awaited Vision pro headset which releases on 2 February in the US with a $3,499 price tag. For context, Meta’s Quest 3 can be reliably found on sale for circa £500.
However, the release of the Apple headset has been met with mixed results — and Meta CEO Mark Zuckerberg even released an informal video arguing that the cheaper device is not only better value for money, but better overall. In better news, Apple’s Keyframer AI tool has impressed new users with its ability to animate images using text descriptions.
In Q1 results, Apple saw revenue rise by 2% year-over-year to $119.6 billion, while quarterly earnings per diluted share increased by 16% to $2.18. CEO Tim Cook noted the company’s ‘all-time revenue record in Services’ and also enthused that the company’s ‘installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.’
Market Capitalisation: $2.82 trillion
Nvidia
Nvidia is arguably the prime beneficiary of the AI boom, last week overtaking Alphabet in market capitalisation, and then eclipsing Amazon a day later. While this rise may be unsustainable, Q3 results saw revenue rise by 206% year-over-year and 34% quarter-on-quarter to $18.12 billion. CEO Jensen Huang now considers that ‘NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.’
Barclays analysts remain particularly enthusiastic over the AI company, noting that ‘With supply constraints, customers are often using the entire NVDA platform in order to get priority shipments of accelerators.’ Q4 results are to be released on 21 February.
Market Capitalisation: $1.39 trillion
Alphabet
Google parent Alphabet may control 84% of the global search market share — but Yahoo was once king of search too. In addition to launching Bard, AI is already used across many of Google’s current functions. And it’s got at least two more AI-focused projects; its coding-focused Generative Language API, and DeepMind which it acquired in 2014.
In Q4 results, CEO Sundar Pichai enthused that ‘we are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come.’ Quarterly revenue rose by 13% year-over-year to $86 billion.
Perhaps most importantly, Alphabet is now ready to launch Gemini 1.5. This is seen as the company’s serious answer to ChatGPT-4, with Pichai arguing that it ‘represents one of the biggest science and engineering efforts we've undertaken as a company.’
Then there’s its new custom-built AI chips to consider — Apple may win its crown back before too long.
Market Capitalisation: $1.79 trillion
Amazon
Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.
Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share.
Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising. Then there’s the smart devices, including Alexa and the Fire tablets. CEO Andy Jassy enthuses that the AI opportunity will be ‘tens of billions of dollars of revenue for AWS over the next several years.’
Q4 net sales increased by 14% year-over-year to $170 billion.
Market Capitalisation: $1.58 trillion
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
What are some of the key events to watch next week?
Source: Bloomberg
Inflation Federal Reserve United States Interest Interest rates Interest rate
Written by: Yeap Jun Rong | Market Strategist, Singapore
Publication date: Friday 16 February 2024 08:15
This week’s overview
Despite some inflation jitters brought by a hotter-than-expected US consumer price index (CPI) print this week, Wall Street managed to regain its footing with the S&P 500 setting yet another record high. It seems like the risk rally has been left unscathed, as market participants recalibrated their rate expectations to be more in line with the Federal Reserve (Fed).
Japan’s Nikkei stole the limelight in Asia, briefly topping the 38,800 mark for the first time since January 1990 and leaving it just than 2% away from a new record high. The ASX 200 is flirting with previous record-high territory as well, while closer to home, the Straits Times Index (STI) has also seen renewed signs of life, rebounding by close to 4% since Wednesday to reclaim its 200-day moving average (MA).
As we head into the new week, here are six things on our radar.
US earnings season: Walmart, Home Depot, NVIDIA, Berkshire Hathaway
The US earnings releases next week will leave spotlight on Nvidia’s results as the key risk event for markets. With Nvidia accounting for the bulk of the market rally through 2023 and into 2024, high expectations are in place, which leaves little room for error.
Thus far, corporate earnings momentum has been robust. As of 16 February 2024, 79% of S&P 500 companies have released their results, with 80% delivering an earnings beat. This rate of outperformance towers above both the 5-year average (77%) and 10-year average (74%).
Source: Refinitiv
20 February 2024 (Tuesday, 8.30am SGT): Reserve Bank of Australia (RBA) meeting minutes
In its February meeting, the RBA maintained the official cash rate at 4.35% in line with expectations. The Bank observed that elevated interest rates are effectively moderating inflation and fostering a balanced supply-demand equilibrium.
"Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy."
The RBA highlighted its data-driven approach, maintaining a slight tightening bias.
"The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out."
Analysts will meticulously analyse the minutes for insights into the RBA Board's deliberations in February, indicators for future policy adjustments based on its tightening stance for 2024, and any indications towards a shift to a more neutral policy outlook.
Source: Refinitiv
22 February 2024 (Thursday, 3am SGT): Federal Open Market Committee (FOMC) meeting minutes
In its January session, the Fed kept the Fed Funds target rate steady at 5.25%-5.50% for the fourth consecutive meeting. The Fed updated its policy stance, indicating rate cuts are on the horizon, though not immediate.
"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
Analysts will thoroughly examine the minutes for insights into the Fed's balance sheet strategies, potential timing for rate reductions, its perspective on recent US economic data exceeding expectations, and perceived risks to the global economy.
Source: Refinitiv
22 February 2024 (Thursday, 10.45pm SGT): S&P Global flash US Purchasing Managers' Index (PMI)
Last month, the US PMI numbers from S&P Global have revealed a stronger upturn in economic activities, with the manufacturing sector delivering its highest read since September 2022 at 50.7. Growth in services has been robust as well, delivering its fourth straight month of increase to 52.5. Overall, this brought the US composite PMI to a six-month high at 52.0.
The takeaway from the sub-components over the past months is one of lukewarm economic growth and waning cost pressures, which may be encouraging for soft landing hopes and impending rate cuts, currently priced to be leaning towards the June meeting. The upcoming read for February is expected to reinforce more of the same, with the manufacturing sector expected to ease to 50.1 from previous 50.7, while the services sector PMI may ease to 52.0 from previous 52.5.
Source: Refinitiv
22 February 2024 (Thursday, 5pm SGT): Hamburg Commercial Bank (HCOB) Eurozone PMI
While economic conditions in the Eurozone have been in contraction territory for the eighth straight month, there are slight signs of improvement lately. From its January PMI figures, the manufacturing sector has turned in a softer contraction at 46.6, while the services side continue to stabilise around the 47-48 range, following a sharp moderation since April 2022.
The improvement is set to continue into January, with expectations for manufacturing PMI to improve to 47.0 from previous 46.6. Services PMI is expected to turn in a lesser contraction as well at 48.7 versus 48.4. The still-subdued economic conditions may likely help in the current disinflation process, potentially raising optimism about getting inflation back to the European Central Bank (ECB)’s 2% target and support upcoming cuts, potentially in June.
Source: Refinitiv
23 February 2024 (Friday, 1pm SGT): Singapore’s inflation rate
Singapore’s headline and core inflation rate has seen a surprise uptick in December 2023, attributed to a faster pace of increase in private transport costs and services inflation. While the persistence in pricing pressures is likely to continue into early 2024 to reflect the latest Goods and Services Tax (GST) rate increase, the Monetary Authority of Singapore (MAS) and Ministry of Trade & Industry (MTI) still expect a “gradual moderating trend” in core inflation over 2024.
With that, authorities may look beyond any near-term uptick in inflation as long as it continues to fall within its projected range for 2024 (3%-4% for headline, 2.5%-3% for core). For the upcoming read, consensus is for Singapore’s headline inflation to tick higher to 3.9% from previous 3.7%.
Source: Refinitiv
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Explaining the significance of semiconductor companies, and a rundown of some of the best semiconductor stocks to watch. These are the five largest semiconductor stocks in the world by market capitalisation.
Source: Bloomberg
Shares Semiconductor Nvidia TSMC Integrated circuit Manufacturing
Written by: Charles Archer | Financial Writer, London
Reviewed by: Axel Rudolph FSTA | Senior Financial Analyst, London
Semiconductor companies are those involved in the design, manufacturing, and distribution of semiconductor devices and related technology.
Semiconductors — or microchips — are essential to the functioning of electronic devices and have seen particular investor interest in 2023 given the rise of the AI sector. Without semiconductors, there would be no computers, smartphones, gaming, or a hundred other applications, all of which are essential to 21st century living.
OpenAI’s revolutionary ChatGPT chatbot, the growing political importance of AI development, and Nvidia’s dizzying rally are all testament to the importance of the sector. With significant growth in AI interest expected through the next decade and beyond, investing in semiconductor stocks within a diversified portfolio could be an attractive proposition.
For context, giants including Intel and ASML consider that annual global spending on semiconductors will rise to $1 trillion by 2030, up from just $570 billion in 2022. It’s also worth noting that China and the US are both attempting to harm each other’s ability to use advanced semiconductors to develop AI technology; the US through export bans of certain semiconductors and China through export bans of certain critical minerals.
Best semiconductor stocks to watch
Before delving into some of the most popular individual semiconductor shares, it’s worth highlighting that there are many popular, diversified ETFs which offer exposure into multiple companies on a low cost basis.
For example, the Vaneck Vectors Semiconductor UCITS ETF holds 25 of the world’s largest semiconductor companies and is a common choice for investors who want broad exposure to the sector without the need to conduct additional research.
In terms of individual shares, the five stocks listed below are widely considered to be the largest AI companies in the world by market capitalisation right now. However, analysts disagree on what exactly constitutes a semiconductor stock, and further, these may not be the best value opportunities.
Nvidia
Taiwan Semiconductor Manufacturing Company
Broadcom
Samsung
ASML
Nvidia
Nvidia shares have been on a dizzying rally to a $1.77 trillion valuation, rising by 1,720% over the past five years. This is more than the entire Chinese stock market.
The microchip behemoth was arguably the most popular semiconductor stock of 2023 — though of course, popularity does not mean it is the best investment available.
Q3 results were remarkable; revenue came in at $18.12 billion compared to the LSEG analyst consensus of $16.18 billion, a rise of 206% year-over-year. The al-important data-centre revenue rose by a whopping 279% to $15.51 billion — with half of this cash coming from cloud infrastructure providers including Amazon.
And Nvidia also expects to generate 231% revenue growth in Q4 — equivalent to $20 billion. On the other hand, it has a huge price-to-earnings ratio, alongside significant exposure to a faltering Chinese economy and rising Sino-US export tensions.
Q4 results are expected on 21 February.
Taiwan Semiconductor Manufacturing Company
While Nvidia is touted as the ‘picks and shovels’ semiconductor stock for 2023, this crown could arguably belong to Taiwan Semiconductor Manufacturing Company. Most chip producers — including Nvidia — outsource actual production to the Taiwanese company, with the country responsible for making circa 90% of the world’s most advanced chips.
TSMC shares have did well in 2023, and have continued to rise in 2024, given the AI-driven demand, its colossal manufacturing capacity and the wide economic moat surrounding starting up any sizeable competitor.
However, Taiwan’s complex political status, including its relationship with China remains a long-term risk. The company recently announced plans to build a second semiconductor manufacturing plant in Japan.
Broadcom
Broadcom may not be the most fashionable name in the semiconductor world, but the company’s designs and manufacturing acumen underpins masses of data centre, networking, software, broadband, wireless, storage, and industrial markets.
The company’s 2023 fiscal year served up many highlights: revenue grew by grew 8% year-over-year to a record $35.8 billion, driven by investments in accelerators and network connectivity for AI by hyperscalers.
President and CEO Hock Tan enthused that ‘the acquisition of VMware is transformational. In fiscal year 2024 we expect semiconductor to sustain its mid to high single digit revenue growth rate, with the contribution of VMware driving consolidated revenue to $50 billion, and adjusted EBITDA to $30 billion.’ And the company delivered a record adjusted EBITDA margin of 85%, delivering $17.6 billion in free cash flow.
Broadcom shares now up by 115% over the past year.
Samsung
Samsung is a South Korean titan that is well-known as one of the world’s largest producers of electronic devices — ranging from appliances to digital media devices, semiconductors, memory chips, and integrated systems.
In recent fiscal 2023 results, it reported KRW 258.94 trillion in annual revenue and KRW 6.57 trillion in operating profit — and in the current quarter is focusing on improving profitability by increasing sales of high value-added products. The company further indicated that the second half of this fiscal year should show ‘more significant improvement.’
Samsung also signed a supply deal with Nvidia in September, and further collaboration remains a key opportunity in the new year.
ASML
ASML is a world leader in chip-making equipment. It’s a common misconception that the company actually makes semiconductors; it does not. It designs and manufactures the lithography machines that are an essential component in microchip manufacture and is therefore indispensable within the wider supply chain.
You could argue that ASML is an even more crucial to the manufacturing line than TSMC, but the stock has only risen by a comparatively small 43% over the past year.
In 2023 full-year results, the semiconductor stock delivered €27.6 billion in net sales, on a gross margin of 51.3% Accordingly, it delivered a significant €19.91 of earnings per share.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
easyJet, Royal Mail, PZ Cussons, Wizz Air and Crest Nicholson could be the five best FTSE 250 stocks to watch next month. These shares have been selected for recent market news.
Source: Bloomberg
Indices Shares Royal Mail EasyJet Inflation FTSE 100
Written by: Charles Archer | Financial Writer, London
The FTSE 250 has fallen by 2.1% year-to-date, 5.9% over the past year, and by more than 5,000 points since September 2021 to circa 19,100 points today. Unlike its older brother — the FTSE 100, whose constituents derive the majority of their income from overseas — the FTSE 250 is far more domestically focused.
And on the question on whether the UK will see the desired soft landing — the jury is still out.
In terms of fiscal policy, the spring budget is due to be announced on 6 March. Chancellor Jeremy Hunt has intoned that the scope for tax cuts is limited, a position also held by the International Monetary Fund.
On the other hand, a general election must be held within the next 11 months, the Conservatives are trailing in the polls, and tax cuts can be popular with voters.
In terms of monetary policy, there appears to be good news on the horizon. While the Bank of England has kept the base rate at 5.25% since September 2023, it now expects CPI inflation to fall to 2% by May. For context, Governor Andrew Bailey has specifically noted that ‘we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.’
There is a danger that inflation could resurge later on in the year, as the impact of above-inflation pay rises and new supply chain challenges in the Red Sea poses fresh problems. But the markets are pricing in rate cuts in 2024, and this in theory will help the best FTSE 250 shares to grow.
Of course, this potential advantage must also be weighed against recession risk, making investing decisions increasingly more complex.
Top FTSE 250 shares to watch
These shares have been selected for recent market news and are not investment advice.
Crest Nicholson
PZ Cussons
Wizz Air
easyJet
Royal Mail
Crest Nicholson
Crest Nicholson's 2023 full-year results may make for poor reading — but for perspective, the UK housing market slowed drastically last year in response to rising mortgage costs and falling sales volume.
Consequentially, the housebuilder saw revenue fall by 28% year-over-year to £657.5 million, reflecting ‘weakness in the housing market.’ And completions fell steeply from 2,734 in 2022 to just 2,020 in 2023 — with pretax profit falling from £137.8 million to just £41.4 million in the year.
Profitability has been hit by increased costs at legacy sites including its Brightwells Yard regeneration scheme in Farnham, alongside a possible £13 million legal bill to settle costs arising from a 2021 fire at one of its apartment sites.
Issuing its third profit warning in six months, outgoing CEO Peter Truscott noted that these were ‘a disappointing set of results in FY23.’ However, the company is getting a new CEO in the form of Persimmon’s chief commercial officer Martyn Clark. And the Barratt-Redrow merger could spark further interest in the company — especially at its current valuation.
PZ Cussons
PZ Cussons is also in hot water. The consumer goods titan’s half-year results saw the stock slump as it slashed adjusted operating profit forecasts for the full year to between £55 million and £60 million — down from previous expectations of between £61.5 million and £68.2 million, and also a significant drop from the £73.3 million generated in fiscal 2023.
For context, revenue fell by 17.8% to £277.1 million between June and November — and the interim dividend was almost halved to just 1.5p per share.
The key problem is arguably the devaluation of the Naira (Nigeria’s currency) as the country is responsible for more than a third of the company’s revenue. However, PZ Cussons still retains significant brand labels including Carex and Imperial Leather, and the current weakness may feel attractive to investors who are prepared to accept the risks.
Wizz Air
Wizz Air's recent Q3 results made for better reading: revenue jumped by 16.8% to €1,064.8 million, while passenger ticket revenue increased by 19.2% to €553.9 million. Meanwhile, the airline saw Available Seat Kilometres (multiply available seats on any given aircraft by the number of kilometres flown on a given flight) rise by a significant 26.9% year-over-year. And it saw record traffic of 15.1 million passengers in the quarter compared to just 12.4 million the year before.
CEO József Váradi enthuses that ‘Wizz Air continued to deliver industry-leading capacity growth during the third quarter…while financial performance in the last quarter was materially affected by the suspension and reallocation of Israel capacity, we maintain our expectations for F24 net income.’
easyJet
easyJet's Q1 results also appeared to be positive — while it made a headline loss before tax of £126 million, this was an improvement on the £133 million of a year ago. Passenger numbers grew by 14%, and easyJet Holidays remain a highlight, with profit more than doubling to £30 million.
Perhaps most importantly in a forward-looking market, the airline reported ‘strong turn of year bookings with seats sold and yield ahead YoY.’ Further, is expects to see more than 25% year-on-year customer growth in easyJet Holidays for FY24.
CEO Johan Lundgren enthuses that ‘we delivered an improved performance in the quarter which is testament to the strength of demand for our brand and network. The popularity of easyJet holidays also continues to grow, with 48% more customers in the period.’ However, the airline did take a £40 million hit from the Middle East conflict.
Royal Mail
Royal Mail’s parent International Distribution Services has seen adjusted operating losses in its recent half-year results rise by 45% year-over-year to £319 million. This was driven by lower parcel volumes and the cost of the pay settlement agreed with the Communication Workers Union.
For context, the parent was fined £5.6 million recently for missing first and second class delivery targets over the 2022-23 financial year. However, regulator OFCOM is considering allowing Royal Mail to reduce its letter delivery service from the current six days a week to as little as three days a week — which could see profitability rise sharply.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
