- UK inflation holds at 2%
- 35 laws are set to be outlined in King’s speech later today
- Wall Street led by Main Street
- Small caps surge
- Babcock profits surge despite Type 31 frigate – pension fund heads back to the black
- HSBC opts for an insider to replace Quinn
- Reckitt hit by a Tornado
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Inflation figures released this morning show the Consumer Prices Index holding at 2% for the second month in succession. The headline figure will be welcomed in Downing Street, but the Bank of England is likely to be concerned that the pace of inflation in Services remains stubbornly high at 5.7%, also unchanged on the month. Services inflation had been predicted to fall this month and its failure to do so could well leave the Bank’s rate-setting Monetary Policy Committee wary of making any early reductions in UK rates. Traders had been pricing in a 43% chance of a cut in August; that is now likely to be pushed further back, suggesting good news for savers, but more pain for mortgage holders who may have to wait longer to see their monthly payments start to ease.
King Charles will deliver the second King’s Speech of his reign later today, on behalf of the new Labour Government. Around 35 laws are set to be outlined as PM Starmer’s government unveils its plan to ‘take the brakes off Britain’. Key measures expected in the speech include a new planning bill, which will make it harder for councils to block development and powers forcing them to identify development land in their areas. More devolution in England will see Mayoral powers increased, whilst GB Energy will be set up to drive de-carbonisation of the power grid with an £8.3bn budget to kick-start projects. Not everything will be new; Bills tabled previously by the Conservatives but not yet enacted, like the phased ban on smoking are set to be put back onto the government’s agenda too.
Wall Street powered ahead yesterday evening, setting a solid backdrop for European trading today. It was very much a case of Main Street leading Wall Street last night. The Dow Jones index, which is much more exposed to traditional industrial names than most major US indices, rocketed almost 2% higher. The broader based S&P 500 index rallied by 0.6%, whilst the tech-heavy NASDAQ could only manage a 0.2% gain. The Magnificent 7 group of leading tech stocks ended up in the red last night, with Nvidia, Microsoft, Meta and Alphabet all edging lower.
Optimism about the potential for rate cuts appears to be driving a surge in small cap indices on both sides of the Atlantic. This is especially the case over in the States where the Russell 2000 small cap index has outpaced the S&P 500 index by 10% in the last week. Smaller companies tend to be more geared to their local economies and in the US at least, often have higher levels of debt, making them more sensitive to lower rates.
Babcock have announced that they have seen a further deterioration in their performance under a contract to build five Type 31 frigates for the Royal Navy. Babcock are setting aside a further £90mn provision, taken against upcoming full year results. The provision relates to expected future wage costs. The contract had allowed for wages rising in line with the Consumer Price Index, but Babcock are finding that labour simply can’t be found in sufficient quantities at the wage rates built into the contract. The company also report that Type 31 aside, underlying profits are sharply higher, and the improving state of their pension fund will allow future top-up contributions by the company to be £25mn a year lower.
HSBC have announced that Georges Elhedery, a long-time HSBC staffer, most recently serving as their Chief Financial Officer, has been appointed to the top slot, replacing outgoing CEO Noel Quinn whose departure was announced a few weeks ago. Mr Elhedery, a graduate of the Paris’s Ecole Polytechnique and the ENSAE, takes up his new role in September.
Reckitt Benckiser have announced that their Mead Johnson infant formula business has suffered a tornado strike to their warehouse in Mount Vernon, Indiana. No staff were injured by the tornado strike, although the surrounding community did see severe damage. Reckitt say that the warehouse is out of action and business will be hit in the near term whilst they reorganise their operations.”
