Must read: European stocks, PMI data, UK borrowing, Marston's, M&C Saatchi

After Wall Street rallied strongly overnight, our head of investment rounds up the action here on Tuesday.

GLOBAL MARKETS 

After a positive day for the FTSE 100 on Monday, the UK index is under pressure with Associated British Foods (LSE:ABF) languishing near the bottom of the large-cap index after its trading statement, while Rolls-Royce Holdings (LSE:RR.) is at the top of the leader board. Fresnillo (LSE:FRES) is also near the top of the UK index as silver stages gains up by nearly 1%. 

Flash PMI figures across Europe are trickling out across the morning. So far, the French manufacturing flash PMI for January pushed back above the key 50 boom-bust divide to hit 50.8 versus 49.2 in the previous month. However, services fell back to 49.2 hitting a 22-month low from 49.5 in December. Conversely, in Germany, services improved from 49.2 to 50.4 surpassing the 50 threshold, while manufacturing slipped back slightly from 47.1 to 47. The UK readings are due at 9:30am. 

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Wall Street kicked off the week sharply higher on Monday, with the risk-on tech-heavy Nasdaq leading the charge to log a gain of more than 2%. Stateside, focus this week is on US GDP figures which are out on Thursday for clues into the strength of the US economy. Microsoft Corp (NASDAQ:MSFT) gets set to deliver earnings after the bell having added to the chorus of job cuts facing Big Tech just last week, providing a boost to the sector. Netflix Inc (NASDAQ:NFLX) set the bar high last week with its earnings release, sharply outpacing expectations in terms of its subscriber numbers.

UK PUBLIC SECTOR NET BORROWING                                       

According to the Office for National Statistics (ONS), UK December public sector net borrowing hit £26.58 billion versus £18.82 billion in November. Excluding banks, the figure reached £27.4 billion, sharply ahead of expectations for £17.8 billion, and the highest monthly figure since records began in January 1993. 

Central government debt interest payable hit £17.3 billion in December, the highest December figure since monthly records began. Between April and December, it hit £128.1 billion, up by £5.1 billion year-on-year but £2.7 billion less than the OBR forecast. Public sector debt is at around 99.5% of GDP, the highest ratio since the early 1960s. 

Public sector borrowing outweighed tax receipts in December, which is typically the case. While tax revenues increased, driven by rises in VAT, PAYE income tax and corporation tax including the energy profits levy, there were decreases in fuel duty, stamp duty and self-assessed income tax. The central government also spent more on day-to-day expenditure versus December 2021 because of support for households and businesses with rising energy bills adding to the imbalance. December’s borrowing also spiked, largely because of student loan assumptions made by the Office for Budget Responsibility, while government debt interest payable rose because of the effect of Retail Prices Index (RPI) changes on index-linked gilts.

The figures pave the way for a slimmed down budget with few rabbits out of the hat when the Chancellor Jeremy Hunt delivers his Budget on 15 March.

MARSTON’S 

Marston's (LSE:MARS) pub group reported a 12.9% increase in like-for-like 16-week sales to 21 January versus the previous year. The pub group has kept its full-year guidance unchanged thanks to its gas and electricity cost hedging, with the former fixed until the end of March 2025, while the latter is hedged until the end of September 2023. 

December and January’s sales boost partly reflects flattering base effects versus the end of 2021 when Omicron Covid restrictions depressed sales. But Marston’s also enjoyed a lift from the World Cup in November and December as well as the post-pandemic return to the pubs and a festive boost around the boozy Christmas period. Sales over the five key festive days (Christmas Eve, Christmas Day, Boxing Day, New Year’s Eve and New Year’s Day) jumped by 12.9% versus the same days before the pandemic in 2019/20.

Drinks sales have outperformed food sales reflecting the resilience of drinks demand in its affordable community pubs despite pressures on the cost-of-living. However, CEO Andrew Andrea highlighted Marston’s still has ‘certain cost challenges to navigate in 2023.’ There is the added headwind from rail strikes and the shift towards working-from-home as well as the inflating costs of wages, drinks, and food. The company is focusing on its goals of achieving £1 billion sales and reducing debt to below £1 billion.

Investors are cheering today’s update, with the stock up by more than 4%, adding to a strong start to the year with shares up more than 8% since the start of 2023. However, Marston’s struggled during 2022, shedding around 45% over the past one year, suggesting there is still an uphill battle to climb.”

M&C SAATCHI

M&C Saatchi (LSE:SAA) said it is expecting full-year 2022 headline profit before tax of at least £31 million, with net revenues seen hitting £271 million, growing 9% year-on-year. The advertising agency’s strong revenue outlook reflects an impressive performance in its higher growth specialisms in the UK and Americas regions. M&C Saatchi said its strong balance sheet could lead to the resumption of dividend payments in 2023. 

Although advertising typically struggles in a bear market, with ad spending among the first business expenses to face cuts during tough economic times, M&C Saatchi is navigating the challenging macroeconomic backdrop by focusing on its specialisms and key geographies. 2022 has been a record year for the group, with investor optimism helping to drive the stock more than 13% higher since the start of 2023. 

Chair Gareth Davis announced plans not to seek re-election at this year’s AGM. Davis has been on the board since 3 February 2020 at the start of the pandemic and took up the role of Chairman at the start of 2021, having previously held top FTSE 100 or FTSE 250 roles at William Hill, Imperial Tobacco and DS Smith. His departure creates some C-suite uncertainty for M&C Saatchi as it starts the process of finding his successor. 

M&C Saatchi shares have proven to be relatively resilient against the volatile market backdrop, shedding less than 2% over a one-year period and are rallying today.