Our head of investment rounds up the morning's big news.
After the FTSE 100 closed Tuesday’s session in the red, European markets have opened lower, with the UK index languishing back below the key 8,000 mark. The miners are trading towards the bottom of the basket with Anglo American (LSE:AAL), Endeavour Mining (LSE:EDV) and Rio Tinto Registered Shares (LSE:RIO) underperforming after Rio’s 2022 earnings disappointed.
Germany’s annual inflation rate hit 8.7% in January, rising from 8.1% in December on the back of higher energy prices after the government’s support ended at the end of 2022, suggesting that the European Central Bank has more work to do.
US futures are pointing higher after stocks recorded their worst day in two months. The Nasdaq Composite led the charge down 2.5%, while the Dow Jones turned negative for the year amid concerns that the Federal Reserve will need to continue hiking rates for longer. After hours, Palo Alto Networks Inc (NASDAQ:PANW) and Coinbase Global Inc Ordinary Shares - Class A (NASDAQ:COIN) shares jumped thanks to better-than-expected earnings.
In the bond market, the US 10-year Treasury note hit the highest level since November on Tuesday. Focus shifts to the US FOMC minutes later today for further clues into the Federal Reserve's next steps.
There was a sell-off overnight in Asia with the Nikkei and the Kospi shedding more than 1% each. The Reserve Bank of New Zealand hiked rates to 4.75%, a 14-year high pushing the kiwi dollar higher against the greenback.
Gold is creeping higher amid risk-off sentiment after last night’s sell-off on Wall Street and amid nervousness ahead of the latest Fed minutes.
Rio Tinto reported underlying earnings of $13.3 billion last year, below analysts’ estimates for $13.8 billion and a fall from 2021’s record high $21.4 billion. It cut its dividend by more than 50% from $10.40 per share in 2021 to $4.92 last year and cut its 2023 capital investments guidance from between $8 billion and $9 billion to $8 billion.
China’s draconian zero-tolerance to Covid approach, which is finally being unwound, weighed on iron ore prices last year, negatively impacting Rio Tinto. While’s China’s economic reopening looks set to provide a tailwind to Rio this year, the risk of further restrictions from Beijing and another spike in infections remain potential hurdles. The inflationary backdrop is also adding to Rio Tinto’s cost burden with higher fuel and raw material costs as well as higher wage bills because of labour shortages.
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Shares in Rio Tinto have rallied by more than a third since the start of November but have retreated from the January highs with earnings putting further pressure on the stock today. Other stocks in the sector like Endeavour Mining, Anglo American, Glencore (LSE:GLEN) and Antofagasta (LSE:ANTO) are also taking a hit.
Morrisons is imposing a limit of two items per customer across tomatoes, cucumbers, lettuce, and peppers from today. It follows a similar move from Asda on Tuesday to impose limits on certain fruit and vegetables. It comes in response to shortages caused by extreme weather in Spain and north Africa which have damaged harvests. So far, Asda and Morrisons are the only UK supermarkets to have put limits in place.
The latest official UK inflation rate eased slightly to 10.1% in January, but food inflation remained at a sky-high 16.7%. The supply disruptions could push food price inflation higher, which is adding to cost-of-living pressures, particularly for those at the lower end of the income spectrum.
The UK supermarket sector is notoriously competitive, particularly with the addition of the low-price German discounters Aldi and Lidl which have been eating away at market share. Last year, Aldi overtook Morrisons, replacing it in the Big Four in terms of UK grocery market share with Lidl not far behind. Lidl GB CEO Ryan McDonnell told Reuters, "Over the Christmas period alone shoppers switched 58 million pounds ($70 million)(of purchases) to Lidl from Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY)."
Last week, Moody’s downgraded Morrisons’ credit rating on the back of its £7.5 billion debt pile. Its junk rating has been shifted from B1 to B2 because of an ‘aggressive financial strategy, high leverage.’ Morrisons was taken private in 2021 by US private equity firm Clayton Dubilier & Rice.
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