Must read: FTSE 100, UK government debt swells, BT, Zoom

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS 

European markets have opened lower, weighed down by global risk-off sentiment amid concerns about the US debt ceiling. In the UK, BT Group (LSE:BT.A) is in focus, thanks to Altice UK which is upping its stake. RS Group (LSE:RS1) is at the bottom of the FTSE 100 following its full-year results. Markets await the latest UK flash PMI readings out this morning and critical inflation figures on Wednesday. 

• Invest with ii: Buy US Stocks from UK | Most-traded US Stocks | Cashback Offers

With just 10 days to go until the debt ceiling deadline, President Joe Biden and House Speaker Kevin McCarthy are yet to find common ground as talks continue, aimed at averting a catastrophic US default. Despite this, the Nasdaq closed at the highest level since August while the Dow Jones finished down 0.42%. 

Shares in Zoom Video Communications Inc (NASDAQ:ZM) moved higher in the post-market session after the video communications company raised its full-year revenue and profit forecasts. It reported first-quarter revenue which beat analysts’ expectations, but slumped to the slowest growth on record as its pandemic-era boom in demand continues to fade. 

The US dollar hit a six-month high against the Japanese yen after Minneapolis Fed President Need Kashkari suggested that rates may need to push above 6% to bring US inflation back down under control. 

Japan’s flash manufacturing PMI hit 50.8 in May, rising above the pivotal 50 boom-bust divide, ahead of April’s reading of 49.5, representing the first growth in factory activity since October. However, the Nikkei snapped its eight-session winning streak to close in the red.

UK PUBLIC SECTOR NET BORROWING 

UK public sector net borrowing (excluding public sector banks) hit £25.6 billion in April, the second highest since records began and £11.9 billion higher than April last year. Public sector debt excluding public sector banks hit £2,536.9 billion at the end of April, around 99.2% of GDP, with the debt-to-GDP ratio reaching the highest since the early 1960s. The government’s debt interest payable hit £9.8 billion, the largest since records began in 1997 and up £3.1 billion year-on-year. 

Borrowing in April was £3.1 billion above the OBR’s forecast because of the combination of higher total public sector spending and roughly flat tax receipts versus April last year. The government spent £3.9 billion on subsidies in April, largely due to support for energy bills. It also paid £25.4 billion on net social benefits and £9.8 billion on debt interest payable which was inflated by the effect of the Retail Prices Index (RPI) on index-linked gilts.

BT 

Altice UK, owned by Patrick Drahi, is acquiring a further 650 million shares in BT, raising its stake from 18% to 24.5%. However, Altice UK insists it does not intend to make an offer for BT.  

Last week, BT’s earnings sent shares sharply lower. Clearly Altice UK judged that now is an opportune moment to acquire further shares at an attractive price point with the stock down several percent since last week. In June 2021, billionaire Drahi paid around £2.2 billion for a 12.1% stake in BT. In December that year, his company Altice UK raised the holding to 18% at a price tag of roughly another £1 billion. Last year the UK government gave the green light to Drahi’s stake building, ruling that it didn’t pose a national security threat.

BT’s results last week highlighted the pressures facing the business, with falling free cash flow and plans to slash 55,000 jobs. It has been dealing with costs pressures from inflation and energy bills as well as capital expenditure on its national fibre network rollout. Altice UK’s stake building provides a vote of confidence in BT but there are questions about what changes Drahi may want to implement to the business. Perhaps this could pave the way for more aggressive cost cuts at BT. 

Shares in BT have fallen by more than 20% over the past 12 months but have been staging a recovery in 2023.