Must read: global markets, UK borrowing, InterContinental Hotels

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

GLOBAL MARKETS 

Risk-off sentiment across Europe has pushed the FTSE 100 back below the psychological 8,000 mark.

France’s manufacturing flash PMI for February slipped below the key 50 boom-bust divide to 47.9 versus 50.5 in January. However, its services reading improved to 52.8 in February versus 49.4 in January, beating expectations for 49.9. Germany’s flash manufacturing PMI fell to 46.5 in February versus 47.3 in January. Its services reading also improved to 51.3 versus 50.7 in January. 

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Focus shifts to the UK’s latest PMI readings at 9.30am as well as the release of the Federal Reserve’s latest meeting minutes tomorrow for clues into the outlook for US monetary policy as inflation remains stubbornly high.  

Overnight in Asia, Japan’s Jibun Bank flash manufacturing PMI fell to 47.4 in February versus 48.9 in January, the fourth straight decline to hit the lowest since July 2020. This pushed the Nikkei into the red while most other Asian markets closed lower. 

US futures are pointing to a softer open at lunchtime as markets prepare to play catch up after Monday’s Presidents Day holiday. Last week, the Dow Jones index posted its third consecutive weekly decline but the Nasdaq Composite closed the week higher. 

UK PUBLIC SECTOR NET BORROWING 

UK public sector net borrowing (PSNB) hits £116.9 billion between April 2022 and January 2023, £7 billion higher year-on-year. Debt interest payable hit £6.7 billion in January, the highest figure since records began. Public sector debt excluding banks hit £2.492 billion at the end of January, around 98.9% of GDP, a figure not seen since the early 1960s. However, the government unexpected ran a budget surplus of £5.4 billion in January versus forecasts for borrowing of £7.85 billion.

The big surprise here is the budget surplus run by the government in January, reflecting a jump in self-assessment income tax receipts which reached a record high. However, the surplus was £7.1 billion less than in January 2022 and £2.9 billion less than pre-Covid in January 2020. The government still managed to achieve a surplus even after paying £10 billion towards energy support for households and £2.3 billion to the EU over a customs duties dispute. 

Inflation is having a push and pull impact on the public purse. On the one hand, it is positively impacting tax receipts as prices rise. On the other hand, inflation is increasing its interest payable on index-linked government bonds and it is adding to government expenditure, particularly on energy support. 

The Chancellor gets set to deliver his Budget on 15 March. No doubt the government will point to today’s PSNB figures to highlight the Treasury’s focus on fiscal prudence, a contrast to the fiscal fiasco around the mini budget last year. 

The pound is trading modestly lower against the US dollar and the euro while European markets have opened lower after the FTSE 100 finished Monday’s session above the psychological 8,000 mark.

INTERCONTINENTAL HOTELS GROUP 

InterContinental Hotels Group (LSE:IHG) reported full-year revenue of $1.84 billion, falling short of analysts’ expectations, sending shares lower at the open. However, IHG enjoyed a 55% jump in full-year operating profit to $828 million.

The owner of Holiday Inn also announced an extension of its share buyback programming, purchasing an additional $750 million of shares in 2023. CEO Keith Barr warned of economic uncertainties this year, but tempered this with expectations for strong leisure demand and the return of travel to China as its economy opens up post Covid. 

Despite strong profit growth and a more than doubling of its existing share buyback announced in August, traders are selling the stock on the back of its disappointing top line figure. Although the hotel group benefitted from the release of pent-up demand post pandemic last year with stronger occupancy rates and higher prices, IHG like many businesses has been grappling with cost pressures as well as a softer consumer as inflation squeezes household budgets. 

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The hotel group is well diversified across segments of the market with Holiday Inn at the lower end versus Six Senses at the top end. It also has hotel franchises like the Crowne Plaza catering to more corporate customers. But post Covid, business travel has still struggled as Zoom meetings become the new norm.

Looking ahead, China’s economic reopening with airlines resuming travel to the world’s second largest economy could help boost demand at its 639 open hotels in Greater China. 

Even after today’s share price drop, IHG has enjoyed a strong start to the year, rallying around 13% since the beginning of January, outpacing its one-year gain of just shy of 12%.