At the close yesterday, The FTSE 100 seemed to be heading for a positive finish to the week after US CPI inflation sparked a global rally in stocks.

However, in Friday’s midday trade, the FTSE 100 looked set for another negative week as US interest rate fears reemerged and a stronger pound sapped the life out of London’s overseas earners.

News the UK grew faster than expected in the second quarter helped lift the pound against the dollar and the inverse relationship between the FTSE 100 and sterling kicked in.

Although broad European equity indices were mostly in the red, the FTSE 100 was underperforming, with losses in excess of 1% at the time of writing. The German Dax was 0.4% weaker.

“After another positive surprise on US inflation, stocks were all set to stage another rally before the head of the San Francisco Federal Reserve Bank intervened to dampen hopes of a shift in the trajectory of rates,” said AJ Bell investment director Russ Mould.

“That dragged US stocks down from their highs and set the scene for a weak open for European stocks.

“The FTSE 100 was also affected by a strong pound, after better-than expected figures on the UK economy, and weak resources stocks after a tough week for China marked by deflation, falling producer prices and soft trade figures as well as a sorry showing for Chinese equities. As the world’s most rapacious consumer of commodities, the fortunes of the Chinese economy are closely tied to these markets.”

FTSE 100 movers

As of 12.32pm on Friday, 84 of the 100 FTSE 100 constituents were trading negatively. There was little in the way of corporate news on Friday, and moves were driven by investor positioning and macroeconomic developments.

Silver miner Fresnillo was the FTSE 100 top riser gaining 1% after trading ex-dividend yesterday.

As alluded to by Russ Mould, China-focused stocks, including the miners, were among the top fallers. Copper miner Antofagasta gave up 2% while Glencore fell 1.8%.

Uk housebuilders were weaker despite the better than expected UK GDP release, as stronger growth means the Bank of England is more likely to continue hiking rates to bring inflation under control. UK CPI inflation stands at 7.9%, significantly higher than the 3.2% US CPI released yesterday.

Entain was the top faller after announcing it was getting aside £585m for an investigation into its Turkish business yesterday.

Greatland Gold plc (LON:GGP), a leading precious and base metals focused mining development and exploration company, has today announced an update on the Havieron gold-copper project, its flagship asset, in the Paterson Province of Western Australia.

The world-class Havieron gold-copper project was discovered by the £377m capitalised Greatland and is presently under development in joint venture with Newcrest Mining, the ASX gold major which is being taken over by the Newmont Corporation.

The box cut and decline to the Havieron orebody, which commenced in February 2021, has seen significant progress continuing on the exploration decline with total development at over 2,600 metres in early August 2023. 

Havieron is located approximately 45km east of Newcrest’s existing Telfer gold mine, with the group stating that subject to a positive Feasibility Study and Decision to Mine, it may leverage the existing Telfer infrastructure and processing plant.

Development update  

The main decline continues to progress, having surpassed 1,840 metres. 

Decline support excavations for ventilation, services and materials handling takes the total development to over 2,600 metres.  

The decline has continued to progress through improved ground conditions since successfully developing through the middle aquifer late last month.

Managing Director Shaun Day stated that: 

“The underground development at Havieron is making good progress as we continue to advance to the top of the orebody.

We are working towards the publication of an updated MRE, which will incorporate data from a further 80,000 metres of growth drilling at Havieron since our March 2022 MRE update.  

We are targeting completion and announcement of an updated MRE during the December 2023 quarter and look forward to updating the market in due course.”

The group’s shares are largely unchanged at 7.30p, but against some healthy early dealing volumes.

The FTSE 100 joined a global equity rally on Thursday after US CPI rose 3.2% in July, lower than the 3.3% consensus estimate but higher than last month’s 3% read.

Today’s release confirmed US CPI is well past its worst levels and is settling at a level that removes the need for sharp interest rate hikes. Investors cheered the release, with the S&P 500 trading over 1% higher and the FTSE 100 gaining 0.3%.

“After today’s data, the probability of a Fed rate rise has decreased, and this is already being reflected in the markets – stock futures are up while two-year treasury yields and the dollar are both down,” said Richard Flax, Chief Investment Officer at Moneyfarm.

“After two consecutive lower-than-expected CPI prints, some investors are perhaps overoptimistic in looking for a rate cut in Q1 2024. We’re likely to hear a lot about the Fed being data-dependent, as the Fed remains wary of declaring victory too soon.”

With markets currently pricing interest rate cuts in early 2024, the Federal Reserve will remain firmly in focus as a shift in expectations of the first-rate cut could rock equity markets to the same extent initial rate hikes did 18 months ago. In addition, any further pick-up in inflation will be bearish for stocks.

The Federal Reserve will next meet in September to decide on rates, and investors will be closely watching for any hints of the trajectory of rates going into next year.

“Overall, inflation is grinding back towards target and the labour market is slowly cooling, but the FOMC will want to see yet more data before deciding in September if progress has been fast enough to warrant a pause, or if the balance of risks calls for another hike to ensure inflation targets are met. Market pricing currently favours a pause, but the market has underpriced the Fed’s actions before,” said Ryan Brandham, Head of Global Capital Markets, North America at Validus Risk Management.

FTSE 100 movers

After receiving two broker price target increases, InterContinental Hotels was the FTSE 100’s top gainer – Jefferies now has a 6,400p price target. InterContinental Hotels shares were 7% higher at 6,049p at the time of writing.

The FTSE 100’s losers were dominated by companies trading ex-dividend, including Rio Tinto and Fresnillo.

Spirax‐Sarco Engineering shares were off by 4% after reporting a 7% decline in operating profit in the first half. abrdn was down over 11% as selling resumed after issuing a trading update earlier this week.

Denmark-listed green energy company Orsted has enjoyed surging cash flows from operations in the first half of 2023 despite suffering from lower wind speed and gas prices during the period.

Orsted is a leading green energy company with offshore, onshore wind, and bioenergy operations. Orsted operates Hornsea 2, the world’s largest offshore windfarm located off the coast of Grimsby.

The group generated DKK 45.9 billion in revenue in the first half of 2023, a reduction of 24% compared to last year, primarily due to lower gas prices, although lower average wind speeds also dented income.

Offshore wind EBITDA stormed higher to DKK 8.4 billion in the first of the year, up from DKK 7.8 billion in the year prior. Bioenergy EBITDA was entirely wiped out and total group EBITDA fell to DKK 10.230 billion from DKK 13.044 billion. Cash from operations jumped 442% to DKK 12.5 billion.

During the period, Orsted recorded a number of milestones which will set them up for future growth.

These include receiving development approval for Hornsea 4, with a capacity of up to 2.6 GW. In addition, Orsted confirmed progress in establishing offshore operations in Ireland and the US.

Although Orsted operates in the innovative green energy space, they face the same inflationary pressures as other energy producers. Despite this, analysts at Killik & Co believe many of the constraints are priced into shares with the price-to-earnings multiple near five-year lows.

“The offshore wind industry has been in a difficult spot in recent years, with costs increasing while developers are locked into pricing that was calculated in a lower cost environment. However, the long-term picture is more positive, with strong, multi-decade growth expected in order to decarbonise electricity generation,” said Mark Nelson, Senior Equity Analyst, Killik & Co.

“We see Orsted as the world’s premier developer of offshore wind, and therefore best placed to benefit from its potential growth, though we note that short-term uncertainties remain. Orsted shares trade on 23.5x December 2024 earnings, close to the lowest they have traded in the last five years and well below the average multiple, which we believe discounts much of the near-term concerns.”