After a session yesterday driven by stock-specific news, interest rate concerns were back in the driving seat in early trade on Friday. 

The FTSE 100 was down 1.2% at the time of writing on Friday after the S&P 500 closed down 0.8% overnight.

A poor US bond auction and comments from Fed chair Jerome Powell were responsible for the negativity in UK stocks on Friday.

A 30-year US bond auction was met with tepid demand overnight, and the US government was forced to issue debt at the highest yield since 2010.

There was weak demand from overseas buyers in a dismal display of confidence in the US economy and fiscal strategy.

Federal Reserve Chairman Jerome Powell also dampened the mood last night by saying the Fed has not done enough to bring down inflation, and they would not hesitate to hike rates further.

US bonds tanked, taking equities with them, leaving European equity traders little choice but to mark down the value of stocks when trade opened on Friday. 

“The FTSE 100 has rocks in its shoes after markets around the world digest Jerome Powell’s speech yesterday, which suggested the US would hike interest rates again if needed,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“The battle to vanquish inflation could still need an extra pair of hands, and that’s upset an investor base that had grown increasingly optimistic that policymakers would stick to the hands-off approach.

“While the comments weren’t a warning of imminent increases, they do keep monetary tightening on the table. Early signs from the US and Europe show that markets are taking this news with pouted mouths. Treasury yields have also increased slightly and that’s another way to burst equity market bubbles as the risk-reward profile for investing in riskier assets becomes less palatable.” 

FTSE 100 movers

Diageo shares sank on Friday after issuing a shock profit warning as sales volumes fall in the second half. The drinks giant highlighted weakness in the Caribbean and Latin America while growth faltered in Europe.

Diageo shares were down around 14% shortly after 12pm.

Burberry shares fell 3% as Daigeo’s profit warning hit the luxury sector across Europe.

The Federal Reserve’s comments last night rocked the FTSE 100’s interest rate sensitive housebuilding sector with Barratt Developments falling 3.7% and Taylor Wimpey dropping 2%.

General deterioration in sentiment saw Ocado shares drop 8%.

The FTSE 100 gained on Thursday as macroeconomic concerns took a back seat and investors focused on corporate earnings.

Upbeat releases from Taylor Wimpey, Autotrader and AstraZeneca helped the FTSE 100 higher by 0.7% at the time of writing. 

The housebuilders were once again in focus after Taylor Wimpey reiterated their operating profit guidance for the full year. Persimmon had earlier this week increased their completion forecasts for the year.

After nearly two years of steepening borrowing costs and high inflation, housebuilders are benefitting from increased sentiment after the BoE paused rate hikes.

Taylor Wimpey shares were 2.5% higher at the time of writing. 

AstraZeneca shares were doing a lot of the heavy lifting on Thursday, adding a significant number of points to the FTSE 100 with a 3.5% gain.

The pharma giant increased its sales and profit outlook after their obesity and oncology drugs were met with strong demand. 

“AstraZeneca continued to show its strong suit in oncology treatments with its third quarter update and this was the key driver behind an increase in profit guidance,” said Russ Mould, investment director at AJ Bell.

“Alongside these encouraging numbers the company spent $2 billion on an exclusive licence for an oral weight-loss drug candidate, Eccogene.

“While this might be perceived as an attempt to jump on the coat tails of the likes of Novo Nordisk and Eli Lilly in what has become a booming market, AstraZeneca has form for adding strings to its bow – prior to the Covid pandemic it was not considered to have any particular expertise in vaccines, for example.”

Autotrader was the FTSE 100 top gainer, adding over 8%, after announcing group revenue increased 12% in the first half.

Stranger Holdings has completed the reverse takeover of a 70% interest in the Henkries uranium deposit and prospecting right in South Africa to form the renamed Neo Energy Markets (LON: NEO). Dealings commence on the standard list on 9 November 2023.

Neo Energy Markets will spend more money to earn the full 70% interest and complete a feasibility study. This is a prospect originally discovered by Anglo American in 1975, but it was not developed at the time because of a slump in the uranium price.

The outlook for uranium is very different in the next decade. Nuclear power is back in favour because of its efficiency. The uranium price has already risen significantly in recent years as demand rises and existing supply starts to tail off. Inventories are making up for the current shortfall, but that cannot last.

Nuclear generation capacity is expected to grow by 2.6%/year up until 2040 with a sharp increase in demand from Asia. This means that there needs to be large amounts of uranium production developed over the coming years.  

That places Neo Energy Markets in a strong position. The JORC compliant mineral resource at Henkries Central and Henkries North is 4.7m lbs U3O8 with a JORC compliant exploration target of 1.1-2m lbs at Henkries North. Less than 10% of the area has been fully explored. A 7,000-metre drilling programme is planned.

The uranium mineralisation is hosted in shallow sediments, and it is generally within eight metres of the surface. That will keep the costs of mining down, with pilot scale tests suggesting 85% leach recovery. It is also in an area with the required infrastructure.

If things go well the mine could be up and running in three years. Even if it takes longer, it will come on stream at the right time to reap the benefits of falling global production.

Funding

Neo Energy Metals will raise £4.88m, but some of these shares will be issued in tranches over the coming year at 0.75p each. There is also a debt for equity swap. Quinton van der Burgh already owns 4.93% and he is subscribing for the additional shares, which would give him 28.8% of the company. He has just been appointed to the board of Shuka Minerals (LON: SKA).

There are admission costs of £472,000, plus transaction costs of £1.59m. That leaves £2.8m. This will fund the business so that it can complete the feasibility study for the project.

The shares issued were at various prices. There were 162.1 million issued at 0.2267p each, 170.5 million at 0.75p each and 12.92 million at 1.25p each. There are another 406.7 million to be issued at 0.75p each. The Stranger Holdings share price was suspended at 1.375p.

There are 260 million performance shares that will convert into ordinary shares after two individual milestones. The first 50% tranche depends on the achievement of a JORC compliant resource of more than 10 million tonnes of U3O8 at an average grade of 399ppm. The rest will be converted on the grant of the mining right for the Henkries project.

If the performance shares are issued, there are also 100 million shares issued as deferred consideration and 275.35 million warrants can be exercised, then the fully diluted share capital is 2.26 billion shares. At 1.25p/share, the diluted market capitalisation is £20.3m.

Two previous deals announced by Stranger Holdings failed. When a company reverses into a shell, sometimes there are original investors that are not attracted to the acquisition and decide to sell. This is not a reflection of the business because they probably expected an acquisition in a different sector.

Even though there may not be much selling, it could hold back the share price in the short-term and provide opportunities to buy. The project appears well timed because of the increasing gap between supply and demand. Because of the past exploration, Neo Energy Markets knows that the uranium exists it is just a question of assessing its full extent and getting it out of the ground. That will require decisions on financing.

The FTSE 100 was in a holding pattern on Wednesday as investors weighed contradictory commentary on interest rates, falling oil prices and soft Chinese economic data.

London’s leading index was up just 4 points to 7,414 at the time of writing.

“The FTSE 100 may have recovered from the lows seen in late October, as investors react positively to the latest decisions and noises from central banks, but it is stopping short of a full-blown rally for now,” said AJ Bell investment director Russ Mould.

“The index is flat, despite more gains in the US overnight, and the debate continues to oscillate between higher rates for longer and the prospect of rate cuts in 2024. Evidence of the continuing lukewarm Covid recovery in China is also not helping sentiment with Asian markets weak.”

Weaker oil prices were also a drag on equities as oil majors fell and concerns rose about demand.

FTSE 100 movers

Marks & Spencer was the FTSE 100’s top gainer after announcing a bumper increase in profits and sales to the extent the company declared their first dividend since 2019. Investors would have been pleased to see strength in the clothing business as a turnaround strategy shows signs of success.

“The real talking point was the reintroduction of dividend payments, which should put a spring in investors’ steps. The yield is relatively low, but it marks a moment of significance for the group, and it’s a real statement of confidence around the outlook for the business from M&S’ management,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

Marks & Spencer shares were 9% at the time of writing.

Hargreaves Lansdown was at the bottom of the pile on Wednesday with losses of 3% after being downgraded to ‘sell’ by analysts at UBS who gave the wealth platform a 650p price target. Hargreaves Lansdown last traded at 705p.

Associated British Foods continued yesterday’s rally adding 2.5%.