The FTSE 100’s heavy weighting towards natural resources was evident on Thursday as London’s leading index was launched higher by mining stocks after JP Morgan analysts upgraded Rio Tinto and Anglo American.

The FTSE 100 was 1% higher at the time of writing, with Anglo-American surging 5.5% and Rio Tinto not far behind with a gain of 4.6%.

JP Morgan analysts upgraded both stocks to neutral from underweight, citing improvements in Chinese steel demand.

“China steel demand has proven more resilient as infrastructure demand offsets poor property sector demand and excess output is finding its way to the export market. With the iron ore market relatively more balanced medium term…we see the iron ore miners offering moderately more attractive valuations,” JPMorgan wrote in a note.

BP and Shell added a decent number of points to the index as oil prices continued to tick higher.

“The miners were doing the heavy lifting for the FTSE 100 on Thursday morning amid positive broker commentary on the sector,” says AJ Bell investment director Russ Mould.

Equities have had the path higher cleared by US CPI, which did little to increase fears about the Federal Reserve hiking rates at their next meeting.

“Inflation data from the US yesterday was mixed but there wasn’t anything in there to cause major alarm for either investors or the Federal Reserve, even if energy prices are starting to become a relevant inflationary pressure again,” said Mould.

Markets will learn of a raft of US economic data on Thursday with the potential to move markets and shift interest rate expectations.

US futures were pointing to a positive open.

ECB hikes rates

After natural resource companies drove Thursday morning’s trade, attention quickly shifted to the ECB and their rate decision. The ECB hiked rates by 25bps to 4%, and markets will now be fixated on whether they are finished with their hiking cycle.

The Bank of England and the Federal Reserve will meet next week to decide on rates.

In August, we discussed whether THG shares could break the 110p level to the upside, concluding falling revenue was a major concern and “costs will be key in the half-year report as the top line looks to be under pressure following a poor Q1.”

On the release of the half-year report, it is evident revenue is still under pressure and costs are still a problem. THG shares were down around 16% at the time of writing on Thursday.

THG reported a decline in revenue to £969.3m in H1 2023, a 9.3% decrease compared to the same period last year. This was primarily driven by the strategic exit of non-core divisions, reductions in beauty manufacturing volumes, and a shift in focus away from certain beauty markets.

Excluding manufacturing, total sales in the UK were broadly flat for THG Beauty and THG Nutrition combined.

The reduction in beauty manufacturing volumes had a significant impact on profitability, with a £9.5m reduction in EBITDA contribution year-over-year due to the fixed cost base. Excluding manufacturing, THG Beauty saw an encouraging 60bps improvement in adjusted EBITDA margin compared to last year through effective cost management.

THG Ingenuity saw a 14.9% revenue decline and 80bps EBITDA margin reduction as it shifts focus to larger, higher quality clients. This has a longer lead time to revenue realization but will provide more sustainable long-term growth.

“Digital commerce platform THG continues to face an uphill battle to be seen as a credible business with the market,” said AJ Bell investment director Russ Mould.

“Another period of operating losses and with more moving parts than a Swiss watch, it’s no wonder that investors struggle to get their head around exactly what this company is trying to do. The word ‘adjusted’ is used 118 times in the half-year results, which says it all.

“The nutrition business looks to be improving, helped by inflationary pressures easing. It wants to build sports nutrition brand Myprotein into a global lifestyle brand – notably, this part of its business has been the focus of activist investor Kelso which has called it one of THG’s undervalued assets.

“THG seems to realise that something has to change if it is to win over the market’s favour, hence the recent disposal of two loss-making businesses. That reinvention journey needs to speed up if it wants the share price to move higher. As it stands, the latest results went down like a lead balloon with the market, the shares falling nearly 18% in the first hour of trading.”

Despite the unfavourable market reaction, there were some positives to take away from THG’s update.

THG Nutrition saw substantial improvement in profitability, with adjusted EBITDA margins increasing 560bps to 13.8%, ahead of medium-term guidance. This reflects the unwinding of high whey prices over the period.

Adjusted EBITDA increased to £47.1m, up from £32.3m last year, as the company exited loss-making businesses. Operating losses were £99.5m, including one-off charges from asset disposals.

The FTSE 100 was down slightly on Wednesday as investors assessed the latest instalment of US inflation data and a surprise contraction in the UK economy.

Today’s US inflation report was highly anticipated and when markets learned of the 3.7% CPI read, global equity markets slipped in the immediate market reaction, before reversing the move.

Economists had predicted US CPI to increase 3.6% and the 3.7% print did little to ruffle investors’ feathers, although it set a tentatively bearish tone.

Month-on-Month Core US Inflation – the reading closely watched by interest rate setters at the Federal Reserve – came in at 0.3%, slightly higher than the 0.2% expectation.

Slightly higher core inflation will increase the chance of the Federal Reserve hiking this month, but it doesn’t nail on a rate hike. The current consensus is for the Federal Reserve to keep rates on hold at their meeting next week.

Uncertainty around rates may cause some risk aversion in the coming days.

The FTSE 100 was down 0.15% at the time of writing on Wednesday.

UK banks and housebuilders were among the top risers on Wednesday after UK GDP contracted in July. The poor reading raised hopes the Bank of England would hold off hiking rates at the next meeting.

Indeed, if poor economic data continues, the BoE may be forced to cut rates which would support the UK housing market.

Interest rate decisions

The Bank of England will announce their rate decision next Thursday, a day after the Federal Reserve’s decision on Wednesday. Both events have the potential to move markets but the outcome is far from certain and the BoE has form for surprising markets.

Before that, the ECB will reveal their next move on rates tomorrow.

“The European Central Bank’s (ECB) next interest rate decision, on Thursday, looks like a very close call,” said Henk Potts, Market Strategist at Barclays Private Bank.

“Markets have been pricing in around a 40% chance of a quarter point rate increase. The ECB has moved to a data-dependent approach and, as such, is likely to be influenced by the deceleration in price pressures highlighted in August’s inflation report and the lacklustre level of gross domestic product growth (0.1%)  in Q2.”

Chip maker EnSilica has been awarded a major contract to supply a custom sensor ASIC for the rapidly growing e-mobility market. The deal, worth over $7 million across the first five years, will see EnSilica design and manufacture a mixed signal sensor chip for electric vehicles, e-bikes, e-scooters and other electrified transport.

With the non-recurring engineering costs fully funded by the client, EnSilica expects to complete the majority of design work this financial year, before commencing volume production in mid-2025.

The contract signals EnSilica’s entry into the high-growth e-mobility space, projected to reach $325 billion by 2030. With innovation driving demand for differentiated products, EnSilica’s ASIC capabilities position it strongly to capitalise on custom chip opportunities across electrified transport.

Ian Lankshear, Chief Executive Officer of EnSilica plc, commented:

“We are pleased to announce this new supply contract in a key growth market undergoing significant innovation and adoption globally. The technological demands across the e-mobility market are similar to those of the automotive market, and we look forward to capitalising on our proven automotive expertise to further expand our market reach.”