The FTSE 100 was relatively subdued on Friday as markets continue to digest softer economic data and weighed the prospect of recession in major economies.

After a global recession looking almost certain this year, markets had been buoyed by more optimistic forecasts.

However, this week’s poor Chinese GDP growth figures, slower than expected US and UK retail sales, and stubbornly high UK inflation once more raised concerns about the health of the global economy.

Heavy selling in Europe yesterday subsided on Friday with the FTSE 100 carving out minor gains going into the close.

There was further demonstration of positioning towards cyclical sectors and rotation away from defensive names, which provided insight into mild underlying optimism. Miners, banks and consumer shares gained while those with bond-proxy attributes fell.

Consumer shares including JD Sports, Ocado, Kingfisher and Sainsbury’s were on the up, despite disappointing UK retail sales figures for December released this morning.

It is interesting to note the disconnect between the 1% monthly drop in December’s UK retail sales measured by the ONS, and the relatively upbeat festive results from most of the FTSE 100’s consumer stocks.

SSE was one of the top risers after a positive update that included a sharp revision higher in their EPS guidance.

UK banks

Banks were among the gainers as investors positioned for higher rates. Despite concerns about global growth, central banks are predicted to hike rates further in the coming months – a major headwind for banking earnings.

“While data suggests inflation is easing in parts of the world, many central banks are still intent on raising interest rates further which creates an opportunity for banks to improve earnings, as long as they aren’t stung by rising bad debts in a recession,” said Russ Mould, investment director at AJ Bell.

Lloyds shares briefly touched the psychological 50p mark earlier this week, before falling back. Shares in Barclays, Lloyds and Natwest edged higher on Friday.

SSE have evidently enjoyed the period of higher wholesale electricity prices as they increase EPS guidance by 25%

The power generator has increased EPS guidance from 120p to 150p as it reaps the rewards of operating in an industry buoyed by higher wholesale power prices.

In addition to higher wholesale prices, SSE Renewables unit generated more power from offshore and onshore wind, as well as hydro, in the nine months to 31st December. Output amounted to 6,860 GWH, materially higher than the 5,920 generated in the same period a year ago.

However, renewable output was only 90% of the planned 7,623 due to adverse weather conditions and delays to their Seagreen project.

SSE will make record investment this year as it pursues a fully-funded £12.5bn investment into a programme designed to achieve net-zero goals.

“SSE raised its full-year EPS guidance for 2022/23 by a lofty 25%. Higher gas prices and better gas storage optimisation were to thank for this, helping to offset lower than expected renewables output. Overall, the struggling markets appeared to like this update and the group’s valuation is now trading up around 9% over the past year,” said Aarin Chiekrie, Equity Analyst at Hargreaves Lansdown.

Chiekrie also alluded to the strength of the SSE dividend, even after the company choose to focus on investment into their infrastructure and the cost of higher dividends. The dividend will be rebased to 60p for 2023/24 and grow at 5% per annum thereafter.

“Despite the rebase of its dividend to fund investment plans, the group’s still paying a healthy dividend at a 3.9% forward yield. But remember, no dividends are guaranteed.

The AGM Statement from Character Group (LON:CCT) reported that trading conditions have remained challenging, with sales in the four months to end December showing some 42% lower.

The designers, developers and international distributor of toys, games and giftware is hoping that its participation in next week’s London Toy Fair might help to lift its sales for the remainder of the current year to end August.

Analyst Opinion – halved profits

Ian Jermin at Allenby Capital, the company’s joint broker, notes that the stronger US dollar and higher input costs have been creating margin pressures.

He is expecting sales this year to fall to £145.0m (£176.4m) while adjusted pre-tax profits will more than halve to £5.5m (£11.4m), slashing earnings to 22.2p (45.7p) but increasing its dividend to 19.0p (17.0p) per share. 

Jermin sees the group’s net cash easing just £2m to £18m, keeping up its strong balance sheet, hence the progressive dividend policy.

Conclusion – shares to ease before any good news

On the basis of this broker’s estimates the group’s shares fell 60p to 350p on the news. They still look expensive ahead of better sales and profits news being given for its second half-year.