0748 GMT – The U.K. economy’s heightened sensitivity to higher interest rates versus other economies would argue for a 25 basis-point interest-rate rise by the Bank of England on Thursday, but still a 50 basis-point rise is very likely, Georgina Taylor, multi-asset fund manager at Invesco, says in a note. “It is very likely that they hike by 50bps as a behavioural response to other central banks hiking to stave off inflation and the risk of being seen to being behind the curve,” she says. Markets overwhelmingly price in a 50bp BOE rate rise for Thursday, which would bring the bank rate to 1.75%, while a small minority expects only a 25bp increase. (emese.bartha@wsj.com)
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Mondi Shares Slip After Last-Minute Expectations Miss
0736 GMT – Mondi’s second-quarter Ebitda was good, rising on-quarter, but it modestly missed buy-side expectations that were raised just before the result’s publication, explaining the share-price slip in early trading, Jefferies says. The paper-and-packaging company’s 2Q Ebitda of EUR482 million–excluding Russia–was higher than the first quarter’s EUR460 million and it beat a previous limited market consensus of EUR440 million to EUR460 million, but buy-side expectations moved higher just before publication to around EUR500 million, so it ended up a 4% miss, Jefferies analysts Cole Hathorn and Michele Filippig say in a research note. That said, “pricing remaining strong into 2H, and… reassuringly Mondi expects a good year of progress.” Jefferies retains its buy rating and 1,775.0 pence price target. Shares are down 2.6% at 1,568.0 pence. (joseph.hoppe@wsj.com)
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A 50Bp BOE Rate Rise Would Only Mean Catch-Up With Peers
0729 GMT – From an investment perspective, a 50 basis point interest rate rise by the Bank of England wouldn’t necessarily mean the BOE is about to embark on an accelerated hiking cycle, rather it is more of a catch-up with the frontloading of policy tightening by peers, says Robert Alster, chief investment officer at Close Brothers Asset Management. “It could be joining both the Federal Reserve and the European Central Bank in frontloading tightening,” he says. Given the uncertainty around U.K. fiscal policy and less-than-expected slack in the labor market, the BOE’s Monetary Policy Committee may be ready to take a more hawkish tone, he says, but adds that forecasts will remain uncertain until the Tory leadership race is won, and fiscal policies are confirmed. (emese.bartha@wsj.com)
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Next Seen Able to Deliver Higher Rate of Sales Growth After 2Q
0719 GMT – Next is relatively well positioned in the fashion industry and has the potential to offer investors a strong online and cash-returns story after its second-quarter sales update, RBC Capital Markets says in a research note. Long term, the fashion retailer should benefit from its broad range and strong omnichannel offer, with fast, highly automated logistics and a well-developed customer base, the bank says. “Next faces U.K. consumer headwinds, however over the cycle we think Next should be able to achieve a higher rate of sales growth than the 2% that it has achieved historically,” RBC says. The bank has an outperform rating on the stock and a target price of 6,800 pence a share. Shares are up 1.7% at 6,866.00 pence. (sabela.ojea@wsj.com; @sabelaojeaguix)
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Rolls-Royce 1H Numbers Look Acceptable But Civil Benefited From Retrospective Tailwind
0719 GMT – Rolls-Royce Holdings’ first-half numbers look ok on a headline basis, but the performance in Civil was still boosted by a significant retrospective catch-up tailwind, Jefferies’s equity analyst Chloe Lemarie says in a research note. The U.K. engineering company did though reiterate guidance and provide more quantified targets, despite challenges, she says. “We are disappointed that Civil margin once stripped of a number of one-offs, remains well below breakeven,” Lemarie says. Jefferies has a hold rating on the stock with a target price of 1000.00 pence. Shares trade down 5.3% at 85.99 pence. (kyle.morris@dowjones.com)
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Serco’s 1H Results Show It Is a Good Bet in Uncertain Markets
0711 GMT – Serco Group’s first-half results were ahead of the increased guidance in its May trading update, with trading profit and net debt both beating expectations, RBC Capital Markets says. The U.K. outsourcing company also showed off a robust pipeline–which was up 40% on year–an 18% increase in the dividend to 0.94 pence, and a further increase in guidance to reflect a strong performance in June and July and positive foreign-exchange movements, RBC analyst Andrew Brooke says in a research note. “We continue to see Serco as a good place to be in the current uncertain environment given its defensive nature, high visibility, strong momentum, balance-sheet strength and undemanding valuation,” the Canadian bank says. RBC retains an outperform rating and 205 pence price target on the stock. (joseph.hoppe@wsj.com)
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BOE’s QT Details Might Impact Gilt Curve Flattening Outlook
0704 GMT – Details to be provided by the Bank of England about quantitative tightening may help determine whether the reflattening of the 10-30-year segment of the gilt curve can persist into growing supply and fiscal risks from the autumn, Citi’s rates strategists write in a note. The BOE is set to reveal the QT strategy at Thursday’s policy meeting, ahead of active sales, potentially from September, the strategists say. Despite uncertainty about QT, there has been a revival in the long end of the gilt curve, they add. The 10-year U.K. gilt yield is trading at 1.922%, down 0.7 basis points, according to Tradeweb. The BOE’s monetary policy report and interest rate decision are due at 1100 GMT. (emese.bartha@wsj.com)
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BOE’s Outlook, Rate Rise Signals Seen as Key For Sterling
0703 GMT – The Bank of England is widely expected to raise interest rates by 50 basis points to 1.75% in a policy decision at 1100 GMT Thursday, which shouldn’t in itself provide much support to sterling, Commerzbank says. More important will be the BOE’s new economic projections, along with any signals on future rate rises, Commerzbank currency analyst Antje Praefcke says in a note. “If the BOE gives the market the impression that its expectations are too high, GBP/USD might ease towards 1.20 again.” Sterling’s losses against the euro are likely to be limited amid uncertainty over how much the European Central Bank will lift rates given the looming energy crisis, Praefcke says. GBP/USD and EUR/GBP are flat at 1.2148 and 0.8370 respectively. (renae.dyer@wsj.com)
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(END) Dow Jones Newswires
August 04, 2022 05:18 ET (09:18 GMT)
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