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Investors Shrug Off Interest Rate Worries And FTSE 100 Heads Higher

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  • FTSE 100 opens higher, powering back up to record highs.
  • Housebuilders shake off latest RICS survey showing a January demand freeze.
  • Compass shares rise after the caterer reports a 24% surge in revenue.
  • Entain slides after takeover rumours were quashed
  • AstraZeneca profits beat expectations on modest sales
  • Disney reorganises into three divisions and joins the wave of jobs lay-offs

FTSE 100 Heads Higher

The FTSE 100 powered up in early trade, gaining more ground back towards the record high, as winds of worry over how far interest rates will go are blown away again. The defensive, international nature of the index has provided the seeds of growth, but an improved forecast for the UK economy this week is also adding fresh nutrients. There are hopes the forecasts could see fresh confidence emerge from consumers and limit the expected belt-tightening.

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The UK housing market may be in the doldrums, with sales in the deep freeze in January, but investors are still seeing rays of light on the horizon. The RICS survey indicated sharply lower buyer demand, as the painful mortgage hikes fed through following the mini-budget, but with deals coming down as interest rate expectations have lowered, pessimism has eased and housebuilders still have a small spring in their step.

Compass's Earnings

Catering group Compass (LON:CPG) has plenty on the menu to spark appetite, with the main course of a 24% surge in revenue in the first quarter particularly pleasing. As the world has been returning to the office, demand for food for events has rebounded sharply, likely helped by firms and organisations focusing on pulling staff back in for networking, even if they work at home for part of the week.

New business wins have also helped push worries about rising costs into the background. The company is mindful that there could still be an unappetising period on the way, given the continued cost-of-living crisis, but its contracts with schools, care homes and hospitals could keep providing steady income.

Entain PLC (LON:ENT) has fallen sharply after rumours about a possible takeover were quashed. Speculation that MGM might be ready to make a move were shut down by the company during an analyst call. BetMGM, Entain's joint venture with US-based MGM, has been a shining light for the group that's expected to start turning a profit over the second half of 2023 and that’s partly why the rumour mills have been whirring.

Astrazeneca's Earnings

Shares in Pharma Giant AstraZeneca plc (LON:AZN) have responded well to its full year results which saw revenues and earning expand by 25% and 33% respectively at constant exchange rates. But the fourth quarter was much slower at just 2%. A big drop in COVID vaccine sales is part of the larger COVID cliff that is may impact the industry in the short term.

Growth was also boosted by the acquisition of rare disease specialist Alexion. Perhaps it’s no surprise that 2023 guidance is for a more muted year with total revenue guidance in the low to mid-single digit range.

Excluding COVID medicines this creeps into double digits. However, the pipeline is strong and stretches well beyond COVID. This is giving CEO Pascal Soriot confidence that Astra is on a path to deliver at least fifteen new medicines before the end of the decade.


Investors Shrug Off Interest Rate Worries

Investors are shaking off another case of the jitters over how far interest rates will go in the United States, as a raft of better than expected corporate results came in after the bell. Walt Disney Co (NYSE:DIS) is planning to unfold its next corporate story in three separate books, splitting into a Parks division, Disney Entertainment, and an ESPN sports division.

But the House of Mouse is also embarking on a chapter of dramatic cost-cutting, with $5.5 billion set to be shaved off, including $3 billion on content spend. Growing subscribers by spending less on hit shows won’t be easy, but the company does have the large back catalogue up its large princess sleeves and can win new younger fans for classics through cross selling at theme parks.

Disney has joined the jobs lay-off deluge, reducing staff numbers by 7,000, around 3% of the workforce, a move which will also assuage investors’ concerns that hefty price hikes at parks instead of cost cutting elsewhere will just alienate customers over the longer-term. Already the streamlining strategy has been well received with the share price rising 5% in after-hours trading.

The hiving off of ESPN is raising speculation that it’s being styled for a possible spin off, but for now at least that is not on the cards according to boss Bob Iger, although it’s clear the company is planning to be a lot more selective in sports rights negotiations, to trim costs.

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown