London pre-open: Stocks seen down after oil price surge

(Sharecast News) - London stocks were set to fall at the open on Wednesday as a surge in oil prices sparked worries about inflation. The FTSE 100 was called to open 26 points lower at 7,412.

CMC Markets analyst Michael Hewson said: "European markets fell for the second successive day yesterday, as weak services PMIs for August, along with concerns over sticky inflation briefly pushed the FTSE 100 and DAX to one-month lows.

"With oil prices jumping to their highest levels since November after OPEC+ extended their production cuts into the end of the year, there is increasing concern that the rise in oil prices that we've seen since June, will put a base under the recent slowdown in prices, and keep inflation at elevated levels for longer.

"This fear is being reflected in a sharp rise in bond yields on both UK gilts and US treasuries yesterday, with the US dollar also rising to 6-month highs. The rise in yields and oil prices also serves to complicate the challenge facing central banks in their battle to bear down on inflation and drive it back towards their 2% target rate.

"The rise in yields also pushed US markets lower on the day and looks set to translate into a lower European open."

On the macroeconomic front, the S&P Global construction PMI for August is due at 0930 BST. It's expected to have slipped into contraction territory, from 51.7 in July to 49.8.

In corporate news, housebuilder Barratt reported a fall in annual profits, cut its dividend and said there would be no share buyback this year as higher borrowing costs hit mortgage affordability.

The company recorded a 16% fall in adjusted pre-tax profit to £884.3m. The full-year dividend was cut to 33.7p a share from 36.9p each a year ago.

"Looking ahead, we recognise that there are significant macro-economic headwinds, most notably the continuing inflationary pressures and the resulting interest rate environment which is impacting mortgage affordability and availability in the UK, as well as economic growth, employment and consumer confidence and spending," Barratt said in a statement.

Darktrace met analysts' estimates, reporting a 31% jump in full-year revenues to $545.4m, for a nearly 40-fold jump in net profits to $58.96m. All geographies and customer sizes were said to have registered "strong" year-on-year growth.

Over the 12 months ending on 30 June, adjusted operating earnings before interest, taxes, depreciation and amortisation rose 52% to $139.2m. Free cash flow on the other hand dipped 5.8% to $93.75m. Dragging on the latter was the net settlement of vesting equity grants in the period for executive directors.

Guidance for full-year 2024 adjusted EBITDA margins was lowered to 17% to 19%, but that for revenues was confirmed.

Elsewhere, stationery and books retailer WH Smith said its full-year figures will be in line with expectations as strong trading at its airport and train station locations offset a weak performance on the high street.

Group revenues for the year ended 31 August were up 28% year-on-year, rising 18% on a like-for-like basis. Travel sales were up 42% (+27% LFL) while high street sales fell 1% (+1% LFL).