UK Corporate Credit Distress Likely to Rise -2-

1455 GMT - Central banks are coming to terms with the difficulty of taming inflation, after more than a year of synchronized tightening, economists at Dun & Bradstreet's Country Insight Group say in a report. Trends still suggest that a glass-half-empty approach to inflation is more realistic, they say: inflation is above targets in most developed markets, core inflation remains sticky, and the decline is partly now attributable to base effects. "Simply put, lower inflation only means prices are still rising, but not as fast as they were last year, when prices went very high, very fast," the economists say. The positives only come in that monetary tightening has achieved what it was supposed to, in bringing about a peak in headline inflation, albeit with varying successes, they add. ([e-mail])

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Divergent Central Bank Policies Persist Despite Global Slowdown

1438 GMT - Even though the global economy is playing to the "slowdown" script that central bankers have written over the past year, there are stark divergences in policy reactions in different regions, economists at Dun & Bradstreet's Country Insight Group say in a report. While peak interest rates are nearing in most economies, the central banks of Canada and Australia recently resumed interest-rate hikes after pausing briefly, the Fed skipped hiking in June, the ECB persisted with incremental hikes, while the Bank of England stepped up its hiking in response to hot inflation readings, they say. But Japan held rates in negative territory and China cut its rates to support growth. "We expect this divergent approach towards monetary policy to widen even further over the next two quarters," the economists say. ([e-mail])

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UK Inflation Outlook Remains Bleak Despite Weaker Data

1438 GMT - Markets have likely placed too much weight on Wednesday's data showing a bigger-than-expected drop in U.K. inflation as the outlook remains bleak, says T. Rowe Price chief European economist Tomasz Wieladek in a note. The decline in U.K. headline inflation in June--to 7.9% from 8.7% in May--was mainly driven by falling food and energy prices, while domestically-generated services inflation--the Bank of England's main concern--only declined marginally, Wieladek says. "Wednesday's inflation data reveal significant upstream pressures in services inflation, meaning there is still a lot more services inflation in the pipeline," he says. "Financial markets are attaching too much weight to this one inflation print, especially because the Bank of England is concerned about medium-term inflation," Wieladek says. ([e-mail])

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UK Sectors With High Rate Sensitivity Include Retail, Real Estate, Construction

1432 GMT - The sectors in the U.K. which have high sensitivity to increases in interest rates are retail, transport, hotels/restaurants, real estate and construction, Capital Economics says in a note. These sectors account for 37% of real GDP and contain spending that is either discretionary or often funded by loans, it says. Those with low sensitivity to higher rates are public administration, agriculture, utilities, finance, mining and ICT, which account for 22% of GDP. The remaining sectors have medium rate sensitivity and account for 41% of GDP, Capital Economics says. ([e-mail])

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Aston Martin Looks Set to Benefit From New Products

1342 GMT - Aston Martin Lagonda Global Holdings is likely to make steady progress in the next couple of years as an unprecedented line-up of new products paves the way for a turnaround in fortunes, Goldman Sachs says. The iconic sports-car maker is expected to launch one new core model every quarter by the end of 2024 and new specials should help to boost average selling prices, gross margins and ultimately EBITDA, Goldman says. Still, its shares have fallen about 37% since the start of 2022, Goldman says. "We don't believe the share price gives full credit to AML meeting its near-term (2024/25) targets," Goldman analysts write, upgrading it to buy from neutral. Shares, on which Goldman has a 413 pence target, rise 5% to 349p. ([e-mail])

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3i Group's 1Q Update Should Hold Limited Surprises

1311 GMT - Limited surprises are expected at 3i Group's first-quarter trading update, Citi says in a note ahead of the investment manager's statement on Thursday,given that it has already flagged that it had another good quarter of profit growth in an update late June. Analyst Samarth Agrawal models a net asset value per share of GBP18.2 for the quarter, slightly below VisibleAlpha's GBP18.3 estimate which implies 5% on-quarter growth. Looking ahead at the second quarter, "we further expect positive seasonality growth at [its largest investment] action into summer as well as better margin mix (mid-40s margin for seasonal products vs low-to-mid-30s for essentials)," he adds, modeling a net asset value per share of GBP18.8. A company-compiled consensus has NAV per share at GBP20.24 for fiscal 2024. ([e-mail])

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L&G Seen as Most Affected by IFRS 17 Change in Short-Term

1232 GMT - The new IFRS 17 accounting standard will affect Legal & General most out of the insurers as its operating profits will fall by 30% and shareholder equity by 50% compared with the old standard, Berenberg says in a note. "We believe this poses a short-term tail risk to the company as analysts update their estimates to reflect the new accounting regime," analyst Thomas Bateman writes. In the long-term, the new standard may be a net positive as growth in contractual service margin--a new balance sheet liability reflecting expected future profits from its existing insurance business, which is the largest driver of operating earnings when released--should look better at L&G than at many of its peers, he writes, noting the group is growing strongly despite macroeconomic headwinds. ([e-mail])

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European Stocks Gain Ahead of Likely Flat US Open

1230 GMT - European stocks mostly rise after mixed Asia trading and ahead of an expected broadly flat U.S. open. The Stoxx Europe 600 gains 0.2%, the CAC 40 advances 0.1% and the FTSE 100 surges 1.5% as London stocks react positively to a better-than-expected slowdown in inflation, though the DAX drops 0.3%. IG futures data show the Dow opening at 34958, versus Tuesday's close of 34951. Brent crude rises 0.8% to $80.30 a barrel. "Chinese markets fell again overnight, as worries about the outlook for that country's economy bedeviled investors," IG analysts write. "Other indices were more positive, with Japan's Nikkei 225 up 1.2% and the ASX 200 up 0.5%. Netflix, Tesla and Goldman Sachs are all on the schedule for earnings today." ([e-mail])

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Capital Ltd Still Seen as Undervalued

1153 GMT - Capital Ltd. is a high-quality company competing in a fragmented market and continues to be undervalued, Canaccord Genuity analysts Alex Bedwany and Tim Huff write in a research note, keeping the buy rating for the mining-services stock. The company reported 1H results, missing revenue expectations, but the key news was the mining contract win at the Belinga iron ore mine in Gabon, for which the company estimates revenue of $30 million annually, the analysts say. Canaccord lifts working capital and capital expenditure estimates for the company due to the planned build-out of the mining business but flags the planned expansion would also derisk the company thanks to multiple revenue streams. "While we don't view the recent build of payables as a major concern...we continue to look for a reversal of this trend," they say. Shares are up 1.4% at 89.60 pence. ([e-mail])

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Whitbread Seen Benefiting From Germany's Rebound

1133 GMT - Whitbread's largest source of upside to its long-term equity story is Germany, Jefferies analysts say in a note. Hospitality research firm STR's June data shows a rebound in Germany, implying a 26% rise in revenue per available room compared with the prepandemic year of 2019 and suggests a balanced recovery between pricing and occupancy, Jefferies says. Germany's mature estate was profitable in Whitbread's fiscal 3Q for the second consecutive quarter and the hotel-and-restaurant company has reiterated its ambition for the whole German business to turn breakeven in calendar 2024, Jefferies says. Balance-sheet strength implies GBP550 million in cash firepower for new management to acquire freehold and enter leasehold contracts, Jefferies says. "Accelerated growth should drive a re-rating," it says. Jefferies rates the stock buy with a 4,200-pence target price. ([e-mail])

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Restaurant Group Under Pressure Over Shareholder Returns

1109 GMT - For Restaurant Group the need to grow shareholder returns remains as high as ever with the pressure to make large disposals in place, Peel Hunt analysts Douglas Jack and Ivor Jones say in a note. The company's position has been to let the trading do the talking--and it is talking--the analysts say, adding that if 3Q trading continues to be strong September should see forecast upgrades. "Otherwise, the market will expect an increase in the likelihood of corporate activity," they say. Peel Hunt's adjusted pretax profit forecasts for 2023 are GBP21 million with sales of GBP914 million. Peel Hunt rates the stock buy and has a 70 pence target price. Shares are up 3.7% at 40.45 pence.([e-mail])

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Antofagasta's 1H Should Avoid Major Negative Surprises Despite Weak 2Q

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