Today's Markets: More questions than answers at the start of 2023 – Investors Chronicle

The FTSE 100 was the best performing major benchmark through 2022 and it’s got off to a good start this year, up 2.6 per cent since the UK returned to work on Tuesday – well, most of the UK. Always best not to read too much into performance at the start of any year, but any positivity does mean the likely course for interest rest is more difficult to determine than it was at this point last year
UK interest rates could peak at 4.25 per cent in March, but we should keep in mind that the inflationary effects over the past 15-months were mainly driven by supply-side effects – and whether these will dissipate this year is open to question. 
US Federal Reserve officials remain hawkish ahead of any evidence of a sustained fall in inflation. But it’s worth remembering that “left-field” events have often followed periods when central banks have tightened the spigot, although that may be confusing cause and effect. At any rate, central banks have also embarked on tapering programmes by stopping issuance or declining to roll-over long-dated debt. As our banking correspondent, Julian Hofmann, recently noted, this could have a profound effect on market liquidity going forward. 
The Bank of England has been pursuing this agenda for just under a year and just as the impact of quantitative easing (QE) varied greatly between the different rounds after inception, the economic impacts of the opposite course should vary significantly over time. QE increases the price of financial assets other than bonds, such as shares, so the change of tack by central bankers will continue to influence stock market valuations through the remainder of this year and beyond – only the degree is open to debate. It could be that the bulk of the “foolish money” ended up supporting high-growth sectors, in which case the FTSE 100’s outperformance shouldn’t surprise anyone. You can read more on that here.  
Shell (SHEL) has said its tax bill will be $2bn (£1.7bn) higher in its fourth quarter due to UK and EU levies on profits – although it will only be handed over later in the year. The energy giant’s fourth quarter trading update, which comes before next month’s results, also revealed its integrated gas business suffered a drop in volume while the upstream division’s guidance has been tightened higher to 1.825mn-1.925mn barrels of oil equivalent per day. 
Jefferies analyst Giacomo Romeo said the update laid the foundation for a $6bn buyback programme alongside the February 2 results release, up from the $4bn seen after the third quarter. AH
Topps Tiles (TPT) has accused its biggest shareholder of attempting to exert control over the business through its minority stake, while at the same time setting up a potential competitor.
Topps said that Austrian private equity firm MS Galleon (MSG), which owns a 29.9 per cent stake, “has made it clear on a number of occasions that it believes that the size of its shareholding entitles it to expect the company’s management and the board to be fully compliant with its requests”.
These requests have included a requirement to source 29.9 per cent of its products from Cersanit – a Polish ceramics manufacturer owned by MSG – changes to its board and to support MS Galleon’s UK growth ambitions. It also claimed MSG is planning to launch Nexterio – a tile retail brand it owns in Poland – in the UK.
MSG is calling for the removal of Topps Tiles’ chairman, Darren Shapland, at the company’s AGM on 18 January and for the appointment of two of its own representatives to the board.
It claimed that since Shapland was appointed as chairman in 2015, the company’s earnings per share have fallen by more than 30 per cent and that its poor performance has hit shareholder returns.
MSG’s managing director Piotr Lipko said it wanted Topps to source at least 5 per cent of its product from Cersanit to help it generate a higher margin. “Declining margin is one of Topps’ main problems,” he added.
Topps has said that when reviewing the Cersanit products, it found them to be “uncompetitive”.
Standard Chartered (STAN) shares pared back their recent 20 per cent gains after negotiations for a potential takeover by UAE-based First Abu Dhabi Bank ended. The potential merger, first reported by Bloomberg, had given life to Standard’s struggling share price.
Hard-pressed shareholders were open to the idea: the bank is the smallest of the big UK commercial banks and the deal likely would have attracted less regulatory scrutiny than one from a UK rival. Falling revenues and now geo-political tensions between the US and China suggest a consolidation of smaller lenders would be a viable solution as global interest rates tick upwards. It is likely that periodic bid speculation will continue to move the share price. JH.
Shares in components firm Essentra (ESNT) slumped after it reported a drop in fourth-quarter sales. The company, which has recently sold off both its packaging and filters businesses, blamed “tougher market headwinds” for a 3 per cent decline in like-for-like revenue in the three months to December. Its European arm continued to grow but it blamed weaker US sales on distributors and said its Asian arm had been affected by Chinese lockdowns, which it expects to ease following the lifting of restrictions.
Within the past few months, Essentra has completed the sale of its packaging arm for £312mn to competitor Mayr-Melnhof and its filters arm to Centaury Management for £262mn. It will retain some of the proceeds to repay some of its debt but intends to hand back £150mn to shareholders through a one-off dividend. Essentra shares fell by 8 per cent in early trading to 215p. MF

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