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M&C Saatchi upgrades profits

M&C Saatchi today looked to draw a line under its historic accounting scandal once and for all, as a watchdog investigation into the matter ended and it upgraded profit forecasts.

The storied ad agency, which has close links to the Conservative Party, said the Financial Conduct Authority had closed a year-long investigation into M&C’s 2019 scandal, which pushed the company to the brink and led to the exit of co-founder Maurice Saatchi and three other directors. The FCA is taking no enforcement action over the matter.

In the same update, M&C Saatchi said a flurry of business at the tail end of 2021 meant profits for the year were now set to be “materially” ahead of forecasts and have put the company in a position to resume paying dividends.

Shares rose 6.4p, or 3.6%, to 182.4p, valuing the business at around £220 million.

Read the full story.

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Netflix update sends Scottish Mortgage lower

Slowing subscriber growth figures at Netflix made uncomfortable viewing for London investors today as the jitters over lofty valuations in the tech sector intensified.

The streaming giant’s shares slid 20% after Wall Street’s closing bell, having revealed it expects to add 2.5 million new paying subscribers in the current quarter compared with four million last year.

The Squid Game creator blamed the timing of content releases, but with margins also under pressure it bore the brunt of weaker sentiment caused by the prospect of faster monetary policy tightening.

Tech and high growth stocks on both sides of the Atlantic are vulnerable to US rate hike expectations as their present values are built around future cash flows.

The Nasdaq is at a three-month low and the S&P 500 more than 6% lower so far this year amid other disappointing earnings updates.

The UK stock market has been much more resilient and continues to be in positive territory for 2022, but the margin is narrowing after the FTSE 100 index fell 57.23 points to 7527.78.

Scottish Mortgage Investment Trust, which has 2% of its portfolio invested in Netflix, fell 4% or 47p to 1107p to leave the popular Baillie Gifford fund down 25% since early December.

Other tech fallers included cyber security firm Darktrace and consumer reviews business Trustpilot after falls of 4% in the FTSE 250 index.

Fears that Russia could be about to invade Ukraine added to London’s risk averse mood, with commodity stocks including Anglo American down 2%. BP shares retreated 5p to 384.15p after higher-than-expected crude inventories sent the Brent price down 2% towards $86 a barrel.

A shortened FTSE 100 risers board was led by Rentokil Initial after analysts at Berenberg gave the pest control firm a “buy” recommendation with 640p target price. Shares were 4.4p higher at 531.6p.

Traditionally defensive stocks were in favour after rises for healthcare business Reckitt Benckiser and British American Tobacco. The FTSE 250 index fell 320.24 points to 22,394.74, with corporate merchandise firm 4imprint among the small number of risers after revealing full-year profits will be towards the top end of City forecasts.

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Bitcoin falls below $40,000

itcoin has dipped below the $40,000 mark amid a wider tech sell-off and predictions of a looming interest rate hike, in a blow to investors hopes that it could act as a hedge against inflation.

Bitcoin has fallen from its previous all-time high of over $68,000, reached just two months ago, to trade at $39,216.32 on Friday.

According to price-tracker Coingecko, the entire cryptocurrency market has fallen over 7% in the last 24 hours, with bitcoin slumping 8% in the week.

Victoria Scholar at Interactive Investors said: “Bitcoin has broken below critical support at $40,000 to reach the weakest level since August, retreating more than 40% from the November high.

“The notoriously volatile asset has now retraced more than 75% of its gains since the summer with the potential for risk-off sentiment in equities to continue to weigh on cryptos.”

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Retail sales point to 0.5% GDP hit

Some of the weakness in December’s retail sales may have been due to households bringing forward Christmas shopping into November amid fears of supply chain delays.

But the most important driver came from Plan B restrictions and the uptick in virus caution prompted by the Omicron outbreak.

Capital Economics said the bigger-than-expected fall in retail sales volumes in December supports its view that Omicron may have dragged down GDP by 0.5% month-on-month, if not more.

With Plan B restrictions due to be lifted next week, its UK economist Bethany Beckett remains hopeful that UK retail sales will recoup some of the fall in January and probably all of it by February and March.

But she warned: “With the UK’s cost of living crisis looming, we expect a weaker consumer recovery to restrain retail sales further ahead.”

Inflation pressures mean she continues to expect the Bank of England to increase interest rates from 0.25% to 0.50% in early February.

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FTSE 100 index falls 1%

The UK stock market has outperformed this year, but even the FTSE 100 index is caught in today’s global sell-off after falling 1% or 67.99 points to 7517.02.

Baillie Gifford’s tech-focused fund Scottish Mortgage Investment Trust fell 4% or 47p to 1107p and commodity giants BHP and Rio Tinto retreated 3%.

Earnings disappointments and ongoing concerns over an accelerating monetary tightening schedule had earlier sent Wall Street lower.

Richard Hunter, head of markets at Interactive Investor, said: “The next few weeks are becoming increasingly pivotal in setting the scene for the medium term, both in terms of corporate earnings as well as the equally important outlook and guidance statements coming from those companies on the ground.”

A shortened risers board was led by Rentokil Initial after analysts at Berenberg gave the pest control firm a “buy” recommendation with 640p target price. Shares were 4.4p higher at 531.6p.

The FTSE 250 index was 1.2% lower, down 263.08 points to 22,451.90. Big fallers included cyber security firm Darktrace after a decline of 4% or 17.6p to 418.8p.

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Worse-than-expected Christmas sales slump

Retail sales suffered a worse-than-expected slump over Christmas, new data published this morning shows.

Figures from the Office for National Statistics (ONS) show retail sales dropped by 3.7% in December, against expectations of just a 0.8% fall. Sales were still 2.6% higher than pre-pandemic levels.

The heavy fall in the run up to Christmas comes as Omicron led to a drop in people visiting shops as they were told to work from home. In-store sales fell particularly sharply, dropping by 7.1% for non-food retailers.

Read the full story.

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Netflix subscriber figures disappoint

Netflix shares slumped 20% in after-hours trading after the streaming service revealed it added 8.3 million new paid subscribers in the fourth quarter, below its expectations of 8.5 million but still bringing the overall total to 222 million.

The Squid Game creator expects to add 2.5 million new paying subscribers in the current quarter, down from four million last year due to the timings of new content releases. It comes amid competition from the likes of HBO Max, Apple TV+ and Disney+.

Hargreaves Lansdown analyst Laura Hoy said: “If the content timing isn’t to blame, Netflix could be in for a rough ride after a spending spree at the end of last year that pushed margins six percentage points lower.

“Investors were prepared for the margin decline, but worries over how the group will continue to foot the bill for blockbuster releases are creeping in. Add to that the perils of a sizable debt pile in a rising rate environment, and you have the makings for some very nervous investors.”

Netflix said its full year revenues rose 18.8% to $29.7 billion and operating income lifted 35% to $6.2 billion.

Hoy added: “Netflix needs splashy content to attract new subscribers, whose fees in turn fund new projects. The group’s aiming to expand further within the entertainment space to include gaming as well, so we can’t foresee content spend slowing.

“With that said, management has said it expects to be cash flow positive in 2022 and beyond, so they’re clearly unphased by the slowdown in new members.”

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Late Wall Street slide hits sentiment

A late Wall Street sell-off will mean a sharply lower session for European markets today, with the FTSE 100 index forecast by CMC Markets to drop 80 points to 7505.

The Nasdaq gave up gains of more than 2% earlier in yesterday’s session to finish in negative territory at a fresh three-month low. For once, investors couldn’t blame rising rising bond yields as the US 10-year fell for a second day in a row.

The S&P 500 is also heading for a third consecutive weekly decline for the first time since September 2020, a move that set the tone for Asia markets to follow Wall Street’s lead as the Nikkei 225 also slipped at a three-month low.

CMC’s Michael Hewson said: “The inability of US markets to hold onto yesterday’s move higher is a worry and could well indicate the potential for further losses in the coming days.”

Traders expect another weak session in the US later, with sentiment not helped by Netflix shares sliding more than 20% on the back of the streaming service reporting a slowdown in subscriber growth.

Brent crude oil reached a seven-year high above $89 a barrel earlier in the week, but is back at $86.80 today after selling pressure caused by an increase in crude stockpiles.

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