Market report: Footsie hangs onto gains but Wall Street fizz set to turn flat
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The fizz of relief boosting stocks so far this week looks set to go a little flat, as a wait-and-see mood looks set to spread on Wall Street. Nevertheless, the FTSE 100 has opened higher, continuing its winning streak, as its defensive characteristics fall into favour with investors. Military contractors BAE Systems and Rolls Royce are among the top risers in early trade, as geopolitical tensions stay high around the world, and demand for equipment looks set to stay stronger.
Marks and Spencer shares are higher as the latest retail snapshot demonstrates its prowess in the grocery sector. Despite the cyber-attack causing deep problems across its operations, food remains a bright spot. Kantar data shows that spending on M&S groceries rose by 12.3% in the 12 weeks to 18 May. It is lower than the previous period up to the 20 April, when sales growth came in above 14%. But the supply chain problems caused by the cyber incident which led to gaps in shelves, has clearly not been a big upset to its food business. Its partnership with Ocado has turned a big corner, with the online supermarket marking a full year as Britain’s fastest growing grocer, with sales growth of 14.9% in the 12-week period. Spending patterns across the nation overall indicate that shoppers are still being cautious and piling up deals in trolleys, with spend on deals increasing by 5.1%. It is not surprising that customers are trying to save everywhere they can, given that grocery price inflation has risen to 4.1%. The warm weather saw a little more abandon as shoppers splurged on deli treats during the heatwave with potato salad flying off the shelves. However, with so many consumers keeping tight rein on purse strings, the discounters Lidl and Aldi are showing strength. They ticked up the highest sales growth since January 2024 at 8.4%.
There were some rays of sunshine in the first quarter for B&Q and Screwfix owner Kingfisher, with sales rising 1.8% across the group but there’s still concern about the longer-term picture. The update indicates there was strong demand for seasonal products in the UK and Ireland, even before the May heatwave took hold. This has helped boost revenues by 5.9%, sharply higher than forecasts. A surge in property completions due to the end of the stamp duty holiday is likely to have led to higher sales of products used in renovations, with e-commerce and trade sales also strong. Given the unusually clement weather that unfolded at the start of the second quarter, it’s likely to have kept up demand for B&Q wares, particularly to refresh outdoor spaces. But weakness persists in Kingfisher’s European markets. Although the deteriorating performance in France wasn’t quite as bad as expected, revenues from its operations in Poland were much weaker than forecast, with both markets showing sales decline of 3.2%. So, although Kingfisher has got off to a cracking start in the UK and Ireland, it’s not changing the profit guidance for the year of between £480 to £540 million. The concern will be that the early uplift could just be a flash in the pan for Kingfisher, rather than the start of a more sustained increase in sales. Management say they will also be keeping a close eye on the wider economic environment. Although no significant impact from US trade policy is expected, they will be watchful eyes on the path of inflation. If shoppers have to pay more for essentials, they may be more cautious ahead about spending on home revamps.
All eyes will be drawn to Nvidia’s results due out later, and given the trade tariff turmoil which struck in April, there’s an expectation that the numbers and guidance might not be as stellar as investors have become used to. Nevertheless, Nvidia is still expected to rack up impressive sales growth of around 65% for the first quarter, year on year. The company is dealing with the fallout from fresh US trade restrictions against its H20 chip, designed specifically for the Chinese market. It means it’s writing down the value of its stock by around $5.5 billion, which will land in these results. There is an expectation that the outlook for Q2 will be slightly weaker than previously forecast, but there could well be a surprise on the upside. Updates from Nvidia’s mighty customers like Amazon, Alphabet, Microsoft and Meta shows there is still hunger to develop AI products and services, which are reliant on the chip giant’s technology.
Investors will also be keen to see if Salesforce has got its mojo back and has begun to deliver top line growth again. Salesforce has been shapeshifting, making multiple rounds of job cuts and refocusing the business on new opportunities. Its AI platform, Agentforce, showed early signs of momentum late last year, and there will be a lot of attention on growth here, but it’s not likely to have morphed into a big enough beast to be a game changer just yet. Overall first quarter revenue growth looks set to come in around 6 to 7%. Many businesses have been wary about their software spending, and these results are likely to show ongoing caution about signing deals.
UK gilt yields have steadied amid expectations that Rachel Reeves will stay firm to her fiscal rules, after the International Monetary Fund highlighted the importance of maintaining stability. It’s flagged the UK’s potential vulnerability to bond market turbulence, given that large swathes of UK government debt are owned by hedge funds. They borrow to invest and can make sharp moves to cover positions at times of high volatility. Despite highlighting the UK’s increased exposure to big swings in market sentiment, it’s also delivered some slightly better news on the economy. It’s upgraded the UK’s growth forecast slightly from 1.1% to 1.2% this year as some of the trade threat has receded. But it’s not out of the woods, with growth still expected to be highly sluggish due to low productivity and the uncertainty hanging over the global economy.
President Trump’s frustration with Putin over Russia’s ramping up of attacks on Ukraine has helped stabilise oil prices. Crude fell on Tuesday ahead of production hikes, which look set to be confirmed by OPEC+ member countries, and signs of some progress in Iran-US talks. But if the US turns the sanctions screws tighter on Russia, it could reduce the amount of crude available to buy on world markets. The US has also stopped Chevron from exporting oil from Venezuela, which is also leading to expectations of tighter supplies.
Pets At Home might have delivered results in line with guidance, but the numbers are unlikely to set tails wagging. Full year revenue came in flat at £1.5bn and there’s still weakness in retail operations, despite the vet business driving growth. With more here’s Derren Nathan, head of equity research, Hargreaves Lansdown:
“Pets at Home struggled to sell more squeaky toys and treats for the nation’s fur babies last year. Final results pointed to a 1.8% decline in retail revenue. But that’s been offset by a 16.8% increase in takings from the Vet Group which has overtaken retail as the company’s biggest profit driver. The retail outlook remains subdued. Pets expects to outperform market growth of 2%, but with costs rising by up to 5% due to various bits of unhelpful legislation, profits are likely to fall. The Vets outlook looks stronger, with over 10 new openings planned this year and the Group looking relatively well insulated from the likely findings of the Competition and Markets Authority industry-wide probe. Despite the challenges, the cash keeps flowing, supporting a 5% yield and giving the company confidence to launch a further £25m buyback. But in the near term the scope for capital appreciation might be limited after a strong run for the shares.”