Market report: FTSE 100 nudges highs, worries about tech wobble and…
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 is starting the week within sight of record highs, but is lacking fresh momentum in early trade. Optimism has been surging about the prospects for interest rate cuts and brighter economic horizons ahead, despite some uncertainty lingering about stubborn inflation in the US. Although stocks on Wall Street are hanging near record levels, they slipped on Friday, but the feel-good factor remains relatively strong for London-listed companies. Over the past week, the FTSE 100 has had a power surge which doesn’t look set to reverse significantly. Investors have been eyeing up lower borrowing costs from the summer, amid an easing of inflationary pressures. The revision by global ratings agency Fitch about the sovereign credit outlook is another tailwind for the UK, with the outlook now ‘stable’ rather than ‘negative, with the assessment that economic policy risks have eased.
The FTSE 100 has been given a big shove upwards in particular by a big handful of stocks that have reached all-time highs including Rolls Royce, Melrose, BAE Systems, Next, Antofagasta and 3i Group. Aerospace stocks have been pushed higher by heightened geo-political tensions and post-pandemic demand. Under the leadership of Tufan Erginbiliç, Rolls Royce has revved up its engines to make huge strides over the past year. A restructuring programme has prompted improvements in productivity, while disposals have lightened the load of recent financial scars. Melrose is now focused exclusively on the aerospace industry and the upturn in the aviation sector, with pent-up demand following on from the pandemic is translating into strong sales. As geopolitical tensions have crept higher, there continues to be high interest in BAE Systems. With violence having widened in the Middle East over the past four months, and Ukraine appealing for more weapons to repel Russia, there is an expectation that military budgets will keep expanding. This has been reinforced by defence chiefs in Nordic countries and the UK, calling for better military preparedness over the next decade.
Next has also reached all time highs thanks to its prowess in the highly competitive retail space, posting record revenues and profits for 2023. Its crown continues to gleam in the retail industry, having weathered the cost-of-living storm admirably. Comments by CEO Sir Simon Wolfson prompted more reasons to be cheerful, as he described the prospects for consumers as bright and confidence as high. 3i Group’s investments have been paying off with strong momentum in 2024, helping give more wings to the share price. In an update today, it revealed that net sales at the Dutch discount retailer, Action, which is has a 55% stake in, were up 21% over the first 11 weeks of the year. A surge in the price of copper, which has rallied to its highest level in a year has benefited the Chilean miner Antofagasta. It comes amid efforts by Chinese smelters to control capacity to stop volatility in pricing and supply setbacks at a number of mines around the world.
Ongoing tensions in the Middle East, with hopes faded of an immediate ceasefire, have pushed oil prices back up, Brent Crude is trading just shy of $86 a barrel, recouping some of last week’s losses. Ukraine attacks on Russian refineries and naval infrastructure also appear to have provoked retaliation by Moscow, with a barrage of attacks on Kyiv and the Western Lviv region launched on Sunday. But oil prices are being held back to some extent by the recent strength of the dollar, as bets increased that the Fed might be forced to keep interest rates higher for longer due to the strength of the economy. Keen eyes will be trained on the latest inflation snapshot due out later this week amid fears that prices are staying stubborn and risk taking off again. The Personal Consumption Expenditures Index is a metric closely watched by the Fed and it’s expected to have risen 0.4% in February, the biggest climb since September.
Speculation is mounting that a big tech wobble could be looming after the recent spectacular bull run. Exuberance for all things AI has helped fuel the big rally, but with the ratio of corporate insider selling to insider buying at the highest level since 2021, the canary in the coalmine is squawking about whether we’ve reached the peak and should prepare for a correction. The analysis data compiled by Verity LLC, which tracks insider trading disclosures, has highlighted that big tech bosses are among the biggest sellers of stock since the start of the year, taking profits as uncertainty lies ahead.
B&Q owner Kingfisher is still very much in repair mode, with its performance damaged by cost-of-living headwinds and a struggling housing market. It’s issued the third warning in six months about the outlook for profits, as they fell 25% for the full year. There had been hopes that with interest rates eyed on the horizon, and UK house prices stabilising, that demand for DIY products and services would bounce back, but the company says due to the lag between house sales and renovation projects being green lit, recovery is further on the horizon. The bright spot appears to be online sales, with the revamped marketplace platform, also offering third party products, helping boost e-commerce sales in the UK and Iberia beyond expectations. However, in France, subdued consumer confidence and a weak housing market continues to be a drag and it’s now trimming back floor space for the Castorama chain while restructuring and modernising the store network to compete with rivals like Leroy Merlin.’’
