Market report: Hopes for Ukraine ceasefire, China’s lending stimulus and Greggs firms up flaky sales
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’Renewed hopes for a ceasefire between Ukraine and Russia, combined with another wave of stimulus for China’s economy has provided optimism in early trading. The FTSE 100 and European indices have opened higher as geopolitical tensions look set to ease. Following a call with Putin, President Trump was bullish about negotiations for a ceasefire between Ukraine and Russia starting immediately. The renewed rush for safe havens sparked by the US credit rating downgrade, has reversed, with gold falling back as investors have more appetite for equities. Of course, hanging on the words of unpredictable leaders isn’t solid ground, and hopes for a ceasefire have risen before, only to be dashed. Russia has indicated that any progress is likely to be slow, with Putin talking about a “memorandum on a possible future peace agreement”. Nevertheless, for now it’s being seen as progress. If a deal is reached, it could pave the way for sanctions relief for Russia, and its crude supplies to flow more freely into world markets. That possibility of higher supplies globally is pushing down the price of Brent, which is trading around $65 a barrel.
The People’s Bank of China has injected a dose of more stimulus into the economy, by cutting a key lending rate to a record low. It wasn’t a surprise move – the central bank was expected to make the change, given the monetary easing push announced this month. The aim is to try and revitalise the economy, by making borrowing cheaper to encourage investment and spending. The one-year loan prime rate, the guide for corporate and household loans and a key lending rate for mortgages were cut by 10 basis points. It’s part of the plan to bolster defences against the fallout from the uncertain outcome of the trade war with the US.
There is still considerable wariness on Wall Street, following the credit rating downgrade, even though indices clawed back losses on Monday. But concerns are creeping in that the enthusiasm over the trade war pause may have been overcooked, and now the focus is switching back to interest rates. There’s an expectation that they will be staying higher for longer, given recent remarks by policymakers, which may weigh on sentiment. Futures indicate a lower open when the main trading session begins later.
Greggs half-baked performance in the first quarter has been replaced by a batch of improved sales. The baker and fast-food chain reported that like-for-like sales rose 2.9% overall in the first 20 weeks of the year, an improvement on the 1.7% rise for the first 9 weeks. Better trading conditions, including more clement weather, has boosted custom for its stores in high streets. Now that flaky sales have turned into a firmer crust of revenues, it’s given investors more appetite for the company. There will be hopes that wider menu choices will help fill more rumbling tummies in the future. Greggs’ sausage rolls are legendary, but now it’s appealing to more customers with iconic British favourites like the fish finger sandwich and mac and cheese. The hope is that these dishes will help bring in more evening custom with longer opening hours and more deliveries. Nevertheless, the company is still expecting a challenging environment ahead. Greggs has raised prices on some products this month, coming off the back of other price rises in January. Its core customers are on the lower end of the income scale, so there may be worries that flaky sales could return, given the higher price points. Shoplifting is also an issue, given the move to remove some self-service fridges from certain stores. But the company is now sticking to its full-year forecasts, and has powered ahead with new store openings, clearly confident its ranges will keep satisfying communities.’’