Market Activity
With the latest US inflation figures still pending until this afternoon, we look at the week thus far
April 10, 2024
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The FTSE 100 index has taken a step towards record territory, with London’s top flight ahead by 0.6% or 47 points to 7982 at the time of writing. That compares with the 8012 all-time high set in February 2023 and that day’s intra-day peak of 8047.
Today we’re seeing nearly all sectors in the green. Energy and materials companies are being boosted amid rising commodity prices.
Alongside another strong session for commodity stocks, Legal & General rose 4.6p to 256.6p and BT Group lifted 1.45p to 108.65p. Lloyds Banking Group also lifted 0.6p to 53.5p after Barclays analysts improved their price target to 70p.
Tesco shares were 2.7p higher at 290.2p after operating profits rose and the supermarket declared an 11% rise in the total dividend to 12.10p a share.
Tesco, up as much as 1.2% after the grocer announced plans to buy back £1 billion of shares over the next year and forecast higher profit. Tesco boss Ken Murphy today hailed the supermarket’s strong performance after reporting a 12.8% rise in annual operating profits to £2.8 billion.
The improved market mood helped Ocado put back 4% as the best performing FTSE 100 stock at one point Wednesday morning; up 4% or 16.4p to 397p before falling back a little to 389p at the time of writing.
WPP was up around 2.9% to a 7-week high following news of a partnership with Google to create an AI powered marketing operating system.
THG (formally The Hut Group) was down over 2% Wednesday morning after the retailer’s annual results as analysts note uncertainty around the firm’s balance sheet.
The FTSE 250 index also rose 0.5% or 104.03 points to19,867.38, with GKN Automotive business Dowlais up 3% and aerospace components firm Senior 4% higher.
European stocks also rose, buoyed by bullish news in the technology sector and higher resources prices.
The Stoxx 600 index climbed 0.6%, rebounding from Tuesday’s losses, as surging sales at Taiwan Semiconductor Manufacturing Co.from the boom in global AI development boosted European tech stocks.
Supermarket chain Carrefour is 1.94% higher, Soc Gen and BNP Paribas are both up over 1% as banks gain, and LVMH (the largest stock on the French market by almost double) is also up over 1% after strong Chinese data.
In Asia, Chinese stocks trading in Hong Kong rallied to reach a key milestone as sentiment improved following upbeat economic data and corporate developments.
The Hang Seng China Enterprises Index gained 2.1% on Wednesday, taking its advance from a Jan. 22 low to more than 20%. The gauge has entered a so-called technical bull market for the first time since China scrapped Covid controls in late 2022.
Tech stocks led Wednesday’s advance, buoyed by a jump in electric vehicle sales, buybacks in the sector and China’s latest batch of online game approval.
The Hang Seng gauge became the latest addition to a cohort of other Chinese gauges that have reached such a milestone in recent weeks, as foreign funds return amid Beijing’s resolve to stabilise markets.
Chinese stocks have been recovering from a rout after Beijing took a series of steps including purchases by state funds and a clampdown on quantitative funds, along with fresh moves to ease the nation’s housing crisis. Some global investors are starting to buy into the narrative that Beijing’s policy support will be enough to revive growth, with a popular equities strategy to “buy India, sell China” likely having reached an inflexion point.
However, at the same time Fitch Ratings revised China’s outlook to negative from stable, saying the government is likely to pile on debt as it seeks to pull the economy out of a real estate-driven slowdown.
Growing uncertainty about the outlook for the world’s second-biggest economy, amid Beijing’s drive to make growth less dependent on housing, “could keep debt on a steady upward trend,” Fitch said on Wednesday.
Investor attention will now focus on the inflation update due later, with economists forecasting that US consumer prices rose 0.3% in March on a monthly basis.
The swaps market is currently pricing in around 65 basis points of Fed rate cuts by the end of this year, which is less than what the central bank forecast last month. Expectations for cuts are constantly being lowered but US stocks seem completely oblivious.
However, the monthly report is unlikely to settle the debate around the timing of Federal Reserve interest-rate cuts, with forecasters expecting some moderation following elevated inflation readings at the start of the year.
The expectation that the consumer-price index rose 0.3% last month from February would mark a step down versus the previous two months, it may not be enough to quell concerns among central bank officials looking for even lower readings.
Analysts generally expect the March CPI data to show measures of rental inflation, the largest components of the index, to resume a downward trend after an unexpected acceleration to begin the year. Other key categories, like used cars on the goods side and airfares on the services side, could have an important impact on the overall numbers.
Rental inflation in the CPI is widely expected to continue moderating throughout 2024 based on trends in leading indicators, such as private-sector measures of rents on new leases, though the exact timing is harder to pin down from month to month.
Outright declines in goods prices contributed to rapid disinflation in the overall CPI in the second half of 2023, and used-car prices have typically been among the biggest swing factors for the so-called “core” goods basket in recent months after surging 54% between February 2020 and February 2022. In January, they dropped 3.4%, but in February, they rose 0.5%.
“We expect both used (-0.5%) and new (-0.3%) car prices to decline in March, reflecting lower used-car auction prices and rising promotional dealer incentives,” Goldman Sachs economists Manuel Abecasis and Spencer Hill said in an April 8 report previewing the numbers. “Looking ahead, we expect used and new car prices to decline by 8.2% and 1.4% respectively this year, reflecting normalising auto production, higher inventories, and higher new vehicle incentives.”
While declines in core goods prices have been a major driver of overall disinflation, many Fed officials have been acutely focused on prices of core services excluding rents because they see those as more reflective of broader economic trends. Volatile airline fares helped boost such core services prices in January and February, with the biggest two-month increase since mid-2022.
Whatever is released, we would expect a reasonable swing in US equity markets one way or the other. For our active strategies, we’re looking for a drop in the market, for our long/flats and trackers, more gains would be profitable. When the stars are aligned, we would hope all strategies would make money, but there is just too much conflict about the future of interest rates, war and the economy for that time to be now.
Enjoy the rest of your week.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020
