The FTSE 100 edged higher on Thursday and the sterling rose above the $1.25 mark, despite news of a stagnant UK economy.
The FTSE 100 index closed up 18.54 points, or 0.2% at 7,843.38 on Thursday. The FTSE 250 ended up 67.40 points, or 0.4%, at 19,070.13. The AIM All-Share closed up 5.73 points, or 0.7%, at 825.44.
The Cboe UK 100 ended up 0.3% at 784.70, the Cboe UK 250 closed up 0.6% at 16639.82, and the Cboe Small Companies ended up 0.3% at 13,690.21.
The UK’s economy registered no growth in February, as a contraction in services and production offset progress in the construction sector.
The ONS estimated that in February, real gross domestic product registered no growth from the previous month. This compared with the upwardly revised 0.4% growth seen in January. January was initially estimated at 0.3% growth.
AJ Bell analyst Laith Khalaf said the UK economy has been ‘surprisingly resilient’, so far averting the ‘doom-laden projections from economic forecasters’.
‘The economy is by no means hitting it out of the park, but it has so far defied expectations and avoided recession. There are still plenty of threatening storm clouds on the global economic horizon, not least the effects of the ongoing conflict in Ukraine and the potential fall-out from turmoil in the banking sector. But so far in 2023, the UK economy has performed pretty well in spite of the challenges it faces,’ Khalaf said.
Despite the news of a stagnant UK economy, sterling strengthened on Thursday amid increasing concerns of a recession in the US.
The pound was quoted at $1.2519 at the London equities close on Thursday, up from $1.2460 at the close on Wednesday.
Minutes from the Federal Open Market Committee’s March meeting showed that the US central bank warned the world’s largest economy may slip into a recession later this year.
‘Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,’ the minutes, released on Wednesday, said.
The March minutes came against a backdrop of robust core inflation in the US, which added to expectations that the Fed may raise interest rates by another 25 basis points next month.
According to the Bureau of Labor Statistics on Wednesday, the US yearly inflation rate faded to 5.0% in March, from 6.0% in February. It had been expected to ease to 5.2%, according to FXStreet-cited consensus.
Meanwhile, core inflation, which excludes food and energy, picked up to 5.6% from 5.5%. The figure was in line with consensus. Due to the stickiness of core inflation, many investors now believe that interest rates will stay higher for longer.
The euro stood at $1.1053 at the European equities close on Thursday, higher against $1.0978 at the same time on Wednesday. Against the yen, the dollar was trading at JP¥132.41 late Thursday, lower compared to JP¥133.14 on Wednesday.
Stocks in New York were higher at the London equities close, with the Dow Jones Industrial Average up 0.5%, the S&P 500 index up 0.7%, and the Nasdaq Composite up 1.3%.
In London, housebuilders were amongst the top performers.
HSBC lifted Barratt Developments, Taylor Wimpey, Crest Nicholson, Redrow and Bellway to ’buy’ from ’hold’. It upped Berkeley to ’hold’ from ’reduce’ and maintained its ’buy’ rating for Vistry.
The bank said it now has greater visibility about the shape of the current housing market downturn for the housebuilders’ profits, cash flows and their recovery from it, with this now ‘more than priced-in to share prices.’
HSBC said its preferred picks are Vistry, Redrow and Taylor Wimpey. The stocks closed up 2.6%, 3.3%, and 2.0%, respectively.
Barratt finished up 2.4%, Crest 3.7%, Bellway 2.9%, and Berkeley 1.8%.
Elsewhere in the FTSE 100, Tesco rose 1.5% as the grocer reported consensus-topping annual revenue growth, though inflationary pressure took a chunk out of its profit.
The company also maintained its yearly dividend and once again announced a £750 million share buyback.
For the year ended February 25, Tesco said revenue, excluding VAT but including fuel, rose 7.2% to £65.76 billion from £61.34 billion. The figure topped company-compiled consensus of £65.72 billion. Pretax profit, meanwhile, dropped 51% to £1.00 billion from £2.03 billion the year prior.
AJ Bell analyst Russ Mould suggested that Tesco seemed to be making the calculation that it can absorb some pain now to maintain ‘and even improve’ its market share, hoping to emerge in a stronger position once the economic outlook starts to pick up.
‘What Tesco doesn’t want to be drawn into is a race to the bottom on prices, which cuts margins right to the bone for a prolonged period. For now, this is the tricky tightrope the supermarket must walk, while rewarding investors for their patience with steady dividends,’ Mould cautioned.
In the FTSE 250, Network International surged 23% after it has received a preliminary takeover proposal from a private equity consortium.
The Middle East and Africa-focused payments provider said it has received a ‘preliminary and conditional’ takeover proposal from private equity firm CVC Capital Partners and tech-focused investor Francisco Partners Funds.
‘Discussions between Network and the consortium are ongoing. There can be no certainty that any offer for Network will be made, nor as to the terms on which any offer might be made,’ the company added.
The consortium has until the close of play on May 11 to announce when or not it plans to make a firm offer. Network International’s statement confirmed an earlier report by Bloomberg.
Amongst London’s small-caps, Foresight Group jumped 9.2% as it boasted an ‘exceptional’ increase in assets and funds under management in its financial year.
On March 31, AuM were up 37% year-on-year to £12.2 billion, while FuM were up 34% to £9.0 billion. The firm now expects annual revenue to be up ‘significantly’ and exceed market consensus, which it cites as £116.6 million as of January 16.
In European equities on Thursday, the CAC 40 in Paris ended up 1.1%, while the DAX 40 in Frankfurt ended up 0.2%.
Brent oil was quoted at $87.01 a barrel at the London equities close on Thursday, up slightly from $86.99 late Wednesday. Gold was quoted at $2,040.03 an ounce, sharply higher against $2,008.47.
In Friday’s UK corporate calendar, 888 Holdings and Devro will release full-year results, while AO World, Hays and CMC Markets will publish trading statements.
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