27 August 2024
Last week UK stocks remained relatively flat, with the FTSE 100 index closing 0.3% lower. Sterling rose above $1.32, representing its highest level in over a year against the dollar. This increase was driven by rising expectations of an interest rate cut by the Federal Reserve ("Fed") next month. However, a stronger sterling added pressure to the FTSE 100, as many companies within the index generate a significant portion of their revenue globally.
A Reuters poll of economists revealed that the Bank of England ("BoE") is expected to cut interest rates once more this year, most likely in November. This follows a 0.25% rate cut by the BoE in August. Among the 60 economists surveyed, 57 predicted no change in September. Central banks remain cautious about cutting rates too aggressively, fearing it could reignite inflationary pressures. However, recent data indicates that progress is being made in easing both inflation and wage growth pressures. In employment news, Bloomberg cited data from job-search site Adzuna, which showed UK job vacancies rising for the first time this year. This increase points to underlying resilience in the labour market and a pickup in economic activity. Job vacancies in July were up 1.1%, with more people actively seeking work, making it one of the most competitive hiring environments since May 2021.
Meanwhile, UK energy bills are set to rise by 10% in October, according to regulator Ofgem's new quarterly energy price cap. This increase means a typical household's electricity and gas bill will rise by £149 annually. Ofgem attributed the hike to rising prices in the international energy market, driven by geopolitical tensions and extreme weather, which have increased competition and demand for gas. This rise could also contribute to inflationary pressures.
Across the Atlantic, US equities posted gains for the week, continuing momentum from the previous week. The S&P 500 rose 1.4%, following a 3.93% gain the prior week, closing just below its July all-time high. The equal-weight S&P index outperformed the main index, reaching a new record high. This was largely due to mixed performances from big tech companies, with many investors waiting for Nvidia's highly anticipated earnings report, set to be released tomorrow. Regarding the US economy, the focus was on the Fed’s upcoming policy decisions, with markets anticipating some form of easing at the September meeting. However, uncertainty remains regarding the extent and pace of any rate cuts, particularly with ongoing concerns about the labour market and debates over the likelihood of a hard or soft landing.
In the UK property market, the Financial Times reported that the UK’s commercial real estate sector is recovering faster than that of the rest of Europe. In the first half of 2024, both property values and deal volumes rose in the UK, driven by political stability, stronger economic prospects and rising rents. Property values increased by 1.4%, while transaction volumes rose by 7%. In contrast, activity in Germany and France remained stagnant. Despite the European Central Bank cutting interest rates ahead of the BoE, the UK market is showing signs of a quicker recovery.
JD Sports Fashion, the British sports-fashion retailer, saw a 17.7% surge in its stock price last week, driven by strong second-quarter results and strategic growth initiatives. The company reported a 2.4% increase in like-for-like sales and 8.3% organic sales growth, with North America and Europe performing particularly well. The acquisition of Hibbett, Inc. strengthens JD Sports' US market position, promising future growth. Effective inventory management and disciplined promotions helped maintain gross margins, despite a slight decline in the UK. The company reaffirmed its full-year profit guidance, demonstrating resilience in a volatile market. These positive factors have bolstered investor confidence, driving the significant rise in JD Sports' stock price.
Rightmove, the online real estate property portal, saw its share price rise by 5.4% last week following increased buyer demand after the Bank of England's interest rate cut; the first in four years. The rate cut led to a 19% jump in buyer enquiries in August, reflecting growing optimism in the UK property market. As the leading property search platform in the UK, Rightmove benefited from this surge in activity, resulting in higher engagement on the site. The company revised its full-year forecast upward, now anticipating a 1% rise in new seller asking prices instead of a decline.
Melrose Industries, which engages in aerospace manufacturing and industrial businesses, saw its share price decline by 5.9% last week following a significant downgrade by UBS, which cut its rating from "buy" to "sell" and slashed the target price from 770 pence to 400 pence. UBS believes the market has overvalued Melrose's key Revenue & Risk Sharing Partnership (RRSP) portfolio, valuing it at £2.8 billion, significantly lower than the £5.7 billion claimed by Melrose. Despite improvements in operating efficiency, concerns about future revenue potential due to the perceived RRSP overvaluation triggered a sharp drop in the share price as investors reacted to the downgrade.
Market Commentary prepared by Walker Crips Investment Management Limited.
This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority (FRN:226344) and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England and Wales number 4774117.
Important Note
No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future results.
The value of investments can fall as well as rise. Investors may get back less than invested.
