The FTSE 100 opened flat this morning after notching up a further record close yesterday. A long-awaited trade deal with India, and better-than-expected earnings from kitchen fitter Howden Joinery, Nurofen owner Reckitt, Lloyds Bank and BT helped to drive a small but broad-based gain for the index.
UK investors are digesting a further dip in consumer confidence this morning with July’s GfK falling back slightly from recent gains to minus 19. The savings index reached 34, the highest level seen since the great financial crisis. The sun may be shining on stock markets but the public looks to be preparing for rainy days with speculation increasing around tax rises as Labour struggles to balance the books. The downbeat sentiment has also been reflected in June retail sales figures, which grew at 0.9% compared to forecasts of 1.2%.
But trips to the pub appear to be sacrosanct with Mitchells & Butlers’ third quarter trading update reporting an acceleration in like-for-like sales growth to 5%, while guiding the market that this year’s numbers should reach the top end of analyst forecasts.
US stock futures are pointing to a positive open later today, building on yesterday’s record-beating session on Wall Street. Solid second-quarter earnings and ambitious capex guidance from YouTube and Google parent Alphabet helped chip stocks higher as confidence builds around the sustainability of hyper-growth in cloud and AI. The mood was also lifted by a trade deal between the US and Japan and hopes that the EU can carve out similar treatment from Washington, capping import duties at 15%.
However, the AI trade does raise the prospect of a two-tier economy. Toymakers Hasbro and Mattel both saw second-quarter sales drop, with the latter highlighting significant weakness in North America. Turning to travel, investors in carriers Southwest and American Airlines were nursing losses after second-quarter numbers flagged weak demand and concerns around the direction of travel for the US economy. Luxury conglomerate LVMH also saw US sales drop 3% in the first three months of its financial year, compounding even weaker demand in Asia, leading to a worse-than-expected drop in first-quarter group sales.
The weak consumer signals paint a complex picture for the Fed where easing tensions with the White House is likely to reinforce the Hawks position at the table. Stronger-than-expected US Job additions in June of 147,000 has seen expectations firm that Jerome Powell won’t be announcing a rate cut next week.
Brent crude prices are up for a second day to around $69.8 per barrel, lifted by the improving outlook on global trade. Tightening restrictions on Russian exports are also supporting prices.
By Derren Nathan, Head of Equity Research, Hargreaves Lansdown
