London close: Stocks finish positive despite gloomy outlook

by | Mar 25, 2022

London stocks managed a positive close on Friday, despite disappointing retail sales data and a gloomy consumer confidence survey released earlier.
The FTSE 100 ended the session up 0.21% at 7,483.35, and the FTSE 250 was ahead 0.3% at 20,956.21.

Sterling was also in the green, last rising 0.02% on the dollar to $1.3189, and strengthening 0.11% against the euro to trade at €1.2004.

“The recent bounce from the lows is still going intact, if it has taken a knock in afternoon trading, although the darker global economic outlook means that many are wondering whether these gains can be sustained,” said IG chief market analyst Chris Beauchamp.

“Investors keep waiting for the other shoe to drop, but as yet stocks are not giving people the trigger to begin selling once again.

“This caution is perhaps the best foundation for more gains, since it doesn’t appear to be accompanied by too much euphoria, but with the Fed now openly talking about 50 basis point hikes it is sensible to ask whether valuations can keep rising even as the prospect of weaker growth looms ever larger.”

On the economic front, UK retail sales unexpectedly fell in February, with online shopping dropping back below pre-pandemic levels and a series of storms keeping shoppers away.

According to the Office for National Statistics, retail sales declined 0.3% following a 1.9% jump in January, missing expectations for a 0.6% increase.

The data left sales 3.7% above pre-pandemic levels in February 2020.

Non-store sales volumes fell by 4.8% over the month following strong growth in December and January, while food store sales were 0.2% lower in February, with large falls in alcohol and tobacco stores.

That was most likely due to people going out more, following the removal of Covid restrictions.

The data also showed that the proportion of retail sales online fell to 27.8% in February – the lowest since March 2020 – continuing a broad downward trend since the peak in February last year at 37.7%.

“After a buoyant January, retail sales fell back a little last month,” said Heather Bovill, ONS deputy director for surveys and economic indicators.

“There was a notable decline for companies that predominantly trade online, following a strong performance over the festive and new year period.”

Meanwhile, the latest survey from GfK showed that consumer sentiment plunged again in March as fears about the soaring cost of living intensified.

The overall score in GfK’s consumer confidence index dropped to -31 from -26 a month earlier as all five component measures fell.

It was the lowest overall figure since November 2020, when Covid-19 levels were rising rapidly with no vaccine.

Still on data, UK February car production fell 41% year-on-year as computer chip shortages and the closure of a Honda plant in July disrupted output, according to fresh industry data.

The Society of Motor Manufacturers and Traders (SMMT) said 61,657 cars were made during the month, the lowest number for the time of year since February 2009 and down from 105,008 a year ago.

“The sector entered 2022 hopeful for recovery, but that recovery has not yet begun, and urgent action is now needed to help mitigate spiralling energy costs and ensure the sector remains globally competitive to encourage the investment essential to growth, job security and the delivery of net zero ambitions,” said SMMT chief executive Mike Hawes.

“The automotive industry is undergoing its most radical transformation in more than a hundred years, but manufacturers are simultaneously facing the most extreme operating conditions as global economic headwinds drive up costs and constrain supply.”

Elsewhere, the Ukraine conflict continued to weigh on investors’ minds following the start of an EU summit in Brussels on Thursday.

Richard Hunter, head of markets at Interactive Investor, said the meeting of Western leaders had provided further focus on the next steps.

“These could include further military aid to Ukraine and additional sanctions on Russia, the latter of which has put further upward pressure on prices ranging from metals to energy and food,” he said.

“The oil price dipped temporarily on the possibility of more supply, but remains ahead by 52% in the year to date as the demand supply imbalance remains in plain sight.”

In equity markets, Next was boosted 1.72% by an upgrade to ‘buy’ at Societe Generale, having fallen sharply a day earlier after it cut guidance.

HomeServe surged 8.74%, racking up strong gains for a second day after Canadian property investment group Brookfield Asset Management said that one of its private infrastructure funds was in the early stages of considering a possible offer for the company.

Elsewhere, Drax Group rallied 8.52% on an upgrade to ‘overweight’ at Morgan Stanley.

On the downside, diversified engineer Smiths Group fell 2.67% after it reported a rise in interim profit but said it expected a more challenging aviation market in an uncertain geopolitical and macroeconomic environment.

Airtel Africa tumbled 10.61% after Singapore Telecom sold 60 million shares in the company in a placing.

Gold miner Petropavlovsk, which has operations in Russia, slid 16.06% after being blocked from making gold sales or interest payments to its main lender, Gazprombank.

“Is a cash flow crisis about to hit Russia-based gold miner Petropavlovsk?,” asked Russ Mould, investment director at AJ Bell.

“It has been caught up in sanctions on Russia whereby its lender Gazprombank is no longer able to buy its gold.”

Mould said historically, the bank had an agreement to buy everything Petropavlovsk produced, so the miner now needed to find a new taker for its metal.

“That’s going to be difficult in the current environment – Petropavlovsk has bills to pay and it will be tricky to settle up if there is no cash coming in the door.

“It’s no surprise to see the share price fall further on the news, now down 92% year to date.”

B&M European Value Retail was 3.62% lower after a downgrade to ‘neutral’ at Credit Suisse, and a price cut to 600p from 675p, with the bank noting that the shares had consistently outperformed UK retail over the past year.

Suisse said that while discounters and food retailers should be defensive in the year ahead, B&M also had a large discretionary element to its range – a core customer set to be “very squeezed” by oil, gas and food prices.

Housebuilders were also under pressure, with Taylor Wimpey down 3.64%, Persimmon off 4.38%, Barratt Developments losing 3.04%, and Berkeley Group falling 2.46%.

On the FTSE 250, Bellway was down 5.06%, Vistry lost 5.33%, Crest Nicholson weakened 3.74%, and Redrow slid 3.7%.

CMC Markets analyst Michael Hewson said rising rates and higher prices were prompting questions on the durability of the UK housing market.

Market Movers

FTSE 100 (UKX) 7,483.35 0.21%
FTSE 250 (MCX) 20,956.21 0.30%
techMARK (TASX) 4,320.56 -0.23%

FTSE 100 – Risers

Rolls-Royce Holdings (RR.) 110.14p 19.33%
British Land Company (BLND) 527.60p 2.85%
Pearson (PSON) 786.40p 2.50%
Land Securities Group (LAND) 784.00p 2.40%
Pershing Square Holdings Ltd NPV (PSH) 2,855.00p 2.33%
Rentokil Initial (RTO) 528.00p 2.21%
Imperial Brands (IMB) 1,649.50p 2.13%
SEGRO (SGRO) 1,317.50p 2.05%
Diageo (DGE) 3,817.00p 1.85%
3i Group (III) 1,350.00p 1.85%

FTSE 100 – Fallers

Airtel Africa (AAF) 139.00p -10.61%
Persimmon (PSN) 2,106.00p -4.38%
Taylor Wimpey (TW.) 132.35p -3.64%
B&M European Value Retail S.A. (DI) (BME) 559.60p -3.62%
Aveva Group (AVV) 2,406.00p -3.57%
Ferguson (FERG) 10,475.00p -3.55%
Fresnillo (FRES) 741.40p -3.41%
Hikma Pharmaceuticals (HIK) 2,076.00p -3.35%
Reckitt Benckiser Group (RKT) 5,450.00p -3.28%
Barratt Developments (BDEV) 509.60p -3.04%

FTSE 250 – Risers

Homeserve (HSV) 877.00p 8.74%
Drax Group (DRX) 770.50p 8.52%
Polymetal International (POLY) 176.00p 6.02%
QinetiQ Group (QQ.) 316.00p 4.02%
Diversified Energy Company (DEC) 118.80p 3.85%
Hammerson (HMSO) 32.10p 3.78%
Just Group (JUST) 92.05p 3.43%
Capital & Counties Properties (CAPC) 174.30p 3.32%
OSB Group (OSB) 565.50p 3.29%
Hilton Food Group (HFG) 1,218.00p 3.21%

FTSE 250 – Fallers

Vistry Group (VTY) 931.00p -5.33%
Bellway (BWY) 2,590.00p -5.06%
Fidelity China Special Situations (FCSS) 249.50p -4.23%
XP Power Ltd. (DI) (XPP) 3,460.00p -4.02%
Countryside Partnerships (CSP) 272.20p -3.82%
Crest Nicholson Holdings (CRST) 272.80p -3.74%
Redrow (RDW) 520.40p -3.70%
Oxford Biomedica (OXB) 658.00p -3.52%
Games Workshop Group (GAW) 7,125.00p -3.33%
Spirent Communications (SPT) 237.60p -3.10%

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