FTSE could ride wave of US and European optimism as record highs are breached

by | Feb 23, 2024

With US and European markets having closed at record highs, might the FTSE join in the party?

Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown, shares her thinking on what might happen to the FTSE as follows:

“The big question of the day is whether the UK market will follow in the footsteps of the US, which has seen an exceptional latest trading day. Spring is in the air, and American markets are certainly blooming this season. The S&P 500 closed up at record highs on Thursday, following Nvidia’s blockbuster results, and broader optimism about AI and economic growth. The tech-heavy Nasdaq was also unsurprisingly in on the action, and is within touching distance of its all-time high. While a lot of the excitement might be justified, we are entering the realms of frothiness, which of course increases risk. Latest figures show that the US market remains tight, which further muddies the picture for the Federal Reserve. Those banking on swift rate cuts are likely going to be disappointed.

The good mood is catching and Europe’s followed suit, with the Stoxx 600 also closing at a record high, as indicators point to a recovery in economic growth. Manufacturing in the area is still moving in the wrong direction, but services appear to be showing green shoots.

One area of European strength today is Deutsche Telekom, Europe’s largest telecommunications company. True to form, it’s begun raising its guidance, as it often does throughout the year. 2024’s earnings are expected to rise 6% and investors can expect a €2bn buyback, as well as hiked dividends. As a telecoms giant, Deutsche Telekom’s biggest attraction is its stability. It’s not an industry renowned for heady growth, but does get thanked by shareholders for its more reliable revenue streams. People will always need a phone network, and their office – at home or otherwise – needs internet. Despite being a German company, Deutsche Telekom (DTE) makes most of its revenue and profits in the US through subsidiary T-Mobile, where it’s recently upped its stake. The combined group, following the acquisition of Sprint, should have both the bandwidth and scale needed to take on Verizon and AT&T in the US 5G market.

UK consumers aren’t as optimistic as they were, according to the closely followed GfK survey. The consumer confidence survey fell to minus 21 in February from a two-year high of minus 19 in January. Consumers’ thoughts around their personal finances and the outlook for the economy both worsened. This has a direct impact on expectations for consumers’ willingness to spend, especially on discretionary items. The oil price has held steady, ending the week at around $83 for a barrel of Brent crude. While there have been fluctuations throughout the week, as the market assessed supply and demand dynamics brought about by higher-for-longer interest rate expectations and ongoing tension in the Middle East, the net effect is one of relative calm in the price.”

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