Market Report – FTSE tracks the US higher amid improving consumer confidence

by | May 19, 2023

  • Government outlines plans to invest £1bn in microchips, as industry says it’s not enough
  • The FTSE100 is expected to finish trading today on a high, following gains in the US
  • UK consumer confidence rises for a fourth month
  • Supply-side disruptions help push Brent crude up to $76 a barrel

 

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

“The government’s delayed semiconductor strategy has been outlined, with £1bn set to be invested in the industry over the next decade. While the movement is welcome, this is a very small amount when compared to our US and EU counterparts. Bosses have also warned that the package simply isn’t enough. As the UK continues to fight to be seen as a high-growth hub, it will be viewed as disappointing that the government’s pockets aren’t deeper. There is some logic to the perceived frugal approach though. The upfront costs needed to become a true frontrunner in the microchip space are astronomical, and that prohibits the UK from ever realistically being a true superpower in the space. The £1bn investment is less than the cost of setting up a microchip factory, or fabrication plant. In that sense, the planned investment could be taken as a token, rather than a steep commitment to the wider industry.

US market sentiment was positive in Thursday’s trading session, and that appears to be continuing, with Nasdaq 100 futures up 0.3%. Both the S&P 500 and the Nasdaq ended regular trading at their highest levels since August, as concerns about the US debt ceiling crisis eased. House Speaker Kevin McCarthy suggesting a potential deal could come as soon as next week. There were some positive earnings results which helped lighten the mood music too. Nvidia also jumped nearly 5% after announcing it joined ServiceNow to build AI for enterprises. The improved mood is expected to help keep the FTSE in positive territory as it rounds off the week.

The other root keeping markets firm is UK consumer confidence. Consumer confidence improved in May for the fourth month in a row, and despite the cost-of-living crisis, with a three-point increase from minus 30 to minus 27 on GfK’s index. There’s been a broad improvement in the perceived outlook for personal finances and the economy, and the direction of travel could suggest that underlying finances are holding up better than feared. While the trajectory is positive, there are still hurdles. Confidence is still low by historic standards, as consumers grapple with soaring food prices in particular. The knock-on effect of this for investors is the fact that UK businesses will have a ceiling, especially those in the consumer discretionary space, while sentiment is so subdued overall.

Brent crude is trading over $76 a barrel as the demand outlook improves, led by China and substantial purchasing from the US expected. Wildfires in important production hubs in Canada, as well as the seizure or oil tankers by Iran, have injected some anxiety into the supply-side of the equation.”

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