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LONDON MARKET CLOSE: Stocks take comfort from strong US retail sales

15th Aug 2024 16:54

(Alliance News) - London's FTSE 100 extended gains on Thursday afternoon, to close sharply higher, as robust US retail sales figures offered reassurance as to the health of the economy across the pond.

The FTSE 100 index closed up 66.30 points, 0.8%, at 8,347.35. The FTSE 250 ended up 141.87 points, 0.7%, at 21,094.16, and the AIM All-Share closed up 3.28 points, 0.4%, at 774.79.

The Cboe UK 100 ended up 0.8% at 833.68, the Cboe UK 250 closed up 0.8% at 18,474.29, and the Cboe Small Companies ended up 0.4% at 16,869.67.

In Europe on Thursday, the CAC 40 in Paris ended up 1.2%, while the DAX 40 in Frankfurt closed up 1.7%.

The upbeat mood was reflected in in New York.

At the time of the London close, the DJIA was up 1.1%, the S&P 500 index up 1.4%, and the Nasdaq Composite was up 2.0%.

Strong US retail sales figures and muted employment data provided the latest boost to equities on Wall Street.

US retail sales rose 1.0% in July, the Census Bureau reported on Thursday. That was up from a downwardly revised 0.2% decline in June (previously unchanged) and topped economists forecasts for a 0.3% increase.

It was the biggest monthly increase since January 2023.

On an annual basis, retail sales were 2.7% higher than a year ago.

Separate figures from the Department of Labor showed initial jobless claims in the US declined by 7,000 in the week ending August 10 to 227,000.

This followed the previous week's print of 234,000, upwardly revised from 233,000, and came in better than the market expectation for a slight increase to 235,000.

"There was not a lot to complain about in July retail sales," Bank of America said, adding that the figures were "consistent with our soft-landing economic outlook".

"With inflation cooling off, retail spending is still clearly running above trend. The decline in jobless claims reported today supports our view that a still-solid labor market is propping up consumer spending," BofA stated.

"We remain comfortable with our view that the Fed will cut rates only twice this year, by 25 basis points each, in September and December."

James Knightley at ING agrees a 25 basis points cut at the September Federal Open Market Committee meeting looks "more likely than a 50bp cut right now".

"Nonetheless, with Fed officials emphasising a growing focus on the labour market, the 6 September jobs report is what will determine what happens," he added.

The dollar was mixed after the figures.

The pound was quoted at USD1.2866 at the London equities close Thursday, up from USD1.2847 at the close on Wednesday. The euro stood at USD1.0988, down against USD1.1029. Against the yen, the dollar was trading at JPY148.89, up compared to JPY146.74.

In London, blue-chip gains were even more impressive given a number of big hitters trading ex-dividend on Thursday.

Shell, HSBC, GSK, Rio Tinto, Anglo American, Barclays, Haleon, London Stock Exchange Group and Hikma Pharmaceuticals were among those trading ex-dividend, trimming around 27 points from London's lead index.

Providing support, figures showed that economic recovery continued in the second quarter of 2024, despite growth stalling in June.

UK gross domestic product did not change in June from May, compared to unrevised growth of 0.4% in May from April, figures from the Office for National Statistics showed. In the second quarter as a whole, UK GDP growth slowed to 0.6% on-quarter from an increase of 0.7% in the first quarter.

June's status quo was blamed on the poor weather and uncertainty ahead of July's general election.

ING's James Smith said the UK economy has had a much "better start to 2024 than pretty much anyone had expected".

"Overall second quarter growth of 0.6%, hot on the heels of 0.7% in the first quarter, marks a remarkable rebound from a very minor technical recession in the second half of last year."

Peel Hunt's Kallum Pickering noted that, whereas the story for 2022 and most of 2023 was "less growth and more inflation, the story for 2024 so far is more growth and less inflation".

Pickering said the UK economy was benefiting from fading political uncertainty, rising real incomes and easing financial conditions, which can lift consumer demand and encourage business investment.

In the FTSE 100, Admiral climbed 6.5% after impressing analysts with a forecast busting performance in the first six months of 2024 boosted by strong growth in UK motor.

On Thursday, the Cardiff, Wales-based insurer and financial services company said pretax profit jumped 32% to GBP309.8 million in the half-year that ended June 30 from GBP233.9 million the previous year.

Insurance revenue rose 38% to GBP2.21 billion from GBP1.61 billion, as insurance service expenses increased 18% to GBP1.70 billion from GBP1.44 billion. Insurance service result therefore was GBP237.0 million, up 55% from GBP152.5 million.

Admiral raised its interim dividend by 39% to 71.0 pence per share, including a 19.7p special dividend, from 51.0p last year.

UK Motor Insurance reported a 60% increase in total premiums written to GBP2.25 billion from GBP1.40 billion.

Bank of America said Admiral has "bested bullish market expectations for growth in UK motor insurance, delivering almost three years' worth of growth in just six months".

DCC rose 2.2% after RBC Capital Markets upgraded it to 'outperform' from 'sector perform'.

"DCC shares have been weak year-to-date, underperforming the sector by around 16% despite in-line results and no real new news. Whilst we expect trading in Healthcare and especially Technology to remain tough, there is recovery potential over time," the broker commented.

In contrast, OSB slumped 18% after lowering full-year guidance to reflect intensifying competition.

The Chatham, England-based mortgage lender, formerly known as OneSavings Bank now expects to deliver underlying net loan book growth of around 3% for 2024.

In addition, OSB expects underlying net interest margin between 230 to 240 basis points for the full year to reflect "increased competition in the subdued mortgage market".

Gary Greenwood at Shore Capital noted OSB had previously forecast full-year loan book growth of 5% and a net interest margin of around 250 basis points.

Greenwood provisionally expects to see underlying pretax profit for 2024 to fall to around GBP430 to GBP440 million from a consensus of GBP466 million at present.

Rank fared better with shares rising 7.8% after returning to profitability after "a year of strong financial, operational and strategic progress".

The Maidenhead, England-headquartered casino operator reported a GBP15.5 million pretax profit for the financial year that ended June 30, swung from the previous year's GBP123.3 million loss.

Revenue increased 7.7% to GBP734.7 million from GBP681.9 million, while cost of sales fell 18% to GBP425.8 million from GBP521.3 million, producing the swing to profit.

The firm said it was rebuilding profitability following the impact of lockdowns and the material inflationary pressures experienced in recent years.

Elsewhere, Accesso Technology dived 27%.

The AIM-listed provider of software for the leisure, entertainment and cultural sectors lowered full-year revenue expectations to between USD150 million and USD153 million, rather than the "not less than USD160 million" communicated at the time of its final results in April.

Meanwhile, in commodities, Brent oil was quoted at USD81.30 a barrel at the London equities close Thursday, up from USD80.27 late Wednesday. Gold was quoted at USD2,456.75 an ounce, higher against USD2,451.20 at the close on Wednesday.

London's corporate diary sees half-year results from Kingspan on Friday.

The economic calendar for Friday has UK retail sales figures at 0700 BST and eurozone trade data at 1000 BST.

By Jeremy Cutler, Alliance News reporter

Comments and questions to [email protected]

Copyright 2024 Alliance News Ltd. All Rights Reserved.

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