Global Markets

FTSE 100 Reaches New Record High As Earnings Season Gets Under Way

Lift in market’s spirits linked to easing of tensions in the Middle East

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

“The FTSE 100 has landed another record high, after bulldozing previous records yesterday. The market’s sprits are being lifted by an initial easing of tensions in the Middle East, as well as preparations for a very busy week for corporate news. Not all the updates are expected to be overly positive, big tech kicks off with Tesla results this evening. The tech-darling’s valuation has come under renewed pressure on news of price cuts, and its dramatic efforts to boost demand means there’s an element of trepidation about the earnings release. Another important consumer bellwether is due to report today, with Visa in the spotlight. Despite growing pressure on lower earners in the US, the overall picture looks set to show resilience. Visa’s expected to post increased profit as consumers spend more on dining out and travel.

Although there are some conflicting messages in the market, the overall sentiment has improved. Across the pond in the US, the main indices have picked up, and the UK’s followed suit. The mood can of course change at short notice, especially when so much hinges on a continuation of the calmer environment in the Middle East – which is by no means guaranteed. Secondary to that, it will be corporate outlook statements over the next couple of days that have the ability to move the dial in this uncertain period.

Primark owner Associated British Foods has shown once again it’s best-in-class. The fashion chain saw revenue rise 7.5% to £4.5bn as both pricing and popularity of ranges fed into the group’s favour. Not all retailers are faring well at the moment, with the UK high street still housing too many names – there are more failures to come. Primark is unlikely to be one anytime soon though, with profits up 46% in the first half of the financial year. This has given ABF the confidence to meaningfully up its dividend, as it rewards investors for their patience. These numbers, and the upgraded full year outlook, suggest the whiff of normality businesses had been treated to has become something more permanent.

The London market is losing another name, albeit not the most glamorous or high-tech inhabitant. U.S.-based Quanex Building Products will buy Tyman, a doors and windows supplier, in a cash and share deal worth $976mn. The premium to Tyman shareholders is about 35%, marking Quanex’s strong desire to add this British success story to its portfolio. While this deal on its own won’t set off the loudest alarms, it is another example of overseas businesses having the firepower to takedown homegrown enterprises. The UK still has a long way to go to be considered a friendly home of growth stories, and pockets on this side of the Atlantic may never be deep enough. These are just some of the opinions policymakers are battling to change.

Despite a slight easing geopolitical risk, the oil price has tightened slightly at $87.3 a barrel. This follows an earlier easing, and also includes the impact of US economic data later on. Flash PMI will help map the demand picture as it will feed into the Federal Reserve’s appetite, or lack thereof, to cut interest rates.”