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London open: FTSE on front foot as property and banks bounce
London stocks were lifted in early Thursday trading as shares were lifted after a positive US session lifted by a dovish Federal Reserve and rebounding oil prices.
After just over half an hour of trading in the City, the FTSE 100 was up 1.25% to 6,544.23 and the FTSE 250 was bouncing back from three days of falls with a 1% rise to 15,826.29.
Leading the blue chip index was a rally from embattled property giants and financials, which have seen their shares ravaged by the market in the days since the Brexit result.
European markets were trading higher despite German industrial production numbers falling well short of expectations with a reading of -1.3% versus a forecast of 0.1%.
Sterling was also off its lows but blessed with little momentum, up 0.13% against the dollar at 1.2948 and up 0.4% on the euro to 1.1695.
Minutes of the Federal Reserve’s latest rate setting meeting revealed the committee’s caution ahead of the EU referendum vote on these shores, giving the market an opportunity to breathe a sigh of relief that a rate hike is not immediately around the corner.
Oil prices moved off one-month lows thanks to a larger than expected drawdown in API inventories overnight, with front-month Brent Crude up 0.43% at $49.01 a barrel and WTI up 0.57% at $47.7.
“US stock markets closed with modest gains overnight after paring earlier losses on positive macro data and a bounce in the oil price,” said analyst Mike van Dulken at Accendo Markets.
“The FOMC minutes gave markets little more to chew on, since they related to a meeting that took place before the UK’s Brexit vote. Nonetheless, worries about inflation being too low are likely to lead thought concerning US monetary policy going forward and point towards a ‘lower for longer’ interest rate environment. This type of thing tends to be good for equity markets.”
Later on Thursday will see meeting accounts from the European Central Bank’s mid-June June meeting, though like their US counterparts’ they will be somewhat outdated but could still move the markets.
There will also be data on UK manufacturing and industrial production data.
CMC analyst Michael Hewson said: “Given the sharp contraction seen in the equivalent May manufacturing PMI numbers it is hard to see how these numbers could match the sharp gains seen in the April numbers. In April we saw a rebound of around 2% in both which was rather surprising. The May numbers are expected to show a decline of in excess of 1% for both numbers.”
In company news, Marks & Spencer saw a huge drop in clothing sales in the first quarter as new chief executive Steve Rowe’s recovery plan for general merchandise took hold, though reported group sales up 1.3%. Food sales in the 13 weeks to 2 July fell 0.9% on a like-for-like basis, hit by the difference in Easter timing compared to last year, but despite an 8.9% slide in LFL sales from the Clothing & Home as the number of promotions was cut back but Rowe was encouraged despite the “weak market”.
Associated British Foods was on the up after it said the significantly weakness in the pound after last week’s Brexit vote had improved the outlook for the current financial year and it no longer expect a decline in adjusted earnings per share for the group. “In our next financial year, these rates would have both positive and negative effects on profit. There would be an adverse transactional effect on the profit margin on Primark’s UK sales, currently half of its turnover, a favourable transactional effect on British Sugar’s margins and a translation benefit on group profits earned outside the UK, which last year were some 50% of the total,” the company said.
Hospitality group Whitbread announced on Thursday that it has exchanged agreements with Legal & General for the sale and leaseback of its 389-room ‘Hub by Premier Inn’ hotel in Kings Cross, due to open in 2017, in exchange for a 25 year lease agreement. The FTSE 100 company announced plans in April to carry out sale and leaseback transactions during this year, with proceeds of £100m to £150m. Legal & General will pay £84.5m in cash for the property, with an initial payment of £46.5m due on exchange and further staged payments made during the construction of the property.
High street retailer Sports Direct reported on a “disappointing” year on Thursday, with retail revenue excluding Heatons improving by just 0.6%. The FTSE 250 firm said total group revenue was up 2.5% to £2.9bn in the year to 24 April, with gross group margin improving 0.4% to 44.2%. Underlying EBITDA shrunk 0.5% to £381.4m, with underlying profit before tax dropping 8.4% to £275.2m and underlying earnings per share retreating 8.7% to 35.5p. Reported profit before tax was ahead 15.4% at £361.8m, with reported earnings per share reaching 46.8p.
