Equities Update: Retailers lead solid gains for FTSE while US inflation comes in hot

Retailers lead solid gains for FTSE while US inflation comes in hot

 
Mark Crouch, analyst at investment platform eToro, says: “The FTSE 100 pushed higher in a broad rise on Wednesday. Tesco was the biggest gainer, boosted by strong preliminary results, along with an announcement of a £1 bn buyback programme. Shares in Tesco initially inched higher, but steadily advanced as the trading day progressed, gaining more than 5% by early afternoon. CEO Ken Murphy noted that ‘inflationary pressures have lessened substantially’, something that bodes well for other retailers. Ocado rose around 1.9%, while Sainsbury’s gained 1.5%.

“Inflation data on the other side of the Atlantic are not rosy, however. The latest US CPI reading came in hotter than expected, showing price rises of 3.5% year-on-year. FOMC members have repeatedly stated that any rate decision will be contingent on the incoming data, and this latest indication of doggedly high inflation will do nothing to encourage any easing in monetary policy.

“As well as pushing US index futures over 1% into the red, the data dented the FTSE’s gains. The index had been up more than 0.7% in early afternoon trading, but moderated to +0.2% in the wake of the US inflation data.”

Bad news for market bulls as US inflation comes in hot

 
Bret Kenwell, US analyst at investment platform eToro, says “Every headline measure for the March CPI report came in ahead of economists’ expectations — which is exactly what stock bulls didn’t want to see. Month-over-month, year-over-year and Core CPI all came in hot, putting the Fed in a tough spot after they’ve recently reiterated an expectation for three rate cuts this year.

“After a strong jobs report at the start of the month, odds of a June rate cut — which would be the first rate cut of this cycle — began to slide. A hot inflation report will only reduce those odds even further, diminishing or even eliminating a key catalyst for the bulls in the short to intermediate term.

“Even though the first few inflation reports of the year were hot, investors were willing to give them a pass, writing it off as a “bump in the road.” Now, concerns are increasing that the recent bump in inflation is more sustainable and we’re seeing that reality reflected in the reaction to both stocks and bonds as they sell off in response to today’s report.

“After back-to-back quarterly gains in excess of 10%, we’re optimistic but realistic — the overall environment is good for stocks, but a pullback would be reasonable. While the March inflation is less than ideal, we’re still in a bull market and welcome any mild pullbacks as an opportunity. Until the labor market materially weakens or the strength in stocks significantly sours, we view a stock market dip as healthy.”
 

Tesco expects a trolley full of profit this year

Adam Vettese, analyst at investment platform eToro, says: “Tesco has continued to deliver following their strong update at the turn of the year with more of the same and the outlook is good. Profits are up and are expected to rise further in the coming year as inflationary cost pressures, which have haunted the sector in recent years, are easing substantially and will ease further.  Britain’s largest retailer has used its size to its advantage by being able to ride out these pressures and also deliver value to cost-conscious shoppers in the meantime, even price-matching heavy discounters, which has been key to their market share ascendancy.

“Disposals within the banking arm and share buybacks on the horizon will please investors as they look to see the price kick on through the rest of the year, with the aim of surpassing the troublesome 300p level which once again provided resistance last month.”

M&C Saatchi’s streamlining measures beginning to bear fruit

Mark Crouch, analyst at investment platform eToro, says: “M&C Saatchi has posted a mixed set of results this morning. While the business has seen a slight fall in revenues and profits, their margins have actually improved.

“Like so many of their larger peers, M&C Saatchi set out a plan last year to improve efficiency following a fall in revenues. This plan looks to be paying off as the share price rallied an impressive 40% in the last six months, testament to management’s commitment to navigating the business through a challenging economic period, which has seen advertising and marketing budgets slashed across the technology sector.

“Adapting quickly to economic challenges and diversifying the business, the nimbleness of the company may well prove to be an advantage. Despite the ups and downs, shareholders will be pleased overall with the resilience and resourcefulness demonstrated by the company. As new business deals with big names such as Nike, Porsche and McDonalds help to widen margins, the challenge now will be to build on this and achieve steady growth into 2024.”