Week in Review: Alarming dip in business activity pushes FTSE 100 into the red

FTSE NEWS

The FTSE 100 ended Thursday (21 May) in the red following fresh data showing a severe drop in business activity in May. The index finished down 0.86% at 6,015.25.

• With Monday (25 May) a Bank Holiday, Barclaycard kicks off the week on Tuesday (26 May) with its latest Small Business Barometer. The survey offers revealing insight into the optimism levels of UK SMEs.
• On Wednesday (27 May), Zoopla updates on the health of the housing market when it releases its UK Cities House Price Index.
• EY reveals its UK Attractiveness Survey on Thursday (28 May), which monitors foreign direct investment levels as well as how other countries perceive the UK as a place to do business.
• On Friday (29 May), the Society of Motor Manufacturers & Traders publishes fresh sales and manufacturing data on the car industry.

SECTOR IN FOCUS

Will coronavirus actually provide a long-term boost to the car industry? Industry insiders certainty hope so. Car sales in Europe have fallen off a cliff in the first half of 2020, with lockdown forcing dealerships to temporarily close and drivers to leave their vehicles on driveways. However, in China, which is starting to emerge from lockdown, data shows there has been a spike in individual car use and sales as travellers worry about the health risks of using public transport. According to the Financial Times (free to read), executives at the major car manufacturers and dealers are gearing up for a similar trend in the US and Europe as government-imposed restrictions are eased. If that happens, FTSE-listed car dealers Inchcape plc (INCH), Pendragon plc (PDG) and Lookers plc (LOOK) could benefit.

ECONOMIC UPDATE

With new Covid-19 infections way off their peak, Brexit has once again become a focus for the national media, albeit not to the same extent as last year. As things stand, the negotiations have reached a major impasse, increasing the likelihood that the UK will leave the European Union without a trade deal on 31 December. David Frost, the UK’s chief negotiator, is expected to allude to this when he updates MPs on the progress of the negotiations on Wednesday (27 May). Whether the stalemate continues or there is a breakthrough in the talks, both eventualities will likely move markets. But for now, it’s a case of watch this space.

FUND WATCH

While coronavirus has hit economic growth in Asia, the damage has been far less than in other areas. Long-term, Asia is expected to drive global economic growth, so it’s no surprise it is a popular region with investors. A fund we rate highly is First State Asia Focus B Acc GBP (GB00BWNGXJ86), which invests in large and medium-sized firms that operate mainly in the Asia-Pacific region.

COMPANY ANNOUNCEMENTS

27 May – In March, Britvic plc (BVIC) warned of a “material impact” on revenue in 2020 as a result of Covid-19, causing analysts to speculate that it might be forced to axe its dividend. That will no doubt be the key focus for investors when it reports its interim results on Wednesday (27 May).

28 May – Newspapers have been hit hard by coronavirus. Lockdown has resulted in falling paper sales which, in turn, has made advertisers more reluctant to part with their cash. Daily Mail and General Trust plc (DMGT) warned in March that Covid-19 had started to affect its business, so investors will want some reassurance when the group publishes its interim results on Thursday (28 May).