Week in Review: FTSE 100 down after best day since February

FTSE news

The FTSE 100 was down slightly on Thursday (22 July), a day after its best day since February, dragged lower by Unilever (ULVR). The UK’s top index fell 0.4% to 6,968.30.

• EY ITEM Club releases its summer forecast for the UK economy on Monday (26 July).
• On Tuesday (27 July), Zoopla publishes its City-focused house price index, a useful indicator of the health of the property market.
• Investors will get an idea of how UK plc is faring on Wednesday (28 July), when the Office for National Statistics (ONS) publishes a round-up of UK company profits for the first quarter.
• On Thursday (29 July), the Society of Motor Manufacturers & Traders releases monthly automotive manufacturing figures for June.
• The Insolvency Services publishes second quarter insolvency data for UK companies on Friday (30 July).

Sector in focus

Travel stocks tumbled at the start of the week amid growing concerns about the rising number of new coronavirus cases.

Airlines, cruise companies and hotels led the charge downwards on Monday (19 July) as European shares had their worst day in nine months.

The sell-off was driven by rising concerns about the spread of the more infectious Delta variant.

The sharp rise in coronavirus cases in recent days has fuelled talk of another lockdown before Christmas, which would have major ramifications for the UK’s already beleaguered travel sector.

On Monday, the share prices of UK-listed cruise operator Carnival plc (CCL), and airlines easyJet plc (EZJ) and British Airways-owner International Consolidated Airlines Group plc (IAG) slumped between 5.2% and 8.3%.

However, all three had recovered at least partly by the end of the week.

Economic update

The Bank of England risks choking off the economic recovery if it raises rates now, according to a member of one of the central bank’s rate-setting Monetary Policy Committee.

Speaking in a webinar on Monday (20 July), Professor Jonathan Haskel suggested that securing the economic recovery was more important than tackling rising inflation, a term used to describe the rising price of goods and services.

Investors have become increasingly concerned about inflation, which hit 2.5% in the UK last month – 0.5 percentage points higher than the BoE’s long-term target.

Inflation is an investor’s worst enemy as price rises erode the purchasing power of their money.

According to the Financial Times, Haskel said: “For now, tight policy [increasing rates] is not the right policy. The economy is not fully recovered yet and faces two headwinds over the coming months: the highly transmissible Delta [coronavirus] variant and a tightening of the fiscal stance.”

Haskel’s comments suggest the BoE’s rate-setting committee will once again be split over whether to raise rates when they meet next month.

BoE deputy governor Sir Dave Ramsden suggested last week that rising inflation might force the central bank to increase rates sooner than expected.

Fund watch

Bonds may not seem very attractive at the moment, but they offer diversification and so remain an integral part of many portfolios. If you are keen to invest in bonds and want better long-term returns – by taking on added risk, of course – you might want to take a look at a high-yield bond fund. Baillie Gifford High Yield Bond B Inc (GB0030816713) generates better returns by investing in sub-investment grade bonds – or, in other words, junk bonds. The fund currently has an ongoing charge of 0.37% and offers a yield of 4.2%. It has also returned 30% in five years.

ETF watch

While bank stocks have underperformed in recent years, they should – in theory – do well when interest rates start to rise as their profit margins grow in tandem. Many of them also pay healthy dividends.

Company announcements

28 July – Hit TV show Love Island netted ITV plc (ITV) more than £12m in advertising revenue even before the latest series kicked off last month. The broadcaster has struggled throughout the pandemic as advertisers slashed their spend. However, Kelly Williams, managing director of commercial at ITV, told the Guardian last month that revenues for June and July would be the “biggest in [ITV’s] history”. The broadcaster releases its interim results on Wednesday (28 July).

29 July – The Bank of England last week removed the dividend restrictions it placed on banks at the start of the coronavirus crisis. Therefore, a key focus of Lloyds Banking Group plc’s (LLOY) interim results on Thursday (29 July) will be how much it will pay going forward.