FTSE 100 leaps higher as BoE governor quashes inflation fears
FTSE NEWS
The FTSE 100 made strong gains on Thursday (1 July) as the Bank of England governor calmed fears of persistent inflation. The index rose 1.25% to 7,125.16.
- On Monday (5 July), the Society of Motor Manufacturers & Traders released figures showing the number of new car registrations in June.
- CIPS/Markit will update on business conditions in the UK’s manufacturing sector in their monthly survey on Tuesday (6 July).
- Halifax releases house price data for June on Wednesday (7 July).
- Sticking with the property market, the Royal Institution of Chartered Surveyors releases its latest residential market sentiment survey on Thursday (8 July).
- On Friday (9 July), the Office for National Statistics publishes monthly and quarterly economic growth estimates for May.
SECTOR IN FOCUS
The UK’s housing market is red hot – which is good news for sellers and possibly housebuilders.
The latest data from Nationwide Building Society shows house prices rose at their quickest annual rate in nearly 17 years in June, increasing 13.4% year-on-year.
According to the data, prices rose 0.7% month-on-month to £245,432 in June as strong demand continues to drive the market.
Robert Gardner, Nationwide’s chief economist, said: “While the strength [of June’s price growth] is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum.”
Investors will be keeping a watchful eye to see if the strength of the housing market will translate into long-term share price gains for London-listed housebuilders such as Barratt Developments plc (BDEV), Persimmon plc (PSN) and Taylor Wimpey plc (TW).
ECONOMIC UPDATE
The Bank of England governor this week sought to calm fears about rising inflation.
Giving his annual Mansion House address on Wednesday (30 June), Andrew Bailey said that while higher inflation would likely persist for the rest of the year, it should only be temporary.
Inflation leapt from 1.5% in April to 2.1% in May with the reopening of the economy leading to a surge in household spending.
According to Reuters, Bailey said: “It is important not to overreact to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.”
His comments suggest he does not think that a rate rise will be necessary in the short-term unless high inflation persists.
Last week, the BoE warned that inflation could hit 3% this year, well above its own target of 2%.
Inflation is particularly harmful for cash savers and bond investors, as rising prices erodes their long-term purchasing power.
FUND WATCH
UK equities have underperformed their international peers over the past few years, but a solid UK equity income fund is still a staple of many portfolios. One we rate is Man GLG Income Professional Acc C (GB00B0117C28), which invests in big-name British dividend payers such as British American Tobacco plc (BATS) and Royal Dutch Shell plc (RDSA). The fund has an ongoing charge of 0.9% and has returned more than 56% in five years.
COMPANY ANNOUNCEMENTS
6 July – Earlier this month, US investment bank Morgan Stanley backed Ocado Group plc (OCDO) to produce the goods once more for investors, despite the firm’s share price more than 30% off its peak. Morgan Stanley believes the online supermarket’s current share price does not reflect its “superior growth outlook”. Ocado reports its full-year results on Tuesday (6 July).
8 July – The four week delay to so-called ‘Freedom Day’ – when business can operate as they did pre-pandemic – will no doubt hurt the profitability of pubs. However, publicans will be rubbing their hands together that England have made it through to the quarter finals of the European football championships.
Fuller, Smith & Turner plc (FSTA) will reveal how the delay and England’s progression into the next round has impacted its finances when it publishes its full-year results on Thursday (8 July).