Week in Review: FTSE 100 up on pound’s inflation weakness

FTSE news

The FTSE 100 index of companies gained on Thursday (7 October) despite inflation warning from the Bank of England’s new economist Huw Pill. The index finished the session up 1.17% to end the day at 7,078.04.

• On Monday (11 October) IHS Markit’s latest UK regional PMI data is released, giving a look into how different regions of the UK’s economy are faring.

• The Office for National Statistics (ONS) publishes its latest wage and employment data on Tuesday (12 October).

• The ONS then publishes the latest monthly GDP data for the UK on Wednesday (13 October) offering a snapshot of the UK’s economic growth.

• On Thursday (14 October) the Royal Institution of Chartered Surveyors (RICS) publishes its latest residential market survey giving indications of the current condition of the UK’s housing market.

• On Friday (15 October) the ONS publishes its latest wellbeing stats, looking at the anxiety, happiness and satisfaction of people in the UK.

Sector in focus

Executives at British Airways owner International Consolidated Airlines Group (IAG) and Ryanair (RYA) will breathe a sigh of relief as the Competitions and Markets Authority (CMA) – which oversees competition and market fairness in the UK – has ruled in favour of the firms over a major consumer issue.

Both firms stood accused of withholding customer refunds, to the tune of millions of pounds, amid the coronavirus crisis last year.

As lockdowns were announced, thousands of would-be travellers were effectively banned from taking flights to many parts of the world. BA and Ryanair both, it was alleged, denied customer refunds on those lost bookings.

But the CMA has now dropped its investigation. BA offered flight vouchers to its customers while Ryanair let its passengers rebook their trips, but both prevented customers from taking cash refunds.

Travel experts have balked at the decision however, saying it effectively punishes competitors such as Jet2 (Jet2) and easyJet (EZJ) who followed UK consumer law and lost millions in revenue from cash refunds while their competitors sat on customers’ cash.

Looking ahead though, airlines will be pleased that the UK has relaxed much of its strictest travel criteria. Many of the rules around flying abroad were simplified and reduced on 4 October, while industry experts expect the government to slash the red list of countries where travel is largely prohibited. 

Economic update

The supply chain and employment crisis has been at the forefront of current economic issues plaguing the UK. It has now boiled over into an argument between government and business as Boris Johnson took to the podium at the Conservative Party conference to say he wanted Britain to become a ‘high wage, high productivity’ economy.

This stoked the ire of business that see the issue as a major choke point for growing the economy, not an opportunity necessarily for employees to cash in.

In a nutshell, the supply chain crisis is being amplified by a lack of heavy gauge vehicle (HGV) qualified drivers to deliver goods. Such an issue creates blockages that prevents economic growth and, as business leaders now warn, will lead to higher inflation as firms pass on costs to consumers.

The ONS is set to deliver its latest numbers on wages and employment on Tuesday (12 October). While its most recent numbers suggest an eye-watering 8.3% rise for workers in the three months to September, the end of the furlough scheme could soften this rise as more workers become available for employment.

The figure is also highly distorted thanks to base effects comparing to the same period last year when wages were in reverse. Whether or not Boris Johnson will really deliver the sustained wage rises he is calling for, while inflation already begins to bite, remains to be seen.

Fund watch

With concerns around supply chain pressures on the UK economy, the pound has begun to lose ground as confidence drops. This can, counterintuitively, present an opportunity for investors as the UK index of biggest companies, the FTSE 100, tends to perform inversely to the pound. This is because many of the firms listed on the index earn their incomes in foreign currencies, which then provides larger relative profits when the pound is weak. A good option to invest in this theme is the iShares UK Equity Index (UK) D Acc (GB00B7C44X99) fund. This fund tracks the performance of the FTSE All-share index and has returned 24.6% in five years, while charging an OCF of just 0.05%.

ETF watch

If you would like to invest in the FTSE 100 index via an exchange-traded fund (ETF) then HSBC FTSE 100 UCITS ETF (HUKX) could be a good option. The ETF has returned 20.8% in five years and charges a fee of 0.07%.

Company announcements

5 October – ASOS (ASC) posts its full-year results at a time when the normalisation of retail trade appears to have affected its trading. The firm had a banner year in 2020. With most high-street competitors barred from trading, customers flocked to ASOS as an online alternative. The business has begun reframing its unique selling point as a digital department store, with big ranges of well-known clothing brands. Further to that it has announced its intention to burnish its ESG credentials. In September the firm committed to ‘ambitious new ESG goals to reach by 2030.’ This comes as big online competitors struggle against worker abuse scandals.

6 October – Dunelm (DNLM) gives a trading update as its bumper performance continues. The firm rode out the storm of lockdowns in 2020 well and has returned spectacularly for investors, offering special dividends amid soaring demand. The company has blended online retail with physical out-of-town locations to maximise its profits. The firm caters to a mid-range furnishings market that is extremely popular. That being said, with people spending less time at home as life returns to normal, it remains to be seen whether demand for home improvements will be sustained.