Week in Review: US market volatility makes UK investors nervous

FTSE NEWS

The FTSE 100 dipped on Thursday (28 January) as UK investors looked on nervously at the recent volatility in US markets. The FTSE 100 fell 0.63% to 6,526.15.

• On Monday (1 February), the Bank of England (BoE) releases data on bank lending to households and businesses, an indicator of the sector’s health.
• Kantar and Nielson release UK supermarket market share figures on Tuesday (2 February).
• On Wednesday (3 February), CIPS/Markit will publish its latest PMI, focusing on conditions in the UK’s dominant services sector in January.
• The BoE decides on UK interest rates on Thursday (4 February).
• Halifax’s latest house price index will provide insight into the health of the property market on Friday (5 February).

SECTOR IN FOCUS

The airline industry has been one of the sectors worst affected by coronavirus, forcing many carriers to slash costs and take on large amounts of debt.

This week we had a reminder of how painful the pandemic has been for the sector following two dire updates from budget airlines easyJet plc (EZJ) and Wizz Air Holdings plc (WIZZ).

Despite cutting costs by nearly 59% year-on-year, easyJet plc (EZJ) estimated it was still likely to burn through at least £40m a week and said it expects to fly no more than 10% of its regular capacity in the second quarter. The Luton-based carrier also reported an 88% drop in revenues in the three months to the end of 2020.

Wizz Air Holdings plc (WIZZ) didn’t have anything more positive to say, revealing that its revenues plunged 76.5% year-on-year and passenger number by 77.3% in the three months to 31 December 2020.

With fresh travel restrictions being introduced in Europe, there are now concerns that the airline industry may miss out on the lucrative summer holiday period.

However, both easyJet plc (EZJ) and Wizz Air Holdings plc (WIZZ) closed up more than 4% on Thursday (28 January) after suggestions they could gain from pent-up travel demand.

ECONOMIC UPDATE

Just last week, it was feared that the November lockdown might tip the UK into its first ‘double-dip recession’ since the 1970s.

However, respected think tank EY Item Club believes the UK economy will narrowly miss out on that fate after displaying resilience in the months since then.

It says data is likely to show that the economy flatlined in the fourth quarter of 2020, after showing resilience during the November lockdown. If EY is right, it means the UK will have avoided a double-dip recession.

A recession is defined as two consecutive quarters of economic contraction. A double-dip recession, on the other hand, is two recessions separated by a short-lived recovery.

EY also believes the UK’s economic prospects are looking brighter due to the speed with which the government has rolled out coronavirus vaccines.

It now predicts the economy will reach its pre-coronavirus level in the third-quarter of 2022, rather than in 2024 as it thought previously.

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COMPANY ANNOUNCEMENTS

3 February – GlaxoSmithKline plc (GSK) may have to cut its dividend soon to cover the costs of improving its “poor research and development productivity”, warned analysts at Credit Suisse this month as they downgraded the pharmaceutical giant. Then again, analysts at broker Liberium have Glaxo down as one of the picks of the sector. Either way, the firm’s dividend will be a key focus for investors when it reports its fourth-quarter results on Wednesday (3 February).

4 February – Analysts at investment bank UBS hit BT Group plc (BT.A) with a ‘sell’ rating earlier this month over concerns that it’s share price recovery was about to run out of steam. It warned that BT’s struggling Openreach arm and its sizeable pension deficit could weigh on its share price this year. BT reports its third-quarter results on Thursday (4 February).