Vaccine news breathes life into FTSE 100

FTSE NEWS

The FTSE 100 took off on Thursday (14 January) after reports that the Government was planning to ramp up its coronavirus vaccination programme. The blue-chip index rose 0.84% to 6801.96.

• On Monday (18 January), Rightmove releases data on asking prices in January, providing a useful barometer of seller confidence.
• The Office for National Statistics (ONS) reveals the productivity of UK firms, measured by output per hour, for the third quarter on Tuesday (19 January).
• Link Group publishes its quarterly UK Dividend Monitor on Wednesday (20 January). The report provides data, trends and analysis on the dividends paid out by UK firms.
• On Thursday (21 January), the Bank of England (BofE) publishes its quarterly report on credit conditions, which is used as a measure of banks’ willingness to lend.
• The ONS releases monthly sales data for the retail industry on Friday (22 January).

SECTOR IN FOCUS

Supermarkets have taken centre stage so far this year, reporting soaring sales while many other sectors are struggling to stay afloat.

Both WM Morrison Supermarkets plc (MRW) and Tesco plc (TSCO) reported near double-digit sales growth over the Christmas period, with households keen to indulge after what has been a difficult year.

Being one of the few sectors to have remained open throughout coronavirus, supermarkets have consistently reported strong sales since the first lockdown in March.

However, the boost in sales has not necessarily translated into a big kick-up in profits, due to the cost of making stores safe for shoppers as well as staff absence.

Tesco, for example, revealed yesterday that coronavirus could add as much as £810m in costs over the whole financial year. Morrisons says its costs could rise by as much as £280m.

While these costs won’t stop them from posting healthy profits, they have certainly had a drag effect this past year.

ECONOMIC UPDATE

Members of the Bank of England’s (BofE) powerful Monetary Policy Committee (MPC) are seemingly split over whether to cut rates below zero for the first time.

The issue policymakers have is that rates are already at a record-low 0.1% and money printing, the stimulus measured favoured since the last crisis, is becoming less effective.

As a result, there are growing calls for the UK to follow the lead of the eurozone, as well as Denmark and Sweden, in introducing negative rates.

Essentially, in a negative rate environment, banks have to pay for the privilege of holding cash with the BofE.

Critics of negative rates argue that banks would pass these extra costs onto savers by charging them to keep their cash in a bank account.

But would the policy result in a boost for the economy? That depends on who you ask.

BofE policymaker Silvana Tenreyo, one of nine members on the MPC, said this week: “While we can never have complete certainty, negative interest rates should with high likelihood boost UK growth and inflation.”

However, that is not an assessment shared by Andrew Bailey, the governor of the BofE and fellow MPC member, who said this week that there were “lots of issues” with interest rates, not least that it could stop banks from lending to companies that need it.

The BofE is currently looking at the feasibility of introducing negative rates in the UK and is set to reveal its position in the coming weeks.

FUND WATCH

A good global fund offers you diversification, meaning your money is spread out among a number of regions and/or assets classes. T.Rowe Price Global Focused Growth Equity C Acc GBP (GB00BD446774), for example, invests mainly in large companies in North America, Europe and Asia. It has an ongoing charge of 0.92% and has returned 111.9% since it launched in May 2017.

COMPANY ANNOUNCEMENTS

20 January – Burberry Group plc (BRBY) saw its profit and revenue plunge in the six months to the end of September as coronavirus caused demand for luxury good to dry up. However, the firm said it was encouraged by a recovery in its second quarter. It publishes its third-quarter update on Wednesday (20 January).

20 January – Such has been the impact of coronavirus on JD Wetherspoon plc’s (JDW) sales that just last week broker Liberium singled it out as one of 12 stocks investors should avoid at the moment. With pubs still closed, investors should not hold out too much hope for happy news when the firm publishes its Q2 trading update on Wednesday (20 January).