FTSE 100 rises on weak sterling, sluggish GDP

FTSE NEWS

The FTSE 100 index of stocks rose in trading on Thursday as sluggish UK GDP numbers led to falls in pound sterling. The index was up 0.60% to 7,384.18.

• On Monday (15 November) Rightmove reports its monthly house price index for November, giving an insight into the health of the housing market in the UK.
• The Office for National Statistics (ONS) gives its monthly unemployment figures on Tuesday (16 November).
• The ONS then reports on Wednesday (17 November) the latest UK inflation statistics giving insights into price rises in the economy.
• There are no major economic announcements of note on Thursday (18 November).
• On Friday (19 November) the ONS updates its UK monthly retail sales figures which look at the health of the high street in the UK.

SECTOR IN FOCUS

Retail has come under significant pressure in recent months thanks to supply chain issues across the globe, but there are now some bright spots among the difficulties.

High street clothing and food retailer Marks & Spencer Group (MKS) has delivered booming profits, food sales helped it to bounce back from the pandemic.

As a result, the firm has upgraded its outlook for its next set of earnings – the first time this has happened for the brand in the 21st Century.

The firm’s boss Steve Rowe said in the company update that "for the first time we can see that the hard yards of driving long-term change are beginning to be borne out in our performance".

M&S’s transition from a clothing retailer-focus to selling groceries couldn’t have been timelier either. The unexpected upturn in fortunes comes as high street fashion retail struggles to adapt to the post-pandemic world.

Big-name brands such as Topshop and Debenhams have disappeared from physical retail over the past year but online names such as ASOS (ASC) and Boohoo (BOO) have largely muscled into the gap left by those ailing fashion brands.

As demand soars and price rises bite however, the challenge for these firms is to keep costs under control and avoid passing on too much inflation to customers, most of whom will be extremely cost-conscious.

ECONOMIC UPDATE

The UK’s economy grew 1.3% in the third quarter, down from 5.5% in Q2.

The latest GDP reading puts the UK at the back for growth in G7 nations, where nations such as the US have already surpassed pre-pandemic levels.

The slowdown in growth will be cause for concern for policymakers as the UK’s economy still sits some 2.1% smaller than pre-pandemic levels.

The question for the Bank of England now will be how to react to an economic environment which is beginning to look similar in character to the 1970s – where inflation was rampant but economic growth missing.

The issue for monetary policy decision makers is whether or not to hike rates to quell inflation. While the economy is not at ‘stagflation’ levels yet hiking rates could kill an already slowing economic recovery and lead to rising unemployment.

The last time the UK faced serious stagflation it took years to correct, with significant tax cuts needed and high unemployment levels in the first few years of the then Thatcher Conservative Government.

FUND WATCH

The UK has its share of economic issues, but these aren’t dissimilar from other major developed nations at the moment. Despite this, major investment bank JPMorgan has upgraded its stance on UK investments to ‘overweight’ for the first time since the EU Referendum in 2016. If you’d like to invest in the UK Fidelity Index UK (GB00BJS8SF95) could be a great affordable fund option. The passively managed fund tracks the performance of the UK FTSE All-share index. It has returned 32.2% over five years for an OCF of just 0.06%.

ETF WATCH

If you’d like to track the UK FTSE All Share index via an ETF, the SPDR® FTSE UK All Share ETF Acc (FTAL) could be a good option. The ETF has returned 32.85 in five years and charges an OCF of 0.2%.

COMPANY ANNOUNCEMENTS

16 November – Telecoms firm Vodafone (VOD) reports its interim results on Tuesday. The firm has announced a big push into the UK broadband market with a deal to use the BT Openreach and CityFibre networks. The deal gives Vodafone the largest high-speed broadband footprint in the UK and presents a big scale up in its ambitions for wired internet provision. The firm’s share price lags the FTSE 100 by around 23% this year though as the firm hasn’t had much good news to offer. This strategy change could make for interesting reading its forward projects however.

18 November – Daily Mail and General (DMGT) reports its full-year results on Thursday. It could be the last time the firm reports its results on the public stock exchange, as the majority shareholder Lord Rothermere looks to take the firm private for 255p per share. The deal would see DMGT leave public markets for the first time in nearly 100 years. Shareholders will also receive a special dividend of 991p per share and a final dividend of 17.3p under the terms of the deal. There is still opposition from some major holders of the stock though, with a final decision by shareholders yet to be taken.