Week in Review: Turbulent FTSE down on US market sell off expectations

FTSE NEWS

Expectations of more falls in US markets led the FTSE 100 and FTSE 250 lower on Thursday (4 March). Both indices fell away in early trading before recovering somewhat, but ultimately ended the session down on the previous day. The FTSE 100 was off by 0.37% at 6,650.88 while the FTSE 250 was down 0.65% at 21,296.23.

• On Monday (8 March) the latest UK regional PMI data is reported, which will give an indication of how different areas of the UK are faring as we approach the end of this third lockdown
• The OECD offers its interim economic outlook on Tuesday (9 March), a useful alternative measure of economic forecasting compared to national statistics.
• On Wednesday (10 March) the ONS publishes family spending statistics for 2020 which should provide an interesting insight into how households’ personal finances have fared during the pandemic
• The ECB announces its latest interest rate decision on Thursday (11 March)
• On Friday (12 March) the ONS announces the latest monthly UK GDP estimate

SECTOR IN FOCUS

Housebuilders have been one of the key winners from Rishi Sunak’s Stamp Duty holiday and the news that it is to be extended will be a boon for them.

Persimmon (PSN), Barratt Developments (BDEV) and Taylor Wimpey (TW.) all surged on the news of the extension this week.

The announcement that it is to be extended until the final quarter of the year is perhaps better than even the housebuilders themselves could have expected – while the main concession scrapping stamp duty on house valued up to £500,000 will stop at the end of June, the zero rate will continue for property worth up to £250,000 until the end of September.

New build houses around this value are not atypical for housebuilders to offer, meaning the firms could be set for bumper sales as buyers look to snap up homes while the Stamp Duty holiday continues.

The property market will also be further supported by the introduction of a loan guarantee for 95% mortgages. Banks offering 95% LTV mortgages will have the loans backed by the government, to make it easier for those with low deposits to get on the ladder.

ECONOMIC UPDATE

Chancellor Rishi Sunak delivered his Spring 2021 Budget on Wednesday (3 March) to update how the government sees the unfolding economic situation in the UK.

The forecasts by the Office for Budget Responsibility (OBR) were optimistic by relative standards. It expects GDP growth to be 4.4% this year and 7.3% in 2022, which means all the lost output from coronavirus will be regained by the middle of next year.

Sunak also announced tax changes – the freezing of a raft of allowances that will net the Treasury over £20 billion of extra income over the next five years, plus raising corporation tax. The tax on profits will rise to 25%, up from 19%, but is still relatively competitive in comparison to many developed economy rivals, and will not kick in until 2023.

The Chancellor did however pull one ‘rabbit’ out of his hat on the day. He announced an unexpected ‘super deduction’ tax break for businesses. This tax break means firms can claim back up to 130% of the value of investments they make from their tax bills for the next two years – a significant incentive for companies to plough their money into growing their businesses. Major corporations including BT have already commented on the positive impact this will have.

FUND WATCH

The UK stock market has for a long time been labelled as undervalued relative to its peers, largely thanks to Brexit, and more recently because of the impact of coronavirus. But with the nation on the road to recovery it might be worth considering investment opportunities as companies invest for future growth. Fidelity UK Smaller Companies W Acc could be a good way to express this idea as it focuses on smaller UK firms looking to grow and expand. It has returned 65% in five years and charges an OCF of 0.93%.

COMPANY ANNOUNCEMENTS

8 March – Education provider Pearson (PSON) reports its full-year results, having already posted an encouraging trading update in January. Global sales of its online products were reported up 18%, and while profits were down 10%, the way the business has developed show how the firm has been able to capitalise on learning-from-home trends. Its share price has performed well in the last 12 months despite many of its assessment centres and schools being closed because of lockdowns.

10 March – Leading takeaway delivery service Just Eat (JET) reports its full-year results, giving a picture of how the firm has performed in a year when stay at home orders have become the new norm. The share price has had an indifferent 12 months, as the firm has yet to make significant profits while it invests in its own growth. It also looks set to be joined on the market by rival Deliveroo which announced the date of its £10bn IPO this week.