FTSE 100 rallies, Fevertree shares improve
A big week for traders started on the front foot today as oil and mining stocks swept the FTSE 100 index 1% higher for a second session in a row.
Glencore and Rio Tinto shares jumped 4% as global recession fears eased a little after Friday’s better-than-expected retail sales figures in the United States. The mood also reflected hopes that the Federal Reserve is poised for a 75 basis points increase in its funds rate next week, rather than the 100 points seen by some previously.
The shift in rates expectations took some of the steam out of the US dollar, having last week traded at a 20-year high against a basket of six major currencies.
Oil majors BP and Shell rose more than 3% as the price of Brent crude lifted 2% to $103.58 a barrel, a move reflecting ongoing supply concerns after no new production pledges were revealed following US president Joe Biden’s visit to Saudi Arabia.
Having rallied by 1.7% on Friday, the risk-on mood continued today as a strong session in Asia helped the FTSE 100 to add another 1.5% or 104.47 points to 7263.56. The FTSE 250 index lifted 163.57 to 18,997.37.
Events with the potential to turn the dial on stock market sentiment include this week’s readings on UK unemployment, pay and inflation. The European Central Bank meets on Thursday, when policymakers are due to hike interest rates for the first time in more than a decade.
The US earnings season also continues with results from Netflix after Tuesday’s closing bell and Tesla, Twitter and Snap later in the week. Updates from UK companies include Royal Mail, SSE and Ocado.
The potential for negative shocks was highlighted last week by Fevertree Drinks, when its shares tumbled 26% on the back of a warning over a significant deterioration in margins.
The AIM-listed tonics firm traded at its lowest level in six years on Friday, but rallied 7% today as shares improved 69.5p to 936p. The recovery came despite broker Peel Hunt halving its price target to 800p.
FTSE 100 up 1%, Scottish Mortgage leads way
The FTSE 100 index has produced a better-than-expected performance, despite today’s latest warnings over consumer headwinds and inflationary pressures.
The top flight rallied 1% or 78.66 points to 7237.66, with the main support coming from the commodities sector after gains of more than 2% for BP, Shell, Glencore and Rio Tinto.
Scottish Mortgage Investment Trust led the risers board as shares rallied 4% or 28.6p to 810.6p. The FTSE 250 index stood 0.8% higher, a gain of 153.12 points to 18,986.92.
GSK spin-off Haleon, which is set for admission to the FTSE 100 index after being valued at more than £30 billion in today’s listing, rose 4p from its opening price of 330p. GSK fell 19% or 321.2p to 1398p as shares took into account the loss of the consumer healthcare business.
Direct Line warns over claims cost inflation
Direct Line Insurance shares have fallen 12% to 190p after the FTSE 250-listed company revised 2022 profits expectations in the wake of significant claims inflation in the first half of year.
It highlighted factors such as higher used car prices, as well as rising third party claims costs, longer repair times and inflation in the cost of car parts.
The company, whose other brands include Churchill, Privilegeand Green Flag, now estimates overall motor claims severity inflation for 2022 of around 10%.
It said it had increased prices in the second quarter to restore margins: “In addition, the group has recently launched an updated motor risk pricing model which it believes materially improves risk selection.”
Deliveroo lower sales outlook
Deliveroo pointed to increased consumer headwinds today as it made a significant cut to forecasts for its gross transaction value in 2022.
It now sees full-year growth in the range of 4% and 12%, which compares with its previous guidance of between 15% and 25%.
The revision comes after a slowdown in UK second quarter growth to 4%, from the 12% reported in the previous quarter. Overall, gross transaction value for the half year was £3.56 billion, a rise of 7%.
Deliveroo, which is run by founder Will Shu, left margin guidance unchanged and said its balance sheet remained strong.
It said: “Management is confident in the company’s ability to adapt financially to a rapidly changing macroeconomic environment, through gross margin improvements, more efficient marketing expenditure and tight cost control.”
Shares fell 3% to 85.1p, which compares with 390p when it listed in March 2021.
FTSE 100 higher, focus on UK inflation
London’s FTSE 100 index is set to open higher at the start of a week due to include the latest UK unemployment, wage and inflation readings as well as a rise in interest rates by the European Central Bank (ECB).
The US earnings season also continues with results today from Goldman Sachs before Netflix after Tuesday’s closing bell and Tesla, Twitter and Snap later in the week.
Their outlook statements will be significant at a time when the US economy is facing another big rise in the Federal Reserve funds rate later this month.
Expectations are now focused on a 75 basis points increase rather than the 100 points seen by some traders last week.That shift has taken some of the momentum out of the US dollar, which weakened slightly today to stand at $1.19 versus the pound.
The monetary policy approach of policymakers at the Bank of England has been much less dramatic than US counterparts, although an inflation figure above the forecast 9.2% on Wednesday will ramp up pressure for a 0.5% rise in August.
The ECB is expected to raise its key rate for the first time since 2011 when it raises by 0.25% at its meeting on Thursday, with a pledge to do so again in September.
Ahead of these developments, CMC Markets expects the FTSE 100 index to open 35 points higher at 7194.