Equity markets have been mixed this week. Big tech has been a drag in the US, along with continued ‘taper talk’ about the likely winding down of quantitative easing in the US by the end of the year.
The UK and Europe, with their sizeable exposures to sectors that benefit from economic reopening, have eked out gains. The FTSE100 rose by 0.82% on Tuesday and the European Stoxx 600 hit an all-time record high on optimism about a robust recovery once restrictions are lifted.
US markets were sluggish on the first trading day after the Memorial Day holiday, with Nasdaq and the broader S&P500 closing slightly down, while the Dow edged up by 0.13%.
Wednesday was another positive day in the UK, with the FTSE100 gaining 0.40% while the more domestically focused FTSE250 rose 0.25% to hit a new record high of 22,933.29.
On Thursday, UK shares fell back after the government restricted foreign travel further, by removing Portugal from the ‘green’ list, effectively removing all popular destinations from quarantine free travel. Airlines and holiday companies were hit – IAG and EasyJet both lost more than 5%.
US indices fell once again, despite a positive jobs report that showed initial jobless claims falling below the 400,000 level for the first time since the pandemic began. At the close, the Dow was down 0.07%, the S&P500 was 0.36% weaker at 4,192.85 and the Nasdaq dropped by 1.03% to 13,614.51.
In early trading on Friday, UK shares were heading down.
Company in focus: B&M Group
B&M Group said pre-tax profits doubled in the past year after it benefitted from surging sales during lockdown. The FTSE100- listed discount retailer was able to keep its shops open because they sold ‘essential food’. But the discount retailer warned that revenues would be lower in the coming year due to compari- sons with such a strong 12 months during the pandemic.
Adjusted core earnings rose 83% to £626.4m on the back of a 26% rise in revenue to £4.8bn. Pre-tax profits rose 108% to £525m, helped by an exceptionally strong final month of its fi- nancial year. The government’s decision to permit outdoor so- cialising from the end of March effectively pulled forward de- mand for garden furniture and associated goods that would nor- mally happen in the summer.
A final dividend of 13p a share was declared for a full year pay- out of 17p compared with 8.1p a year earlier. Shares closed down by 3.92% on the relatively downbeat outlook.Economic roundup
The post pandemic recovery is gathering speed. A slew of surveys released this week showed economic activity acceler- ating around the world, with demand surging so much in some regions that companies are struggling to keep up.
The most recent purchasing managers index (PMI) for the UK’s manufacturing industry, which measures the proportion of companies that report business levels improving relative to the previous month, shows that an unprecedented 66% of firms said business increased in May compared to April. Any reading above 50 indicates that activity in the sector is expanding. The reading easily beat the previous record of 61%, set in July 1994. The same survey in the eurozone also reported another uptick in activity. The IHS/Markit euro area manufacturing PMI produced a reading of 62.8 in May, with some member countries reporting their sharpest rise in business since the 1990s.
Meanwhile in the US, the latest survey by the Institute of Supply Management (ISM) of its manufacturing sector showed a reading of 61.2 last month, up from 60.7 in April. Both the US and eurozone surveys highlighted problems with factories meeting burgeoning orders as the regions reopen their economies. The ISM survey said that “record-long lead times, wide- scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments” of manufacturing.
In the eurozone, the report noted how the supply-side was ‘reeling’ as companies are unable to source ‘what they need’. These widespread problems in sourcing goods are leading to mounting price pressures. In the US, the ISM survey’s meas- ure of prices paid by manufacturers was elevated to levels last seen in 2008 and is fanning concerns about inflation. Last week, the US government reported that a measure of underlying inflation rose at an annual rate of 3.1% on a year-on-year basis in April, the biggest increase since July 1992, and way above the Federal Reserve’s 2% target. High input costs for raw materials, coupled with difficulties in recruiting enough workers, is forcing many US companies to pay extra to hire new workers, further fuelling inflationary pressures. This week, the US Fed released its ‘beige book’, a collection of data from the regional Fed offices about the economic climate. It cited wage pressure building as companies fight to fill vacancies.
Similarly in Europe, inflation climbed to the highest level in more than two years after economies across the region started to lift coronavirus restrictions and rebounding demand aggravated supply bottlenecks. Consumer prices rose an annual 2% in May, above expectations. The European Central Bank has stressed that price increases will most likely be transitory, and insisted it was premature to talk about raising rates or ending its asset-purchase programme.
In the UK, the Covid-19 house-price boom continues. Data from Nationwide Building Society showed house prices rising at an annual pace of 10.9% in May and UK house prices hitting a new record average price of £242,832. Nationwide said activity would likely remain “fairly buoyant” over the remainder of the year due to the stamp duty holiday extension and the furlough scheme, but added that when such support is removed, the market would probably slow.