Equity markets in the UK and Europe pushed further into record territory this week, despite headwinds for the global vaccination programme caused by issues with the Johnson & Johnson jab. Most of Asia edged up but Japan and China continued to lag as Covid-19 cases in Japan, and concerns over liquidity in China, held shares back. On Monday, UK and US indices closed lower, despite the feelgood factor accompanying the opening of non- essential shops in England for the first time in months. The FTSE100 closed down by 0.39%, while the S&P500 edged down 0.02% and the Nasdaq lost 0.36%.
On Tuesday, the FTSE100 eked out a 0.02% gain while European shares rose and the US was mixed. The Dow fell by 0.20%, while the S&P 500 rose 0.33% and the Nasdaq closed up by 1.05% at 13,996.10.
Wednesday was another positive day in the UK, with the FTSE100 closing up by 0.71% and the FTSE250 rising by 0.4% to a record high of 22,355.45. US markets took a breather, however, with all major indices losing ground. Momentum resumed on Thursday thanks to better-than-expected jobless claims data and corporate results. The Dow closed up 0.9%, while the S&P rose 1.11% to 4,170.42 and the Nasdaq rose by 1.31% to 14,038.76. In the UK, The FTSE100 gained again, rising by 0.63% at 6,983.50, while the FTSE250 continued its surge, rising 0.52% to 22,472.04. In early trading on Friday, UK shares were heading up.
Company in focus: Tesco
Tesco said it expected a strong recovery in the coming year and would maintain its final dividend at its preliminary annual results this week. Its reported pre-tax profit for the year to the end of February, fell 20% compared to a year earlier, to £825m, as total sales excluding fuel rose 7% to £53.4bn. Profits were slightly below forecasts of £891m. Sales were boosted by an 8.8% increase in the UK and Ireland to £48.8bn, more than making up for a 2% drop in central Europe and a 31% decline at Tesco Bank.
Britain’s biggest supermarket announced a final dividend of 5.95p per share taking the full-year payout to 9.15p. Tesco said the annual dividend was a measure of confidence in its future cash flows. It said a strong rebound in profits and free cash flow was likely because most of the extra costs caused by the pan- demic will not occur again. Although supermarket sales boomed during the pandemic, Tesco was forced to hire extra staff to meet demand enforce Covid-19 protection measures. Shares closed down by 2% on the day
The global vaccination programme hit another speed bump this week as Johnson & Johnson’s single-dose jab was paused in the US due to several cases of blood clots. However, the news barely caused a blip on equity markets, and a survey of global fund managers from Bank of America explains why. It reported that concerns about inflation have now overtaken Covid-19 as the primary risk facing the global economy.
All eyes were therefore on US inflation data released on Tuesday. It showed prices increased by 0.6% in March compared to February – the biggest monthly increase since 2012 and above estimates of a 0.5% rise. On an annual basis, prices increased by 2.6%, way above the 1.7% annual increase reported in February and its highest level since 2018. But far from fuelling the bond sell-off that has accompanied the recent surge in inflation expectations, the market shrugged off the data, with bond yields falling on the day. The reaction was seen as a sign that the market has come to terms with a short-term spike in prices, and that it believes any increase in inflation is likely to be ‘transitory’.
In the UK on Tuesday, the Office for National Statistics (ONS) said GDP rose by 0.4% in February compared to the previous month, up from a revised drop of 2.2% in January. It was a smaller increase than the 0.6% expansion forecast by economists, but the economy is predicted to rebound strongly in the coming months, with analysts pencilling in a 4%-5% bounce in the second quarter. Receding worries about the pandemic also helped push UK business confidence to record levels. Consultancy firm Deloitte surveyed CFOs at many of Britain’s biggest companies and found optimism was at its highest level in 13 years. Executives said they expected lockdown easing to unleash a wave of spending, while a survey by the Federation of Small Businesses also found that more than half of firms expected revenues to rise over the next three months – the highest proportion in six years. Finally, a survey by NatWest on Monday showed employment improving across most regions as business levels increased.
Confidence looked justified when data from the British Retail Consortium said on Tuesday that total UK retail sales increased by 8.3% in March compared to a year earlier. However, the big jump masked wide variations across different categories: food and computer sales shot up as people spent more time at home, but fashion and beauty items fell by double digits for the same reason. As shops reopened on Monday, visits to stores more than tripled, according to a survey by retail research company Springboard.
Post-Brexit trade also appears to be improving. The ONS reported that there was a £3.7bn rise in exports to the EU following a £5.7bn contraction in January. Imports from the EU rose less robustly, climbing by £1.2bn in February after a record fall of £6.7bn in January. In the US, key retail sales data released on Thursday showed sales jumped by a higher-than-expected 9.8% in March, fuelled by a combination of good weather, strong jobs growth and another wave of stimulus payments. Initial jobless claims in the US fell to a pandemic-era low of 576,000, it was reported on Thursday, further boosting confidence in a sustained recovery.