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FTSE 100 hits all-time high

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 26 April 2024.

| 16 min read

The FTSE 100 hit another all-time high on Friday, setting the stage for the fourth closing record during the week if the gains are sustained throughout the day. The index surpassed the previous record hit in February 2023.

UK blue-chips, which generate most of their revenues from outside the UK, were lifted by a decline in sterling, as well as a potential bid situation at Anglo American and good first-quarter earnings reports from the likes of AstraZeneca and Unilever.

US economic growth slowed more than expected in the first quarter of 2024. This should be good news for the Federal Reserve, but the stickiness of inflation this year means interest rate cuts by the central bank are still a long way off.

Over the week, the blue-chip FTSE 100 index was up 2.7x% by mid-session on Friday, with the more UK-focused FTSE 250 trading 2.2% ahead.

Economics

Bank of England Chief Economist Huw Pill said that interest rate cuts could still be a way off. Mr Pill said there were greater risks from cutting interest rates too quickly, rather than too late. He argued that, for now, it was right to maintain a restrictive stance, despite recent good news on the headline rate of inflation.

British business continued to bounce back from last year's technical recession during April, as improved services activity offset a downturn in manufacturing. The closely-watched preliminary 'flash' UK purchasing managers' index (PMI) from S&P Global showed business output expanded at the fastest rate in 11 months. “Early PMI survey data for April indicate that the UK economy's recovery from recession last year continued to gain momentum,” according to S&P economist Chris Williamson.

US economic growth slowed more than expected in the first quarter.

UK grocery price inflation fell for the fourteenth month in a row in April, partly driven by an increase in supermarkets' promotional activity. Market researcher Kantar said annual grocery price inflation was 3.2% in the four weeks to 14 April, down from 4.5% in the previous four-week period. Kantar said items bought on offer made up 29.3% of supermarket sales – the highest level outside of Christmas since June 2021.

US economic growth slowed more than expected in the first quarter, this is good news for the Federal Reserve, but stubborn inflation may result in the central bank keeping interest rates “higher for longer”. Gross domestic product (GDP) increased at a 1.6% annualised rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its advance estimate. Growth was largely supported by consumer spending.

Why central banks can’t go bust.

Geopolitics

Russia's largest lender, state-owned Sberbank will make a record annual dividend payment of about $8bn, chief executive German Gref said. Sberbank is majority-owned by the state and such dividends make a sizeable contribution to Russia's budget revenues. Financing Ukraine and Russian money.

US President Joe Biden signed into law a bill that bans TikTok in the country if its owner, China’s ByteDance, fails to divest the popular short video app over the next nine months to a year. ByteDance said it had no plan to sell TikTok. US lawmakers and authorities are concerned that data from TikTok’s 170 million US users could be accessed by the Chinese state.

The world’s largest democracy is voting in a general election to choose members of the Lok Sabha, its parliament. Voting will take place until 1 June, with the result likely to be declared on 4 June. Modi plans more growth for India.

Company news

As the first-quarter reporting season got underway with a vengeance, the New York Stock Exchange (NYSE) is surveying market participants on their thoughts about the stock market being operated 24 hours a day. Currently, equities can only be traded on the NYSE between 9.30am and 4pm Eastern Time. Other assets such as stock futures, US Treasury bonds, and cryptocurrencies can be traded at any time. In the earnings announcements, markets were focused on the outlook statement and financial guidance, as these need to justify high market valuations.

UK dividends grew by 4.9% in the first three months of 2024, reaching £15.6bn. However, the gains were mostly due to one-off special dividends, with regular dividends only rising 2% year on year. Some 95% of companies either increased their dividends or held them steady, according to Computershare’s latest Dividend Monitor. The best issuers were centred around the airline, leisure and travel sector, as payouts start to climb back towards pre-pandemic levels as the industry recovers.

In the UK:

A mega-deal was mooted in the mining sector after BHP Group proposed taking over peer Anglo American. If the deal goes through, it will create the world’s biggest copper miner. Anglo management confirmed it had received an “unsolicited, non-binding and highly conditional” all-share buyout proposal from BHP Group, and it was rejecting the offer. The proposal is conditional on Anglo first splitting off its South African platinum and iron ore units, suggesting BHP is primarily interested in Anglo’s copper resources. Copper is an essential metal for the electrification programmes as part of the “green transition”. BHP now has until 5pm on 22 May to either announce a firm offer for Anglo or confirm that it does not intend to make an official bid.

AstraZeneca beat City forecasts for revenues and profits in its first-quarter results, sending its shares higher. The Anglo-Swedish drugs giant beat analysts’ estimates with 18% growth in revenue in the first quarter of 2024, driven by stronger sales of its cancer drugs. Revenue of $12.7bn was well ahead of consensus estimates of $11.9bn. The company repeated its guidance of double-digit growth in sales and earnings for the current year.

Consumer products giant Unilever issued a solid first-quarter update, with a small beat of market expectations on broad-based growth. Full-year guidance remains unchanged. Volume continues to improve, after it turned positive for the first time in 10 quarters in the final three months of 2024, as consumers start to recover from the cost-of-living crisis and trade-up brands. Its refreshed leadership team is in charge now and in March action was taken to accelerate the Growth Action Plan by demerging the Ice Cream division into a standalone business and launching a productivity programme to deliver cost savings of €800m.

First-quarter results from Reckitt Benckiser came in ahead of City expectations and management left its full-year guidance unchanged. This brought some welcomed relief following a disappointing end to 2023 and an adverse court ruling in the US for its infant-nutrition business, Mead Johnson.

Lloyds Banking Group kicked off the UK bank reporting season with a reassuring set of numbers and a reiteration of its 2024 guidance. Its keenly watched net interest margin (NIM) – the difference between the interest income generated and the amount of interest paid out to their lenders – stood at 2.95%, in line with market expectations. Management still expects the full-year NIM will be greater than 290 basis points, even though interest rates may be set to fall later this year. There is yet to be an update on the regulatory probe into past motor finance commission arrangements, with the bank already setting aside £450m against any potential liabilities. The Financial Conduct Authority will update on 24 September and investors keenly await the outcome as the potential fines and compensation could be higher.

Barclays shares rallied despite reporting a 12% drop in profits, as this was less severe than the market had expected. The bank said income from its investment bank fell 7% year on year, as a strong performance in the equities division was more than offset by lower activity in areas such as fixed-income trading.

Persimmon issued a short trading statement ahead of its AGM. First-quarter performance was in line with expectations and the house builder saw an improvement in sales rates and firm pricing. Management plans to open more sites by the end of June as part of the ambition to build back to a pre-Covid level of outlets over the medium term. Build cost inflation has been broadly neutral since the start of the year. Recent trading is described as “robust”, giving confidence for the remainder of the year.

Relx posted a good first-quarter update ahead of its AGM – although no numbers were released, as usual. Relx has “started the year well across all four business areas” and full-year guidance is unchanged (at both group and divisional levels). Broad momentum continues with “strong” or “good” underlying sales growth and margin expansion is still expected at all divisions this year.

J Sainsbury’s management claims the supermarket is winning over customers from its rivals after reporting higher-than-expected first-quarter profits. The supermarket's performance over the last financial year comes amid fierce competition from rivals, with management crediting the gains to its Aldi Price Match campaign and its move to provide better prices to Nectar card holders.

Ocado was again the fastest growing UK grocer in the 12 weeks to 14 April 14, according to market researcher Kantar, with sales growth of 12.5%. Market leader Tesco and second-rank J Sainsbury saw sales growth of 5.9% and 6.8% respectively, both gaining market share year-on-year. Discounters Lidl and Aldi saw sales growth of 9.1% and 2.8% respectively, though the market share of Aldi edged lower.

A strong margin recovery in the first half of its financial year resulted in Primark-owner Associated British Foods posting a bumper set of interim results. Management upgraded full-year guidance as a result and raised its interim dividend by 46%. Chief executive George Weston called them “a very strong set of financial results”. He also noted the group was benefiting from “the restoration of some normality in our markets and in our supply chains”.

Ibstock issued a short first-quarter trading update. Volumes at the brick maker were below expectations, as trading conditions remain difficult. Nevertheless, full-year guidance was unchanged. Both residential and construction markets remain depressed. Weaker demand was blamed on the exceptionally wet weather in the early months of the year. However, cost reduction actions and strong operational execution enabled the group to deliver adjusted earnings for the period as expected. Leading indicators suggest some improvement in future demand.

In Europe:

Roche’s management said it expected to return to sales growth this year on a continued boost from eye drug Vabysmo, after first-quarter sales slipped by 6% due to the loss of Covid-19-related revenue. Roche, which does not disclose quarterly earnings, said the rest of the year would no longer be burdened by year-earlier comparisons that were inflated by Covid-related sales. Excluding currency effects, quarterly revenue from Vabysmo more than doubled to 847 million francs, surpassing an analyst consensus of about 750 million francs, after long-term trial data earlier this year bolstered ophthalmologists' confidence in the drug.

Nestlé, the world’s biggest food maker, missed the market’s sales growth expectations for the first quarter, with volumes once again contracting. Management blamed the competitive environment for falling frozen pizza sales in North America for the slowdown, as well as supply problems in its vitamins business. Management thinks these are temporary issues and reaffirmed its annual guidance.

In the US, more than 40% of the S&P 500 by market value reported results, including:

Google-owner Alphabet posted a market-pleasing set of first-quarter results, as it also announced its first dividend payment and a $70bn share buyback. Although relatively small, the company said it “intends to pay quarterly cash dividends in the future.” Revenue increased 15% year-on-year with most financial metrics significantly ahead of Wall Street expectations. The company continues to invest in its successful cloud operation, boosted by the outlook for artificial intelligence applications.

Microsoft, the world’s largest public company, reported a 17% year-on-year rise in first-quarter revenues to $61.86bn after investing billions into AI and its cloud business. The figures beat Wall Street forecasts. With a multibillion-dollar investment in the ChatGPT developer OpenAI, Microsoft has sought to position itself at the heart of AI’s rise and is now trying to monetize its dominance in this space. The company is now the only US large technology company that does not pay a dividend.

Meta Platforms shares plunged – hitting the wider tech sector – after the Facebook, Instagram and WhatsApp owner raised its annual expenses to account for its investments in artificial intelligence and related infrastructure. Its guidance for second-quarter revenues was also slightly below market expectations. Nevertheless, first-quarter revenues were better than expected. The company started dividend payments in the final quarter of last year.

Investors have been looking for signs of a cyclical bottom at chipmaker Texas Instruments – and its first-quarter results have provided some signs that its market was improving. The company is the world’s biggest manufacturer of analogue semiconductors and embedded processors, which do simple but vital electronic tasks and is regarded as a bellwether for the wider industry.

Intel’s guidance for second-quarter revenue and profit was below market estimates, sending its shares tumbling. The chipmaker faces weak demand for its traditional data centre and PC chips and trails in the surging market for AI components.

Otis Worldwide reported a solid first quarter, driven by strength in the services side of the segment. The elevator and escalator company raised its financial guidance for the year, with earnings now expected to increase by 10%. Margins expanded and management increased its share buyback target to $1bn for the year, up from $800m.

Losses at Boeing’s commercial aircraft division almost doubled in the first three months of the year as a safety crisis led to a slowdown in deliveries. The US group delivered 83 planes to customers in the opening quarter, down from 130 a year earlier. In a message to staff, chief executive Dave Calhoun, who will leave this year after taking responsibility for the crisis, said the company was in a “tough moment”. However, he said that production delays are beginning to produce more predictable and stable assembly times for the 737 Max.

Soft drinks and snack firm PepsiCo reported a rise in first-quarter earnings and sales, underpinned by a strong international performance. The company reaffirmed its guidance for 2024.

General Motors raised its 2024 guidance after beating Wall Street’s revenue and profit expectations in the first quarter. The automaker said it was boosting its forecast after strong North American operations offset losses elsewhere. Its shares jumped following the announcement.

Medical equipment maker Thermo Fisher posted a solid set of first-quarter results, with revenue beating consensus expectations despite a year-on-year decline. Stronger operational performance led management to raise full year guidance. This was attributed to the growth strategy which drove the launch of innovative new products in the quarter, and the Practical Process Improvement business system.

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FTSE 100 hits all-time high

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