Market Outlook

FTSE 100 index closes week moderately higher on US-China trade relief

A weekly roundup of the key movements and news from the FTSE 100, and the broader UK market.

 

Positive trade sentiment boosts UK equities  

US President Trump began the last week of February announcing the postponement of the 1 March deadline to determine the trade tariffs imposed on Chinese goods. According to Trump, the pair are in the final stages of hammering out an agreement, which could be reached at a summit with Chinese President Jinping around 27 March, as long as Beijing follows through on certain commitments.   

After falling 1.5% to 7074.70p by the end of February, the FTSE 100 advanced on the increasing optimism of a deal, ending the week 0.4% up at 7106.70p. 

“A lot of this is due to the ongoing optimism about the trade war negotiations between the US and China. The deal could be around the corner, both parties are in the final steps of finalising them; in fact, they are exploring the dates for the joint summit. This really shows that some tremendous progress has been made,” Naeem Aslam, chief market analyst at ThinkMarkets, said in a note to clients.

“The deal could be around the corner, both parties are in the final steps of finalising them...” - Naeem Aslam, chief market analyst at ThinkMarkets

Further boosting traders and investors optimism, the Caixin manufacturing purchasing managers’ index rebounded to 49.9 from 48.3 in January, regaining its three-month high in February.  

“Overall, with the early issuances of local governments' special-purpose bonds and targeted adjustments to monetary policy, the situation in the manufacturing sector recovered markedly in February due to the effect of increased infrastructure investment,” CEBM Group’s Zhengsheng Zhong said. 

 

Strong sterling sends the FTSE down 

Political uncertainty surrounding Brexit continues to hurt UK equities with Prime Minister May delaying returning to parliament for another key vote on her Brexit deal until 12 March. If May’s deal is rejected and the government doesn’t back a no-deal exit, the deadline for the UK’s departure from the EU may be extended past the current 29 March deadline. 

The pound raced higher against the dollar last week as investors and traders priced in lower odds of a no-deal Brexit and higher chances of an extension to Article 50, sending the FTSE down from its mid-October highs of around 7200p. The GBP/USD ended the week slightly down by 0.3% at $1.32, lifting the FTSE up 0.4% to 7106.70p. 

0.4%

The FTSE's rise for the w/c 25/02

The pound against the euro had a similar performance, returning to May 2017 lows at the start of the week of €1.14, yet sterling eased slightly back up again towards the close of the week, rising 0.8% to €1.16. 

The potential delay of Brexit is the key question for UK politicians and sterling traders explains Austin Hughes, analyst at KBC Markets. “Of late, sterling performed rather strongly as investors assumed that both the EU and the UK would do everything to avoid a no-deal Brexit at the end of March. A delay was and still is one of the options to avoid such a no-deal scenario.”

In addition, UK factories are reportedly cutting jobs and stockpiling goods with increased urgency, the IHS Markit and CIPS Purchasing Managers’ Index revealed on 1 March after hitting a four-month low in February.  

 

House builders help drag index into the green

As for individual stocks, housebuilding giant Persimmon [PSN] had started the week tumbling 4% after the UK government said it was “increasingly concerned” by the house builder’s participation in the Help-to-Buy scheme and the quality of its houses.Powered by CMC Markets, as at 05 March 2019

 

By 26 February, however, the £7.5bn market capped company had regained its losses, its stock having risen 4% to 2452p due to reporting solid 2018 earnings. Total revenue rose 4% to £3.74bn for the year, while profits reached £1.1bn. In addition, Dave Jenkinson officially took on the role as CEO after former boss Jeff Fairburn was ousted last year due to a furore that broke out over his £75m bonus. 

While the news had signalled a drop for other housebuilding stocks such as Taylor Wimpey [TW] and Barratt Developments [BDEV], their share prices defied the market and ended the week in the green, rising 8.7% and 4.7% respectively.

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