FTSE 100 bags a few points as sterling touches nearly two-year highs

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  • FTSE 100 adds 10 points
  • Sterling almost back to US$1.40
  • UK retail sales fall much more sharply in January than expected

9.45am: Sterling touches nearly two-year highs

FTSE 100 gained 10 points to 6,627 in mid-morning after sterling touched levels last seen in April 2018.

The pound was changing hands for US$1.3997, up 0.2% helped by a swift vaccine rollout and more Brexit clarity in the UK.

However, analysts noted that this is also driven by “just plain old dollar weakness” and sentiment will depend on Boris Johnson’s announcement on Monday.

“He has stressed caution and said reopening will be gradual and conducted in stages. Schools will undoubtedly be first, pubs likely last,” said Neil Wilson at Markets.com

“Pound strength will be a partial headwind to the FTSE 100 thanks to the dollar earners, but as stated previously overall I think we are back into a stronger correlation between sterling and UK equities now that the Brexit risk has been removed.”

Nonetheless, Wilson reckons sterling is starting to eye the US$1.44-45 mark.

8.40am: Retail sales data disappoints

The FTSE 100 was the definition of flat in the early exchanges with the worse-than-expected retail sales figures gnawing away at sentiment.

No surprises then that the value chain B&M (LON:BME) led the blue-chip losers in the wake of the January data (see below). It was off 2.3%.

Online clothier Boohoo (LON:BOO) was a stay-at-home beneficiary, reflected by the 1.4% share price gain. Pets at Home (LON:PETS), which has a strong home delivery offering, rose 2.7%.

“The period after Christmas is always a difficult time for retailers, and the fact it coincided with the second nationwide lockdown contributed to a sharp 8.2% fall in sales,” said economist James Smith of ING.

“This should bounce back rapidly on reopening of the economy, but the pandemic-induced switch to online retail is unlikely to be reversed, posing ongoing challenges for the high street.”

In the media arena, Daily Mail owner DMGT (LON:DMGT) was up 5.3% after it offloaded its EdTech business for £293mln.

7.07am: Retail sales carnage

UK retail sales volumes decreased by 8.2% in January from December’s level, the Office for National Statistics (ONS) said.

All sectors saw a monthly decline in volume sales in January 2021 except for non-store retailers and food stores, which reported growth of 3.7% and 1.4% respectively when compared with December 2020.

All store types reported an increase in their proportion of online spending in January 2021 when compared with December 2020; with food stores reaching a historic high of 12.2% of sales conducted online.

The release of the figures had little effect on expectations for the FTSE 100’s opening level, which is expected be around 6,610 – down 7 points on last night’s close. 

Our latest data show that retail sales decreased by an estimated 8.2% compared with December 2020 https://t.co/1yTJKIsRaQ pic.twitter.com/IuT9eFhUoD

— Office for National Statistics (ONS) (@ONS) February 19, 2021

UK Retail Sales Ex Auto Fuel (M/M) Jan -8.8% (est -2.1%, prev 0.4%)
– UK Retail Sales Ex Auto Fuel (Y/Y) Jan -3.8% (est 2.7%, prevR 6.7%; prev 6.4%)

— LiveSquawk (@LiveSquawk) February 19, 2021

Proactive news headlines

SourceBio International PLC (LON:SBI) is to support the roll-out of mobile COVID-19 testing in the UK as part of the Department of Health and Social Care’s new pilot scheme.

BASE Resources PLC (LON:BSE) has passed an important milestone in its bid to increase the mine life of its mineral sands operation in Kenya.

88 Energy Ltd (LON:88E) has announced the start of rig mobilisation for the Merlin-1 well, in Alaska, where drilling is scheduled to start in the first week of March.

Horizonte Minerals PLC (LON:HZM) confirmed the closing of its share placing, with the nickel mine developer raising £18mln in total.

Union Jack Oil PLC (LON:UJO) announced the convening of a general meeting, including a proposed consolidation of the company’s share capital. A shareholder circular explaining the reasons for the consolidation and other proposals is being posted to shareholders and will be available on the company’s website at www.unionjackoil.com under the AIM Rule 26 section.

6.35am: Subdued opening expected

Leading UK equities are set for an indecisive opening as traders wait for the retail sales figures.

Spread betting quotes indicate that the FTSE 100 index will open around 5 points lower at 6,612.

“At 7am (UK time), the UK retail sales report will be posted. Economists are predicting a reading of -2.5%, which would be a sharp fall from the 0.3% growth registered in December,” noted CMC’s David Madden.

“At the same time, UK public sector net borrowing for January will be announced and the reading is tipped to be £24.5 billion, down from £34.1 billion in December.,” he added.

Yesterday, US indices retreated after weekly first-time jobless claims rose to a four-week high.

The Dow Jones industrial average fell 120 points to 31,493 and the S&P 500 retreated 17 points to 3,914.

Red is the predominant colour on the screens of traders in Asia this morning as well, with Japan’s Nikkei 225 off 226 points at 30,010 and Hong Kong’s Hang Seng index 66 points lower at 30,529.

On the corporate news front, NatWest Group PLC (LON:NWG) is set to announce its full-year results, with the size of the dividend and bad debt impairments set to be the main points of interest.

The bank is forecast to report underlying profits of £218mln, according to UBS’s models. Last year, it declared an attributable profit of £3,133mln or £1,561mln excluding foreign exchange gains.

“We expect non-interest income to remain subdued in 4Q and to see further pressure in 2021 as capital market revenues normalise and capital is withdrawn from NatWest Markets’ rates business in particular,” UBS said.

Bad debt impairments are a concern for all banks during this pandemic. NatWest said it expects full-year impairments of between £3.5bn and £4.5bn.

Also declaring full-year results on Friday is Segro PLC (LON:SGRO), the real estate investment trust (REIT) that specialises in warehouses and out-of-town industrial sites, which have been hit less hard than other parts of the property sector during the pandemic.

“With Segro having already disclosed rent payments, the key headline figure will be net asset value (NAV) per share. This stood at 716p at the end of the first half and 697p at the end of 2019. The analysts’ consensus is for growth to 764p, with NAV reaching 832p by the end of 2021 and 891p buy end-2022,” said Russ Mould, the investment director of AJ Bell.

Around the markets

  • Sterling: US$1.3977, up 0.02 cents
  • 10-year gilt: 0.626%, up 5.08 basis points
  • Gold: US$1,770 an ounce, down US$4.80
  • Oil: US$63.35 a barrel, down 58 cents
  • Bitcoin: US$51,703, down US$-356

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