UK markets were placid on Friday morning, hanging onto a week of solid gains, as traders digested the mixed signals from data on the economy’s recovery, a volatile pound and fresh travel retrictions.
The UK’s economy expanded 6.6% in July as sectors like pubs and restaurants reopened, according to data from the Office for National Statistics. That was in line with expectations, but after a 20% contraction in the first quarter, output remained 11.7% below its pre-pandemic level in February.
‘While there was a marked bounce back in July, the economy is still languishing way below pre-pandemic levels with so many sectors of the economy suffering from a drop in demand,’ said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
‘Consumer confidence has taken a battering and with the fresh tightening of social distancing rules once again, it’s likely to take another hit.
‘Already we have seen how newly imposed quarantine rules have affected the travel industry with British Airways’ owner IAG (IAG) and Easyjet (EZJ) announcing more flight cancellations this week due to a fall in bookings and Ryanair (RYA) calling the upcoming winter “a write off”.’
The FTSE 100 teetered around the 6,000 mark in early trading, before striking ahead 0.32%, up 20 points, to 6,022.
That came despite losses in US markets yesterday, with the S&P 500 retreating 1.76% after the Senate voted down a fresh economic relief package.
Sterling firmed 0.2% against the dollar and stabilised above the $1.28 mark at $1.283 but remained on course for a 3% loss this week and its worst five-day performance since March.
The weakness in the pound has been caused by fears of a messy hard Brexit as the UK government announced plans to break international law by breaching the Brexit Withdrawal Agreement treaty signed with the EU in January. The European Commission threatened legal action yesterday, but Boris Johnson’s government has vowed to press ahead with debating the controversial legislation on Monday.
‘This was the week when Brexit returned as a live issue for the markets. In the short-term the increased chances of a messy exit from the EU have been a tailwind for the UK’s flagship stock market index which looks on course for a positive week despite investors being challenged elsewhere by heavy selling on US markets,’ said AJ Bell investment director Russ Mould.
‘This is not a surprise, after all the FTSE 100 has international horizons and the resulting weakness in the pound has boosted the relative value of constituents’ overseas earnings.’
Over the week the blue-chip index has risen 3.9%, or 224 points, shaking off the tech-sell off in the US. The FTSE 250 has gained 251 points, or 1.4%, over five days.
Among blue-chips, IAG was the biggest faller today, down 3.7% to 192.9p, after Portugal was added to the quarantine list yesterday.
Burberry (BRBY) was the biggest gainer, up 2.9% to £15.38, with the market liking plans for the luxury retailer’s first issue of green bonds.
Rio Tinto (RIO) also rose 1.5%, to £48.55, as chief executive Jean-Sébastien Jacques bowed to investor pressure to step down, drawing a line under a scandal over the destrution of ancient Aboriginal sites in Australia.
The ‘mid-cap’ FTSE 250 index advanced 0.27%, or 47 points, to 17,621.
Royal Mail (RMG) lead the risers, jumping 7% to 236p, as investors continued to respond positively to this week’s trading update showing rapid growth in its parcels business during the pandemic.
Cineworld Group (CINE) led a rally in some beaten-up leisure stocks, advancing 6.1% to 52.6p.
B2B events and information business Ascential (ASCL) fell 5.3% to 294p while Wood Group (WG) retreated 3.7% to 221p as oil prices remained on the back foot.