A surge in the oil price helped lift shares in BP (BP.) and Royal Dutch Shell (RDSB), which, given their weighting in the index, supported a surge in the FTSE 100 to a new record high level. By the close the index of leading UK shares was up 0.7% at 7,787.97.
It is a quiet start to the week in terms of economic news but that changes on Wednesday (23 May) with UK inflation data for April and later on the minutes from the latest meeting of the US Federal Reserve (see Economic update). Next Thursday (24 May) UK monthly retail sales figures are out, and the Governor of the Bank of England Mark Carney is set to testify before MPs after the Bank’s decision to keep rates on hold on 10 May. Finally, on Friday (25 May) a second estimate of UK GDP for the first quarter is published. The market will be watching for any revision from the 0.1% growth identified in the first estimate.
Two separate pieces of news rocked the UK gambling sector this week. On Monday (14 May) a US Supreme Court ruling opened the door to sports betting across America. Shares in several bookmakers traded substantially higher as investors reacted to the implied market opportunity on offer. By Thursday (17 May) much of that excitement had fizzled out as a cut in the maximum stake on fixed odds betting terminals (FOBT) to £2 was confirmed. However, this news had been widely expected and the bad news was fairly well received by the market with some gambling firms actually seeing their shares trade higher.
William Hill (WMH) warned annualised adjusted operating profit in its retail division could be reduced by £70 million to £100 million because of the FOBT decision. Paddy Power Betfair (PPB) said the impact in 2017 would have amounted to between 2% and 2.6% of revenue. GVC (GVC), which completed the acquisition of Ladbrokes Coral in March, expects a £160 million hit to earnings in the first full year. The terms of its takeover of Ladbrokes Coral included some contingencies based on the outcome of the review into FOBTs.
Minutes from the most recent meeting of the US Federal Reserve (Fed), at which it kept rates unchanged, are published next Wednesday (23 May). They may offer some insight into the Fed’s forward intentions. Expectations for more rapid increases in rates have helped drive up US Government bond yields to seven-year highs and this has led to some pressure on US stocks. The fear is money will move out of equities into lower risk bonds and that certain companies will be hit by the higher borrowing costs implied by the surging yields.
Investors can gain exposure to US Government bonds or Treasuries through the exchange-traded fund iShares $ Treasury Bond 7-10yr (IBTM) for an ongoing charge of 0.2%
23 May - Engineering support services company Babcock (BAB) buoyed its investors with an upbeat trading update in February. Will this positive sentiment be maintained when it releases full year results? In February the company said both earnings and cash conversion would be in line with guidance and that its debt to earnings ratio would be reduced to 1.7 times.
23 May – Given bleak high street conditions and the market share gains being secured by online pure-play retailers, expectations are subdued ahead of Marks & Spencer’s (MKS) full year results. Investors will be looking to see if the changes by CEO Steve Rowe, supported by non-executive chairman Archie Norman, are improving the British retail institution’s performance. Forward guidance from Marks & Spencer, which has carried out a senior management overhaul, will also be keenly watched.
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