After bumper gains earlier in the week, the FTSE 100 traded materially lower on Thursday (7 February). A continuing commitment to rate increases from the Bank of England boosted the pound, hitting the relative value of the FTSE’s overseas earnings, and a lacklustre US open hit sentiment with the index of leading UK shares closing down 1.1% at 7,093.58.
Next Monday (11 February) monthly and quarterly UK GDP estimates are out. These may reveal the continuing impact of Brexit uncertainty on the UK economy ahead of a possible vote in the House of Commons on Wednesday (13 February) (see Economic update). US and UK inflation figures are also published on Wednesday. Next Thursday (14 February) US retail sales data is released having been delayed by the shutdown in Washington. Finally, on Friday (15 February) monthly retail sales data for the UK is out, likely putting the spotlight once again on a struggling UK high street.
The travel sector came under scrutiny this week as two of the major London-listed constituents came out with updates. Shares in holiday firms Thomas Cook (TCG) and TUI (TUI) were heading in different directions on Thursday (7 February) after the former unveiled a strategic review of its airline division, while the latter shocked the market with a profit warning. On Wednesday evening (6 February), TUI warned on profits, blaming overcapacity and the impact of a weaker pound on the purchasing power of UK holidaymakers. TUI also ditched its guidance of at least 10% compound annual growth rate in underlying EBITA (earnings before interest, tax and amortisation) for the three years to September 2020.
Under its current strategy, Thomas Cook is keen to strengthen its own-brand hotel portfolio and make the business more efficient. One of the ways it could improve the business is by using funds from selling the airline division to invest in its higher-margin hotels business. Over the last year, the holiday specialist has encountered several issues, including consumer demand for sunshine package holidays being stifled by a scorching summer. Weak sentiment due to the disappointing trading has not been helped by concerns over the state of the balance sheet.
Sterling could be in for a volatile week as speculation continues over whether a meaningful vote on a revised version of Theresa May’s Brexit deal will go ahead next Wednesday (13 February) or if this will be postponed until later in the month while, in the interim, MPs look to pass amendments to alter the course of Brexit one way or another.
Investors looking for exposure to lower risk assets like UK Government bonds or gilts could consider an exchange-traded fund such as iShares Core UK Gilts (IGLT). The ETF has an ongoing charge of 0.2%.
14 February – Full year results and outlook commentary from price comparison website Moneysupermarket.com (MONY) may offers some insight into the shape of the UK economy as demand for its services tends to fluctuate with economic growth. Margin performance will be one of the other key focus areas. The price comparison space is extremely competitive and requires hefty marketing spend to protect market share.
15 February – The market may be looking for more guidance on a plan to buy back some of its shares from the Government when Royal Bank of Scotland (RBS) reports its 2018 results. The company received shareholder approval for the move on 6 February which is aimed at putting the company back on the path towards full private ownership.
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