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Newsround: Sterling strength sinks the FTSE 100

14 September 2018

Tags: Macro Economics

FTSE News 

On Thursday (13 September) US inflation missed forecasts and the Bank of England increased its UK growth forecast for the third quarter, pushing sterling higher against the dollar. This weighed on the FTSE 100, down 0.5% to well below the 7,300 mark, as the majority of the earnings from the index come from overseas.

Next Monday (17 September) inflation figures for the Eurozone are published. The European Central Bank revealed at its latest meeting that it would begin to scale back financial stimulus from October onwards. In the early hours of next Wednesday (19 September) morning the Bank of Japan is scheduled to unveil its latest decision on rates. Later the same day the UK is set to release its own inflation figures for August. The reading for July of 2.5% was in line with forecasts. Next Thursday (20 September) UK retail sales data is released.


Sector in focus

Attention turned to the utilities space this week after energy provider SSE (SSE) served up a profit warning on Wednesday (12 September). The company is basically blaming the weather, plus hefty wholesale gas prices, saying that the ‘relatively dry, still and warm weather’ has hit output from its wind farms and hydro-electric stations. This effectively blows a £190 million hole in operating profits so far this year, and the company now reckons that operating profit for the first half to 30 September will be half the rough £518 million of last year.

Chief executive Alistair Phillips-Davies has called today’s news ‘disappointing and regrettable’ but also insists that the ‘underlying quality of SSE’s businesses remains strong.’ The company did at least commit to the already pencilled in 97.5p dividend for the March 2019 financial year and said it would stick to a five-year dividend plan which implies above inflation increases to the payout. Nonetheless, the repercussions continue to ripple across the sector with share prices of British Gas-owner Centrica (CNA) and National Grid (NG.) also under the cosh.



Economic Update

Next Thursday (20 September) monthly UK retail sales are published by the Office for National Statistics. This number drops at a delicate time for the high street after Debenhams (DEB) shares were hammered after it brought in administrators and the John Lewis Partnership, encompassing John Lewis Department Stores and Waitrose supermarkets, reported a 99% drop in first half profit. The previous reading showing 0.7% growth was significantly better than expected.


ETF Watch 

Exchange-trade funds are not just a way of gaining exposure to indicies like the FTSE 100, they can also be used to track a basket of securities selected according to a specific set of criteria. iShares Edge MSCI USA Value Factor (IUVF) for example provides exposure to a grouping of undervalued US stocks for an ongoing charge of 0.2%.

 Company Announcements

18 September – A third quarter trading statement from Ocado (OCDO) may be a prompt for the market to look for an update on when the big international agreements which have propelled the company into the FTSE 100 will translate into tangible earnings and cash flow. Deals have been struck with the likes of Casino in France, Sobeys in Canada, ICA in Sweden and US groceries giant Kroger to use its Ocado Smart Platform. This combines Ocado’s software, algorithms and robotic warehouses to power online grocery retail. 

21 September – Full year results from engineering conglomerate Smiths Group (SMIN) will place renewed attention on its corporate strategy. Historically the company has resisted calls to break up the business. This stance appeared to have softened earlier this year amid discussions with US firm ICU Medical over a £7bn merger but these have now fallen through.


Five places to invest your money

Cash tucked away in a deposit account will offer very limited interest on your hard-earned savings. To generate a return ahead of rising prices it is worth considering putting your money to work in the financial markets instead.

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Writer: Tom Sieber Tags: Macro Economics

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