The FTSE 100 closed higher on Thursday (31 January) having enjoyed larger gains earlier in the day. Strength in sterling on reports of a Brexit delay and a weak US open tripped up the index, which slipped 0.4% to 6,968.86 but it stayed in positive territory as index heavyweight Royal Dutch Shell (RDSB) gushed upwards on strong results.
Next Tuesday’s (5 February) US ISM non-manufacturing purchasing managers’ index data could be closely watched. In theory there’s a flood of other data from across the Atlantic on Wednesday (6 February), though the recent government shutdown could impact the timetable. In theory the first estimate of fourth quarter US GDP should be released along with durable goods orders and retail sales numbers. Next Thursday (7 February) the Bank of England meets to set interest rates. Any change to the current 0.75% looks dead in the water given the current uncertainty over Brexit. The Bank is also set to make forecasts on the UK’s future economic growth and level of inflation (see Economic update).
The typically pretty prosaic UK utilities sector hit the spotlight this week. Constituents of the water space were rallying on Thursday (31 January) after the three UK listed firms – Severn Trent (SVT), United Utilities (UU.) and Pennon (PNN) – saw their business plans win watchdog approval. That sent sector share prices higher having removed a hefty unknown for investors. The industry had submitted complex documents showing their ambitions and objectives for the next regulatory price control period, running from 2020 to 2025. While Ofwat sent seven out of 10 UK suppliers back to the drawing board, Severn Trent, United Utilities and Pennon, which runs South West Water, have all been given the thumbs-up to plans that will result in them cutting water bills by up to £70 a year.
Also on Thursday, telecoms firm BT (BT.A) saw outgoing chief executive Gavin Patterson comment he was ‘handing over the business with good momentum’ to successor Philip Jansen, investors seemed concerned about another period of no growth and weakening cash flow dynamics. Revenue for the nine months fell 1% to £17.5 billion while normalised free cash flow declined by £210 million to £1.74 billion. Net debt also surged, increasing by nearly £2.2 billion to £11.1 billion.
With an increase in interest rates a likely non-starter when the Bank of England meets next Thursday (7 February) all the attention will be on the Bank’s views on growth and inflation. Governor Mark Carney and his colleagues are almost sure to be quizzed again on the potential influence a no-deal Brexit would have with their words having an impact on sterling – a good barometer for the prospects of the UK economy.
Investors can gain exposure to European property through Xtrackers FTSE Developed Europe Real Estate (XDER) which tracks a basket of property companies listed on stock exchanges in European developed countries. The exchange-traded fund has an ongoing charge of 0.33%.
5 February – Oil major BP (BP.) has a proud recent track record to uphold when it reports fourth quarter and full year results. Every other set of quarterly figures for 2018 saw the company beat expectations. In the third quarter replacement cost profit, an industry standard measure of income, came in at $3.8 billion against the consensus forecast for $2.85 billion.
7 February – Travel operator Thomas Cook (TCG) has some way to go to reassure investors after a torrid 2018 when it updates on its first quarter trading. Focus is likely to be on the level of bookings for summer breaks and also the group’s financial position amid speculation the company might require an emergency fundraise.
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