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(Alliance News) - The FTSE 100 extended the morning's gains as Thursday's session progressed, helped along by a cooling in rhetoric between the US and Iran and a weaker pound.
Tesco was a bright spot amid a gloomy session for retailers, with shares in both Marks & Spencer and Card Factory slumping after poor Christmas trading updates. Tesco managed to post sales growth in the UK, causing its shares to edge up.
The FTSE 100 index was up 39.54 points, or 0.5%, at 7,614.47. The FTSE 250 was just 0.99 of a point higher at 21,652.91, and the AIM All-Share was up 0.3% at 961.33.
The Cboe UK 100 was up 0.6% at 12,899.06, the Cboe UK 250 was down 0.2% at 19,562.44, and the Cboe Small Companies flat at 12,441.42.
In European equities on Thursday, the CAC 40 in Paris was up 0.4%, while the DAX 30 in Frankfurt was up 1.3%.
"Stock markets are strong this morning as US-Iran tensions have faded. Yesterday afternoon President Trump issued a statement in relation to Iran, and he made it clear that he wasn't pushing for an all-out war with the regime, which was a weight off traders' minds. The strong finish in New York last night prompted buying in Asia overnight, so now the bullish sentiment has reached Europe," said David Madden at CMC Markets.
Stocks in New York were on course for a higher open on Thursday, with the Dow Jones seen up 0.3%, the S&P 500 index also up 0.3%, and the Nasdaq Composite 0.4% higher.
As well as the weight of an all-out conflict between the US and Iran being alleviated, a weaker pound was helping the overseas earnings-heavy FTSE 100 on Thursday.
The pound was quoted at USD1.3019 at midday Thursday, compared to USD1.3088 at the equities close on Wednesday.
This was after Bank of England Governor Mark Carney said a rebound in UK economic growth is not assured.
Speaking at a BoE research workshop on 'The Future of Inflation Targeting', the outgoing central bank chief noted that in the Monetary Policy Committee's most recent projections, UK gross domestic product growth is predicted to pick up from below-potential rates, supported by a reduction in Brexit uncertainty, an easing of fiscal policy and a modest recovery in global growth.
"This rebound is not, of course, assured. The economy has been sluggish, slack has been growing, and inflation is below target. Much hinges on the speed with which domestic confidence returns. As is entirely appropriate, there is a debate at the MPC over the relative merits of near-term stimulus to reinforce the expected recovery in UK growth and inflation," Carney said.
The BoE announces its next interest rate decision on January 30. Carney will be succeeded at the BoE by Andrew Bailey, head of UK financial watchdog the Financial Conduct Authority. Bailey will take up the role on March 16.
"While this shouldn't come as a huge surprise given that there has been a couple of MPC dissenters calling for lower rates at the past two policy meetings, it is the strongest hint yet for a rate cut in the not too distant future," said David Cheetham at XTB.
Elsewhere in forex, the euro stood at USD1.1105 at midday Thursday, against USD1.1114 late Wednesday. Against the yen, the dollar was trading at JPY109.49 compared to JPY108.70 late Wednesday.
Amongst commodities, Brent oil was lower as US-Iran tensions eased, quoted at USD65.50 a barrel midday Thursday from USD65.80 late Wednesday.
Gold was also lower, quoted at USD1,547.81 an ounce against USD1,573.70 at the close on Wednesday.
The safe haven asset's decline saw blue-chip precious metals miner Polymetal International 0.9% lower at midday, while mid-cap Fresnillo shed 3.0%.
Elsewhere in London, Tesco shares rose 1.9% after saying its UK operations managed to eke out some sales growth over Christmas.
In the six weeks to January 4, total UK & Republic of Ireland sales edged up 0.2% and rose 0.4% on a like-for-like basis, excluding fuel. Total group sales fell by 1.7%, however, and by 0.8% on a like-for-like basis.
In the third quarter, covering the 13 weeks to November 23, the grocer's total sales fell by 0.9% year-on-year on a like-for-like basis, with total sales receding by 1.4%. Total sales over the 19 week period, which includes both the Christmas spell and the third quarter, were down 1.5% year-on-year to GBP21.03 billion and down 0.9% like-for-like.
Over the 19 weeks, the UK & Ireland unit was again the best performing division, registering 0.2% sales growth to GBP16.81 billion, and a 0.4% like-for-like rise.
"Tesco reporting a marginal increase in sales is not half-bad given the BRC just told us this was the worst year for retail since their records began in the mid-90s. If you factor in the disruption from the December UK election, you can conclude that British consumer is not quite tapped out just yet," said Jasper Lawler at London Capital Group.
UK retailers suffered their worst year on record in 2019, data showed on Thursday, though sales in December were boosted, albeit only due to the late timing of the Black Friday promotional period. In 2019, total sales were down by 0.1%, compared with growth of 1.2% in 2018, numbers from the British Retail Consortium-KPMG sales monitor showed.
A far less well-received Christmas trading update came from former FTSE 100 constituent Marks & Spencer, down 9.2% at midday.
In the 13 weeks to December 28, total UK sales were down 0.6% year-on-year to GBP2.77 billion, but on a like-for-like basis edged 0.2% higher.
M&S's troubled clothing unit saw a 3.7% sales fall to GBP1.06 billion. On a like-for-like basis, sales declined by 1.7%. Online revenue in the unit improved by 1.5% in the period, though this growth was lower than expected.
M&S was not the worst performer in the FTSE 250 index, however. This title went to SIG, the stock down 20%.
SIG said it made considerable progress during 2019 in transforming its business, including the disposal of its Air Handling and Building Solutions businesses. However, this progress was made against a tough market backdrop, as the group reported an ongoing deterioration in the level of construction activity in key markets, and indications of further weakening, mainly in the UK.
As a result, underlying pretax profit for 2019 is expected to be GBP42 million, a 44% decrease from GBP75.3 million the year before.
Elsewhere in London, Card Factory shares slumped 24% after saying it will pay no special dividend for the 2021 financial year.
The cut in shareholder payout came as the greetings card retailer reported on its Christmas performance. Revenue in the 11 months to December 31 was up 3.6%, improving from 3.4% growth over the same period a year earlier, but like-for-like sales declined by 0.6%. Over the same period in 2019, like-for-like sales were down by 0.1%.
The last update from Card Factory prior to Thursday came in November, when the company reported like-for-like growth of 0.9% in the nine months to October 31.
Card Factory described the festive period as a "challenging" one, with the UK general election and weak consumer sentiment curbing footfall.
After the tough Christmas trading period, the company said it expects adjusted underlying earnings before interest, tax, depreciation and amortisation to be in the range of GBP81.0 million and GBP83.0 million in the current financial year. This could represent of a decline of as much as 9.4% from GBP89.4 million last year.
Looking further ahead to financial 2021, Card Factory said its adjusted underlying Ebitda could take a hit of up to GBP10 million, amid more declines in high street footfall and a depressed pound. In addition, the company said it does not expect to pay a special dividend for the 2021 financial year.
Cutting the special dividend "has torn a huge hole in the share price as chief executive Karen Hubbard's forecast of a third straight drop in the company's preferred measure of profit (adjusted Ebitda, which itself prettifies the numbers), may be prompting some investors to worry whether the ordinary dividend will come under pressure at some stage," said Russ Mould , investment director at AJ Bell.
By Lucy Heming; lucyheming@alliancenews.com
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