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(Alliance News) - Stocks closed mostly higher on Thursday, although the pound remained under pressure, as a degree of calmness returned to bond markets after recent volatility.
Miners led the way in London as commodity prices rose, but it was a day of pain for leading retailers with heavy falls for Marks & Spencer, Greggs and B&M European Retail.
The FTSE 100 index ended up 68.66 points, 0.8%, at 8,319.69. The FTSE 250 climbed 52.90 points, 0.3%, at 20,005.14, bouncing from an intra-day low of 19,733.12. The AIM All-Share ended down 0.15 of a point, 0.1%, at 719.96.
The Cboe UK 100 closed up 0.8% at 832.81 and the Cboe UK 250 rose 0.3% at 17,431.05. However, the Cboe Small Companies fell 1.5% at 15,398.24.
In Europe on Thursday, the CAC 40 rose 0.5% while the Dax in Frankfurt edged down 0.1%.
On Thursday, equity markets in New York are closed for a day of mourning following the death of former President Jimmy Carter.
The pound fell to USD1.2204 on Thursday afternoon, down from USD1.2351 at the time of the local equities close on Wednesday. It had traded as low as USD1.2240 earlier in the day.
The euro fell to USD1.0295 against USD1.0303. Versus the yen, the dollar was lower at JPY157.96 from JPY158.37.
Sterling's partial recovery came as bond yields stabilised on Thursday afternoon. The yield on the UK 10-year bond traded just below 4.80% late Thursday after standing just under 4.90% earlier in the trading session.
Kathleen Brooks at XTB said: "The market is calmer on Thursday, and UK bond yields have stabilized after the sharp sell off earlier this week, although it’s worth noting that there has been no recovery in UK bonds and yields remain at elevated levels."
"The market has also boosted expectations for interest rate cuts from the Bank of England. On Wednesday, the market expected interest rates to end 2025 at 4.21%, this has fallen to 4.18% on Thursday, also, expectations for a rate cut in February have been boosted to 74%, this had been 68% yesterday," she noted.
Brooks thinks next week’s consumer price index data is a risk to the UK bond market.
"If CPI for December surprises to the upside, it could trigger more fears about stagflation and reduce expectations for BoE rate cuts, which could trigger another sell off in UK bonds," she suggested.
But for now "weak data, quiet US markets and hopes of BoE rate cuts are working to stabilize the UK bond market," she said.
Bank of England Deputy Governor Sarah Breedon said says recent economic data support further rate cuts.
According to the Financial Times, Breedon said she expects to continue easing monetary policy "gradually over time", while stressing the pace of future rate reductions is an open question.
Among London's large-caps, improved Christmas trading was not enough to lift M&S and Tesco shares, the duo lost 8.1% and 0.5% respectively.
Tesco hailed its "biggest ever Christmas" and the grocer maintained its yearly guidance. In the six weeks to January 4, which included the key festive period, it achieved retail like-for-like sales growth of 3.8% on-year. Sales growth picked up from the 2.8% achieved in the 13 weeks to November 22, the supermarket chain's third-quarter.
For the combined 19 week period, like-for-like sales rose 3.1%. Total sales amounted to GBP23.94 billion over the 19 weeks, a rise of 3.3% on-year at actual rates, or 4.0% at constant currency.
RBC Brewin Dolphin analyst John Moore commented: "Tesco remains in a really good position with the strongest balance sheet in the sector."
"Retail is likely to see price inflation remain high given the impact of national insurance increases, but Tesco is well placed to deal with this environment."
M&S reported bullish sales in its Food arm, more modest gains in Clothing, Home & Beauty, and a decline in its International offering.
The retailer said total sales in the 13 weeks to December 28 rose 5.6% on-year to GBP4.06 billion. The loftiest growth came in its Food unit, where sales rose 8.7% to GBP2.58 billion. Clothing, Home & Beauty sales were up 1.0% to GBP1.31 billion.
Russ Mould at AJ Bell said M&S shares were dragged down by the "gloomy tone" adopted in the outlook statement.
M&S highlighted an uncertain outlook for economic growth, inflation and interest rates while the business faces higher costs from well-documented increases in taxation.
"While understandable given the impact of the budget changes, sticky inflation and higher for longer rates, the comments chime with the current bleak mood around the UK’s economic prospects," Mould said.
"Notably, Marks & Spencer is more reliant on discretionary spend than Tesco, given its much more meaningful presence in non-food categories," he noted.
On the FTSE 250, retailers were also prominent fallers. Bakery chain Greggs slumped 14% after reporting sales growth slowed in the fourth quarter and with concerns that price rises might hold back future growth.
The Newcastle-upon-Tyne-based bakery chain said fourth quarter total sales were up 7.7%, slowing from 11% in the third quarter and nearly half the 14% growth reported in the 26 weeks to July 1.
Company-managed shop like-for-like sales rose 2.5% for the fourth quarter, reflecting more subdued high street footfall, Greggs said, a marked easing from the 5.0% reported in the third quarter.
Analysts at Peel Hunt noted Greggs put up prices around 4% over late December/early January.
While this should help underpin like-for-like sales in the first quarter of 2025, the broker has concerns that this will "erode the brand's value image, given a more price competitive fast food space".
"Greggs trades at 20 times PE, a premium to our sector, and we see better opportunities elsewhere," Peel Hunt said.
Meanwhile, B&M European Value Retail shed 8.6% after lowering the top-end of guidance. The retailer now expects earnings before interest, tax, depreciation and amortisation of GBP620 million to GBP650 million, the top-end trimmed from GBP660 million.
The firm also declared a 15 pence per share special dividend but analysts at Panmure Liberum said this was 5p a share below expectations.
Back to the FTSE 100, and miners dominated the blue-chip risers. Antofagasta, Anglo American and Rio Tinto rose 3.3%, 3.3% and 1.8%, despite underwhelming China data.
China narrowly avoided slipping into deflation in December with prices rising at their slowest pace in nine months, official figures showed Thursday, as Beijing struggles to kickstart consumer activity in the world's number two economy.
But miners drew strength from rising commodity prices with oil, gold, silver, copper and iron ore prices all making ground.
A barrel of Brent fetched USD77.11 on Thursday afternoon, up from USD76.25 on Wednesday. Gold climbed to USD2,667.81 an ounce from USD2,665.55.
Fresnillo benefited from the rise in the price of the yellow metal, gaining 3.3%, while Endeavour Mining climbed 1.6%.
On the FTSE 250, recruiter Hays sank 4.8% as Morgan Stanley downgraded to 'underweight' from 'equal weight'.
Also hitting sentiment, research showed the end of 2024 saw the fastest decline in candidates being placed into permanent jobs in more than a year.
Recruiters reported growing cost consciousness by firms in the wake of the rise in employee national insurance contributions.
There was also a decline in temporary jobs last month, according to a survey of 400 agencies by the Recruitment & Employment Confederation.
REC Chief Executive Neil Carberry said: "This report emphasises a weak mood in some businesses as they built their budgets for this year, and made changes designed to save on costs after a tough budget.
"December is always a hiring low point, and a new year brings new hope – with inflation under control, low unemployment, and economic growth expected, the fundamentals are better than many appreciate.
Friday's global economic diary sees the US jobs report at 1330 GMT, Canada jobs data also at 1330 GMT and the Michigan consumer sentiment index at 1500 GMT.
Friday's local corporate calendar has a trading statement from grocer J Sainsbury.
By Jeremy Cutler, Alliance News reporter
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