UK equity bulls were out in force on Monday as markets geared up for a busy week of central bank action, with the Bank of England and Federal Reserve both deciding on interest rates this week.
The two are expected to keep rates on hold, although there is plenty of scope for a surprise interest rate cut, and markets are positioning for such an event. In any case, even if there isn’t a rate cut this week, the accompanying commentaries to the rates decisions are likley to hint very heavily at a rate cut.
Interest rate optimism helped the FTSE 100 rise on Monday. At the time of writing, the index was trading 0.85% higher at 8,355.
“UK markets open higher after avoiding too much backlash from last week’s tech selloff over the pond,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
“Thursday’s Bank of England meeting could be the start of the journey to lower rates for the UK. Markets are unsure, pricing in around a 55% chance of a cut. If we do get cuts, sectors that have been under pressure in a higher-rate world, like infrastructure and real estate, could be due for a bump.”
Oil majors were in good form as energy prices rose, with Shell and BP adding a significant number of points to the index.
“Energy producers gave the FTSE 100 a welcome boost at the start of the new trading week,” said Dan Coatsworth, investment analyst at AJ Bell.
“Shell and BP were among the biggest contributors to the index’s performance as oil prices nudged higher to $81.21 per barrel. Oil prices had been on a downward trend since early July, so finding price stability has offered some reassurance.
“Shell and BP will update the market this week, and both have already got bad news out of the way with recent earnings previews that detailed multi-billion-dollar write-downs.”
Entain and Reckitt Benckiser
Although the index was firmly higher on Monday, there were two major drags on the index in Reckitt Benckiser and Entain.
“Shares in Reckitt are down around 9% this morning after news that a key rival in the US baby formula market has been fined $495mn by a US jury,” Matt Britzman said.
“Mead Johnson, a Reckitt subsidiary, is under threat of similar litigation. Reckitt has put the business on the chopping block as part of a recently announced strategy shift, which seems like a smart move. Reckitt has maintained stalwart support for innocence, but while Mead Johnson remains part of the group, developments in these cases will continue to have a significant impact on Reckitt’s performance.”
Entain was down 9.5% after announcing trading conditions for its BetMGM joint venture. Although US-focused betting services revenue grew, it signalled an increase in the competitive environment.