Geopolitics were again the main driving force behind UK stocks on Thursday as European defence shares rose for a second session.
The FTSE 100 was trading 0.4% higher at the time of writing, with investors awaiting key US inflation data due for release on Thursday.
“Despite a mixed session on Wall Street last night and a small rise in the Vix volatility index, pockets of Europe and Asia moved higher on Thursday,” says Russ Mould, investment director at AJ Bell.
“The UK’s FTSE 100 led the charge in Europe as defence and energy stocks were at the top of investors’ buy lists. Ongoing geopolitical tensions have led investors to have confidence in the defence sector, believing earnings prospects are strong given a fragile backdrop. BAE Systems’ share price has risen by 45% over the past 12 months and up 271% over five years.”
BAE Systems shares were 4% higher at the time of writing and were the FTSE 100’s top risers. Babcock rose 1.3%.
Away from geopolitical tensions, investors were gearing up US inflation data and potenital signals of what the Federal Reserve will do next week when it meets to decide on interest rates.
“Headline US consumer inflation (CPI) is expected to tick up to 2.9%, the highest since January,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“A hotter-than-expected number could reignite rate fears and test the market’s lofty valuations, while an inline or softer print may reinforce the “Goldilocks” narrative that’s been powering equities to record highs. Core inflation holding steady at 3.1% will be key for gauging how sticky underlying pressures remain.”
Away from BAE Systems, there were few major movers on Thursday morning as investors held off making big bets ahead of inflation data. One would expect this change after 1.30pm when CPI data is released, especially if it’s materially different to economists’ expectations.
Oil shares helped add a number of points to the FTSE 100 index as oil prices held firm after a recent rally.
“Oil producers Shell and BP were in demand despite oil prices taking a breather from the recent rally,” Russ Mould said.
“The industry is undertaking a broad cost-cutting exercise, slashing jobs and pausing projects. However, big oil companies are still making profits, and dividends and buybacks are not under threat at current oil price levels, hence ongoing investor interest in the sector.”