The FTSE 100 looked set to post another second straight day of gains on Thursday as investors assessed the latest developments in the Middle East while corporate earnings provided a boost.
London’s leading index was 0.4% higher at the time of writing.
Although today’s rally, driven by a strong overnight session in the US, will help settle equity investors’ nerves, the conflict rumbles on, and the risk of inflation picking up hasn’t gone away.
“A decent showing on Wall Street last night and a solid performance from Asia on Thursday helped to spur part of Europe into a higher gear,” said Dan Coatsworth, head of markets at AJ Bell.
“Brent Crude continued to move higher, nudging above $83 per barrel and stoking fears that energy bills will go through the roof. Oil is so important to the world’s economy and to see the price go up so quickly in just a week could leave investors feeling dazed and confused.
“The Middle East situation is unfolding at a rapid pace, and investors are finding it hard to make a firm call on whether there will be a sustained energy crisis or just a short, sharp shock.”
While stocks look set to remain choppy in the near term, the bond market may provide a clue to what happens next in terms of a sustained move in stocks and broader financial markets.
Bond yields have been creeping higher as markets price in the potential inflationary impact of the war. Some analysts are even suggesting rate hikes. The FTSE 100 and S&P 500, trading within touching distance of recent highs, don’t seem to have taken this fully on board.
The UK 10-year gilt yield stood at 4.41% on Thursday, lower than the 4.52% peak touched on Tuesday, but higher than the 4.2% close on Friday. The US 10-year yield was 4.1% on Thursday.
Time will tell whether today’s optimism in stocks wins out over the cautionary action in the bond market.
Rentokil Initial
Pest control firm Rentokil Initial was the FTSE 100’s top riser after releasing results that will help extinguish concerns about its US business.
“Like a pest you just cannot shift, Rentokil has long been dogged by problems in its North American business. It now seems to be finding the right solutions to fix this issue and investors have responded accordingly,” Dan Coatsworth said.
“Rentokil’s expensive acquisition of Terminix in 2022 gave it a big footprint across the Atlantic but problems with integration, poor allocation of company resources and a tough competitive environment helped squash its lofty aspirations.
“Full-year results suggest Rentokil is finally getting its act together. Organic growth of 2.6% in the fourth quarter is encouraging in the context of the negligible growth recorded for the first half of last year.”
Rentokil shares were 11% higher at the time of writing.
Endeavour Mining has stolen the headlines for its dramatic ascent on the back of gold’s rally on numerous occasions over the past year.
Today, it’s confirmed the direct impact of higher gold prices on its earnings, with full-year results showing both increased production and rising profits helped lift profits.
“Endeavour Mining, the Africa-focussed gold producer, has reported its annual results, continuing a strong track record of meeting guidance,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“A 10% increase in production and 38% in average prices received, more than offset an 18% hike in unit costs. That saw net earnings race ahead by 244% to $782mn. This strength has been reflected in nearly a 200% gain in the company’s market value over the last 12 months, and the shares have given back 2% at today’s open.”
Taylor Wimpey shares rose in early trade before falling back after the housebuilder reported strong underlying performance driven by higher completions.
In a difficult market, Taylor Wimpey managed to achieve a 13% revenue increase as completions rose 6%. Profits, however, were down due to cladding-related costs. Shares were 0.7% higher shortly before midday on Thursday.