Markets perked up in late morning trading on Tuesday, after entering Prime Minister Liz Truss finalised a £130 billion energy bills relief plan for struggling UK households, according to Bloomberg.
The FTSE 100 increased 0.3% to 7,312.6 after enduring a tough start to the week before Truss’ appointment to the UK’s highest office.
The Pound picked up after falling to a 37-year low yesterday, after news of the energy plan sent the currency rising to 1.1586 from its bottom of 1.1474.
“After yesterday sinking to a 37-year low against the dollar, the pound perked up on Tuesday, rising 0.2% to $1.1586 as the UK prepared for the changing of the guard at number 10,” said AJ Bell investment director Russ Mould.
“Reports so far suggest energy providers will be able to use government-backed loans to subsidise bills, meaning there could be some near-term relief on energy costs for consumers and businesses.”
“While not expected to be confirmed until Thursday, the messages clearly being fed in from Liz Truss’ team do help to remove some uncertainty and that has translated into a stronger day for UK stocks.”
Berkeley Group
Good news from housebuilder Berkeley sent the company to the top of the blue chip index.
The company’s shares gained 4.6% to 3,605.5p after it announced trading on track to meet its FY 2023 profit guidance of £600 million and FY 2024 guidance of £625 million.
Berkeley Group credited the strong housing market for its high performance, with persistent demand covering rising 5% to 10% cost inflation.
“Berkeley Group has put in a resilient showing, despite soaring cost inflation which is marring the entire sector. The reason profits have been left without too much bruising is because sale prices are high enough to offset the housebuilder’s fatter bills,” said Hargreaves Lansdown lead equity analyst Sophie Lund-Yates.
Taylor Wimpey, Barratt Developments and Persimmon rode the wave of renewed optimism across the housing market, with shares rising 3.8% to 108p, 3.6% to 423.5p and 3.7% to 1,505.7p, respectively.
Consumer Stocks
Consumer stocks rose as the prospect of an energy price cap freeze helped assuage fears of atrophied consumer spending over the winter season.
Investors fled consumer stocks in recent weeks on fears of lower spending due to spiking energy prices.
Next shares gained 4% to 6,280p and JD Sports Fashion shares climbed 4.3% to 128.1p.
Meanwhile, Kingfisher shares rose 3.9% to 249p and Howden Joinery picked up 3.9% to 575.1p.
“Some of the top risers on the blue-chip stock index included retailers Next and JD Sports, kitchens seller Howden Joinery and DIY store chain owner Kingfisher,” said Mould.
“These stocks have all suffered this year as earnings expectations were cut and investors priced in the likelihood of a recession. Now we might be at the stage where investors take the view that shares in retailers have been oversold, hence the big recovery rally today.”
“How long it will last is another matter, as the general cost of living crisis is still punishing for households, whether energy bills go up further or not.”
DS Smith
DS Smith shares climbed 3.1% to 271.4p after the packaging firm reported trading in line with expectations, with its savvy cost control measures mitigating rising cost inflation.
The company said it expected a “significant improvement” in business performance during FY 2023.
“We have started the financial year very strongly, despite the current macro-economic conditions,” said DS Smith CEO Miles Roberts.
“We are focusing on ensuring the highest levels of security of supply and customer service and are very pleased with the ongoing support we receive from both our customer and supplier base.”
“Whilst the industrial sector is showing some weakness, our FMCG business remains resilient.”
Oil falls
Shell and BP shares tumbled to the bottom of the FTSE 100, dropping 2.1% to 2,297.5p and 1.8% to 454.6p, respectively, after oil prices fell following demand fears on the US Fed’s aggressive stance to interest rate hikes.
Lockdowns in Chinese city Chengdu and continued lockdown measures in tech hub Shenzhen spurred further fears of lowered demand across the sector.
The price of benchmark Brent crude dropped 3.1% to $92 per barrel, despite a surge in prices yesterday after OPEC+ cut production by 100,000 bpd to calm market price volatility. However, the essentially symbolic move did little to stem falling prices.
Ashtead
Ashtead Group shares slid 1.4% to 4,250p after the rental equipment company announced its Q1 2022 outperformance was mitigated by rising interest costs.
The firm noted a 25% revenue growth to $2.2 billion and a 22% EBITDA climb to $1 billion, with trading confirmed in line with management expectations.
“Very strong levels of growth in sales and profits weren’t enough to drive Ashtead’s shares forward,” said Mould.
“The construction equipment rental group hit a sour note with the market by saying that better than expected performance is being offset by higher interest costs, which means there isn’t an upgrade to earnings forecasts today.”