The FTSE 100 was sharply lower on Thursday as corporate updates from Barclays, Unilever and British American Tobacco disappointed, sending the index deep into the red in early trade.
This week, London’s leading index had shown remarkable resilience as traders contended with Donald Trump’s foreign policies and hot US inflation.
US stocks stuttered yesterday after US CPI came in hotter than expected and poured cold water on interest rates hopes. US CPI rose 3% in the year to January, only slightly higher than the 2.9% forecast by economists. The initial market reaction to such a slightly higher reading demonstrates just how much the market is concerned about the trajectory of US interest rates in 2025.
While the Bank of England and European Central Bank are shaping for a series of rate cuts through 2025, the strength of the US economy and stubbornly high inflation have some economists predicting a US rate hike by the Federal Reserve in 2025.
The perceived diverging paths of the West’s major central banks meant the wobble in US stocks wasn’t felt in the FTSE 100 due to the prospect of the pound remaining weak against the dollar and supporting London’s overseas earners. Indeed, the FTSE 100 hit a record high yesterday.
It was a very different story on Thursday.
Corporate earnings took centre stage and were met with rebuke by the market. Barclays, Unilever and British American Tobacco all posted disappointing earnings updates, and investors took flight.
British American Tobacco shares sank 8% as traditional cigarette volumes fell and growth in new products such as vapes slowed. A £6.2bn hit due to a Canadian lawsuit can also be attributed to the drop in shares.
“British American Tobacco’s full-year results delivered single digit growth in underlying revenue and operating profit to £25.9bn and £11.9bn even as more smokers kick the habit or switch to new categories such as vapes and heated tobacco,” said Derren Nathan, head of equity research, Hargreaves Lansdown
“Traditional combustible volumes fell by 5.2% but BATS managed to offset this through strong pricing and product mix. Revenue from New Categories grew faster at 8.9% but that’s lagging the high-octane rates seen in recent years. It’s going to have to take up more of the slack in years to come too as the noose tightens around cigarette smoking.”
BATS was the FTSE 100’s top faller, serving as a reality check that a company whose products are responsible for millions of premature deaths was rightly seeing slowing demand.
Barclays’ 5% drop was more a case of profit-taking than any major concerns with earnings. Q4 results were largely better than expected, and the investment bank unit had a positive period. The bank also set out plans for £10bn in share buyback love the next two years. Guidance was fairly uninspiring, which may have spurred some to book recent gains.
“The £1bn buyback taps into its strong capital position, and with £10bn expected to be returned to shareholders between 2024 and 2026, there’s enough on offer to keep markets happy,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“The only minor downside was the lack of guidance upgrades, but overall, investors should be pleased, with the immediate price reaction likely a result of the strong run up coming into results.”
Unilever shares tumbled after the CEO said slow growth in 2024 would continue and ‘remain soft in the first half of 2025’. The company said it would push forward with a triple listing of its ice cream in the Netherlands, UK and US, but this wasn;t enough to stop shares sinking 7% on Thursday.
“The market environment for consumer goods companies is tough,” explained Charlie Huggins, Fund Manager at Wealth Club.
“China’s economy is weakening, local competition in emerging markets is fierce and the high level of inflation in recent years means the appeal of private label brands has arguably never been greater. As a result, Unilever is pointing to a slower start to 2025.”