Equity bulls were in the driving seat on Friday as the FTSE 100 continued to break to new highs. Concerns about interest rates and geopolitical risks are fading into the background as London’s leading index chalks up another day of gains.

The FTSE 100 was 0.45% higher at the time of writing, trading at 8,115. The index was up over 2.7% on the week, comfortably above 8,100.

“What a fantastic week for the FTSE 100. We’ve had new record highs, yet more takeover action, and everyone is talking about UK stocks in a positive way which hasn’t been seen for ages. There was no stopping the blue-chip index on Friday as NatWest’s results went down well and we saw gains across most of the market. The breadth of sectors moving higher suggests investor sentiment continues to improve,” said Russ Mould, investment director at AJ Bell.

The interest rate and geopolitical risks we mentioned haven’t gone away, but a week packed full of upbeat corporate earnings and M&A activity has fired sentiment into the stratosphere.

The FTSE 100’s weighting towards banks and miners has helped the index outperform other global indices this week as the US ponders interest rate cuts and mixed tech earnings. That said, Microsoft and Alphabet earnings overnight were playing apart on Friday with US futures ticking higher.

“The FTSE 100 has reached yet another untouched summit, as investors remain in a positive mood. There has been a flurry of strong results from big hitters like Barclays and AstraZeneca on Thursday, which has helped carry the FTSE to these new highs. The market’s also reacting to the news that consumer confidence has improved slightly, according to data from GfK,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

NatWest

NatWest contributed to the positive earnings picture on Friday, as the stock gained more than 5% after announcing Q1 profits and income that beat expectations.

NatWest was the last of the UK-focused FTSE 100 banks to report this week and the market reaction to the stock was certainly the highlight of Lloyds, NatWest and Barclays.

“NatWest is best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn’t disappointed with first-quarter results very nearly a clean sweep vs expectations. Impairments came in lower than expected, net interest margin ticked higher from the previous quarter and both customer loans and deposit levels grew,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“The UK banking sector looks strong. NatWest has followed its peers in calling out a slowing of some of the headwinds that have been impacting performance in recent quarters. Customers shifting to higher-rate accounts is slowing as expected, impairment rates on loans have stabilised at low levels, the economic outlook has improved, and balance sheets remain strong.”

Anglo American has rejected BHP’s unsolicited offer just a day after announcing it has received interest from the world’s largest mining company.

The company said in a statement that BHP’s bid ‘significantly undervalues Anglo American and its future prospects’.

Anglo American shares were down, but only marginally. This suggests the market thinks BHP will be back with a better offer before long.

“It’s no surprise that Anglo American has rejected BHP’s takeover bid. Anglo American has long seen itself as one of the big players in the market and it certainly won’t let a rival swoop on the business when its chips are down,” said Russ Mould, investment director at AJ Bell.

“Miners have a habit of going through bad patches as they are juggling so many different risks and selling prices are, on the whole, out of their control due to the nature of the commodities market. Anglo American has certainly had its fair share of operational setbacks and negative readjustments to output guidance in recent times, but it will fight tooth and nail to stop any takeover attempts while it tries to get back on top.”

Mould continued to explain Anglo’s rejection of BHP bid follows a well trodden path in mining M&A which could see other players start a bidding war.

“The usual playbook for mega deals in the resources space is for the original suitor to respond to rejection by coming back with a better offer, or someone else throwing their hat into the ring. That contender could be Rio Tinto as it will certainly be watching activities with keen interest given it can see the same opportunity as BHP.”

NatWest wrapped up Q1 2024 earnings from the FTSE 100’s UK-focused banks with solid numbers across the board as profits and income fell, but beat analyst expectations.

Total income was better than expected at £3.5bn, and Net Interest Margins were flying high at 2.05% compared to 1.98% expected. In the context of last year’s performance, NatWest’s results were much lower than those of the comparable period, but this was to be expected.

There were no real surprises in NatWest’s update, more a slightly better performance over the period than the doomsayers had predicted at the beginning of the year. The UK economy has slowed, and interest rates are set to drop, marking the end of a favourable period of income margins. The 3% tick higher in NatWest shares on Friday is a sign of investors’ approval of how NatWest is navigating the current environment.

Investors will have been watching closely for the impact of a slowdown at the end of last year and how it played into earnings. An impairment charge of roughly less than half of what was expected will help confidence in the bank as the UK economy exits recession. 

“NatWest is best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn’t disappointed with first-quarter results very nearly a clean sweep vs expectations. Impairments came in lower than expected, net interest margin ticked higher from the previous quarter and both customer loans and deposit levels grew,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“The UK banking sector looks strong. NatWest has followed its peers in calling out a slowing of some of the headwinds that have been impacting performance in recent quarters. Customers shifting to higher-rate accounts is slowing as expected, impairment rates on loans have stabilised at low levels, the economic outlook has improved, and balance sheets remain strong.”

Lookng forward, Britzman was upbeat on the general environment for NatWest and how it will deal with interest rate expectations.

“Of the UK-listed banks, NatWest looks best placed to benefit from a higher rate environment as its structural hedge comes off some of the lowest rates in the sector. Think of this like a bond portfolio that’s rolling on to higher yields over the next few years. Management has kept guidance largely in place, which still looks on the conservative side given it factors in several rate cuts this year that really don’t look likely to come. That leaves NatWest not only with the potential for operational strength but also paves the way for positive income surprises later in the year.”

Tekcapital portfolio company Innovative Eyewear has recently received notices of allowance on three new design patents covering its forthcoming Lucyd Armor smart safety glasses product. The allowed design patents (application Nos. 29/806,204, 29/806/207, 29/806/209) protect the ornamental design of the AR-enabled protective eyewear.

The company has also filed new utility and design patent applications specifically covering the functional and aesthetic aspects of the Lucyd Armor glasses, as it prepares for the product’s launch in mid-2024. Lucyd Armor combines critical safety features with Innovative Eyewear’s open-ear audio and artificial intelligence capabilities.

The developments represent a new application for the company, which opens the door to an entirely new market.

The global safety glasses segment, which spans construction, manufacturing, healthcare and research fields, is projected to reach $4.18 billion in value by 2030. By integrating hands-free communication and computing into industry-approved protective eyewear, the company aims to enhance collaboration and productivity for teams across numerous work environments requiring safety gear.

To facilitate team coordination through the Lucyd Armor glasses, Innovative Eyewear offers the Vyrb mobile app providing voice-over-IP chatrooms capable of hosting up to 100 participants simultaneously on both iOS and Android platforms.

Innovative Eyewear CEO Harrison Gross said:

“Lucyd Armor smart safety glasses are a unique product and the culmination of rigorous in-house R&D, which we are thrilled to bring to the personal protective equipment market. We believe these products will deliver a cutting-edge experience to safety glass users around the world, making it easier than ever for industrial workers to communicate handsfree in a wide range of environments. We are commencing testing to ensure our smart safety eyewear meets US Occupational Safety and Health Administration Agency’s standards and expect to have the glasses available to consumers in the coming months. In addition to our direct-to-consumer channels such as Amazon and BestBuy.com, we look forward to launching Lucyd Armor in hardware and home improvement stores, developing an entirely new vertical for the company.”

The FTSE 100 maintained its positive tone on Thursday, with corporate earnings providing investors the impetus to buy into London’s leading equities. 

London’s leading index briefly traded above 8,100 – a new intraday high – before falling back to trade at 8,077 at the time of writing.

“The FTSE 100 is having the time of its life as takeovers continue to power the market. BHP’s move on Anglo American has got investors excited at who else in the blue-chip UK stock index might be next for a bid,” said Russ Mould, investment director at AJ Bell.

That said, Thursday’s top riser, Anglo American, which gained 13% after receiving a bid from BHP, represented an underlying threat to London’s market as another major FTSE 100 constituent looks set to leave.

Earnings season is in full swing, and investors received updates from Barclays, Persimmon, AstraZeneca and Sainsbury’s, among others, on Thursday. A generally positive trend among those reporting helped support the index as investor optimism on earnings increased.

Barclays

Barclays investors have a lot to be pleased about. Income and profit beat expectations, and Barclays’ UK net interest margin, a key profitability metric, was much better than Lloyds who reported yesterday. 

“Credit where it’s due, cost controls look to be making a difference for Barclays. First-quarter trading was better than expected, but the weaker net interest income guidance for 2024 will be a little disappointing,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

Barclays shares were over 6% higher at the time of writing.

Sainsbury’s

Sainsbury’s shares were slightly lower after reporting full year preliminary results. The move was more likely a result of profit-taking rather than any major disappointment with the data. 

The company has decided to refocus its efforts on the food business and grocery sales grew 9.4%. The drop in shares today can be attributed to a soggy reaction in shares.

“Sainsbury’s results didn’t hit the right note with investors despite upbeat commentary from management. Underlying profit growth of 1.6% is pedestrian and a lack of dividend growth hardly signals a business going places. While it’s done well by focusing on food and broadening its appeal with more value-led products, clothing sales remain miserable and Argos’ performance is nothing to write home about,” Russ Mould explained.

Anglo American 

The BHP bid for Anglo American is another blow to London. The problems with low valuations and diminishing risk appetite are well documented but another major company in Anglo American leaving London is a bitter pill to swallow.

“Anglo American was a sitting duck after the sharp decline in its share price last year. The firm saw its market value shrink by 39% in 2023 due to operational setbacks, weaker commodity prices and downgraded production guidance. That provided an opportunity for a larger rival to pounce on the business, taking a long-term view that its assets have considerable value and any short-term operational issues can be fixed. BHP has been the one to step up to the plate,” said Dan Coatsworth, investment analyst at AJ Bell.

“Miners have a nasty habit of chasing acquisitions precisely at the wrong time, often striking deals at the top of the market. They get dollar signs in their eyes when commodity prices are rallying and often end up over-paying for acquisitions. It’s therefore instructive to note the recent rally in the copper price, now trading at a two-year high.”

Anglo shares were up over 13% at the time of writing.

Incidentally, Anglo American was one of UK Investor Magazine’s Top 15 Stock Picks for 2024. It would be a real shame if it weren’t here at the end of the year.