The FTSE 100’s weighting towards commodities helped provide support on Tuesday as stronger miners and oil majors offset weakness in BAE Systems and Rolls Royce.

London’s leading index was 0.15% higher as investors awaited major economic developments later in the week including US CPI due to be released tomorrow and the ECB’s interest rate decision on Thursday.

Both will contribute to shaping the narrative around interest rates and influencing the expectation of when major central banks will cut rates. With equity markets enjoying support and trading near record highs, investors will be on tenterhooks as the numbers are released.

“Forecasts imply the ECB will hold rates at 4.5% yet last week’s stronger than expected US jobs data and the ongoing strength in the oil price have raised expectations that the Federal Reserve will push back rate cuts until later in the year, and this has subsequently spooked investors into thinking other central banks including the ECB will also sit on their hands for now,” said Russ Mould, investment director at AJ Bell.

“Tomorrow’s CPI inflation figure in the US also threatens to intensify the argument that rate cuts will not be imminent. The consensus forecast is for a 3.4% year-on-year inflation rate in March, up from 3.2% in February and 3.1% in January. Inflation slowly creeping higher goes against what the Fed wants to see to justify rate cuts.”

Miners rally

On another day of minor gains for the FTSE 100, mining companies were again among the top risers as the inflation trade supported commodities and sent extraction stocks higher. Fresnillo, up 4.4%, was again the top riser as the precious metals miners enjoyed elevated gold and silver prices.

Ocado was another standout performer, with a 3% gain as bargain hunters stepped into the beaten-down premium grocery and food retailing company.

BP and Shell helped support the wider index with 1.3% and 0.8% respective gains amid higher oil prices. BP also garnered the interest of investors after saying Q1 24 upstream activities – those concerned with extraction – would be ahead of Q4 23.

“Shares in BP hit their highest level in six months after it said first quarter upstream production would be higher than the previous three months,” Russ Mould said.

“Sentiment has also been helped by Brent Crude holding firm above $90 a barrel which creates a positive earnings backdrop for the oil industry.

“It’s impossible to judge a company purely based on three months’ performance but full year guidance implies BP is hoping to quietly get on and do the job, achieving small incremental gains which should be enough to keep the market happy.”

Tekcapital shares were firmly higher on Tuesday after it announced portfolio company Guidant had entered the robotics safety market through a partnership with Star Robotics.

The move has diversified Guident’s applications beyond autonomous vehicles into other real-world uses with a large and growing addressable market.

Star Robotics has developed the “Watchbot” robotics designed to carry out surveillance and industrial inspection tasks. Guident will integrate its human-in-the-loop Remote Monitor and Control Center (RMCC) solution with Star’s surveillance technology to provide autonomous security and safety as the robots conduct normal activities.

Tekcapital shares were 7% higher at the time of writing.

“Since establishing our strategic partnership, we have been delighted to collaborate with the Star Robotics team on several projects. With their relentless focus on pushing the boundaries of possibility, Star Robotics is poised to transform the way industries harness the power of robotics to drive efficiency, productivity, and success,” said Harald Braun, Executive Chairman and CEO at Guident.

The partnership is a natural progression for both Guident and Star Robotics as the two companies expand their operations and break new ground in their respective, yet complimentary, fields.

“We are thrilled to join forces with Guident, a leader in Autonomous Vehicle (AV) teleoperation monitoring industry, to introduce a security surveillance robot equipped with human-in-the-loop capabilities. This groundbreaking collaboration marks a pivotal moment in advancing safety and innovation in autonomous technology. We couldn’t be more excited to pioneer this revolutionary solution, setting a new standard for the industry.” stated Yamila Feccia, Chief Commercial Officer at Star Robotics. 

The FTSE 100 started the week in a holding pattern as investors digested a blowout Non-Farm Payrolls reading on Friday and braced for more data in the week ahead.

The benign trading conditions on Monday were reflective of a busy week for central banks. The Fed minutes are due for release on Wednesday, and the ECB will decide on rates on Thursday. In addition, traders will be delivered the latest US CPI, which could have huge ramifications for stocks.

Interest rate concerns have again crept in, with central banks suggesting they are no closer to cutting rates. Major economic indicators in the US, UK and some European countries suggest underlying resilience amid higher rates. In short, traders are concerned the economy is too strong to justify central banks cutting rates.

At the beginning of a trading week that is likley to be driven by macroeconomic events, the FTSE 100 was trading at 7,924, up 1.7%.

“Markets have taken a moment to reflect on last week’s barrage of data points which caught people by surprise,” said Russ Mould, investment director at AJ Bell.

“With little on the corporate reporting agenda and many people enjoying annual leave during the Easter school holiday, the pause has come just at the right time. It provides an opportunity to weigh up what’s really going on and what could happen next.

“In a nutshell, we’ve had hotter than expected jobs data and an oil price that has been sneaking higher, implying that the economy is resilient despite higher interest rates while at the same time sounding an alarm that the pace of inflation could speed up, due to the respective forces. That certainly gives the Federal Reserve a lot to think about – indeed, it strengthens the argument for rates to remain at their current level for a lot longer.”

Unsurprisingly, there were few major movers on Monday, and the top fallers and gainers continued recent trends.

The shakeup at Entain is continuing to support its shares which were 5.1% higher at the time of writing. Entain was the FTSE 100 top riser.

Momentum in building in mining stocks. After a buoyant week last week, Rio Tinto, Glencore, and Anglo American had another good showing on Monday as commodities ticked higher.

Profit-taking in Marks & Spencer persisted for a second day, and shares fell 2.5%.

Higher interest rates are not great for Ocado shares and growing interest rate concerns fed directly into another 2.4% decline on Monday.

HSBC equity analysts have downgraded Rentokil Initial to ‘hold’ from ‘buy’ on concerns about the integration of US-based Terminix and how Rentokil will improve ROCE.

Rentokil Initial’s capital base is now three times larger than before the Terminix acquisition and HSBC analysts have doubts about how the company can improve its return on capital, given Terminix had a lower ROCE than the wider Rentokil Initial group.

HSBC also noted the constraints of possible slower US growth later in the year and the operational challenges of integrating Terminix, including competitors using the disruption caused by the acquisition to steal business away from Terminix.

As a result, HSBC has cut its Rentokil Initial price target to 480p from 495p.

“We cut our adj EPS estimates by 1.4% for 2024e and by 2.2% for 2025e considering slightly lower operating margins and higher expected net finance costs. However, we increase our ROCE projections slightly, expecting better ‘capital turnover’. The business may do better, but we think our revised assumptions are safer and more prudent,” HSBC analysts wrote in a note.

“To set our target price, we still apply our target PE of 20x but on our revised estimate for 2024e. Our target PE is about 10 ‘turns’ lower than RTO’s peak PE multiple in 2022e, reflecting higher interest rates, discount rates, and uncertainty but allowing for the lack of cyclicality in the business model and the potential for higher future returns. Thus, we derive our now lower target price of 480p (from 495p).”