London close: Stocks finish higher after retail sales surprise

London stocks closed well above the waterline on Friday, as investors digested better-than-expected retail sales figures.

The FTSE 100 ended the session up 1.1% at 6,292.60, and the FTSE 250 was 0.96% firmer at 17,687.26.

Sterling was weaker against its major trading pairs, however, last falling 0.5% on the dollar to $1.2362, and sliding 0.36% against the euro to €1.1048.

“Equity markets are in positive territory this afternoon,” said CMC Markets UK market analyst David Madden, adding that the health crisis was still “bubbling away in the background”, although traders appeared to have shrugged that off for the moment.

“Lately, US-China relations have been tense, but Beijing will speed up the purchase of agricultural goods from the United States, so this has assisted market sentiment as it would be a step towards honouring phase one of the trade deal between the two countries.

“That’s not to say that President Trump won’t pick a fight with China again.”

Figures released earlier by the Office for National Statistics showed retail sales began to bounce back in May, as lockdown measures started to ease and shops such as garden centres were allowed to open.

Retail sales volumes, including fuel, rose 12% on the month following a record 18% slump in April, coming in well ahead of consensus expectations for a 5.7% increase.

That was driven by a 23.7% jump in non-food sales, with online sales up 21.0% on the month.

Still, sales were still down 13.1% compared to February, before the Covid-19 lockdown.

“The strong rebound in retail sales in May shows that the economy has started to reverse the lockdown-induced collapse in activity faster than we had thought,” said Paul Dales, chief UK economist at Capital Economics.

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the overall consumer picture remains bleak.

"May’s recovery in retail sales should not be interpreted as a sign that the economy is embarking on a healthy V-shaped recovery from Covid-19," he said, pointing to the fact that sales were still significantly lower than February.

“In addition, retail sales account for only a third of households’ overall spending.”

Separate figures published by the ONS showed government borrowing has exceeded economic output for the first time since 1963, as monthly borrowing rose to the highest on record because of the Covid-19 crisis.

Public sector net debt was £1.95bn at the end of May, an increase of £173.2bn from a year earlier, the Office for National Statistics said.

At 100.9% of GDP the total was the first time debt had outstripped output since the end of the 1963 financial year.

The sharp increase was the biggest since monthly records began in 1993 as Chancellor Rishi Sunak spent to prevent economic collapse.

Public sector net borrowing was an estimated £55.2bn in May, nine times more than a year earlier and the highest on record.

Economists on average had expected a figure of £50bn, while borrowing in the financial year to date was £103.7bn - £87bn more than a year earlier, and again the highest on record.

"The coronavirus pandemic has had an unprecedented impact on borrowing," the ONS said.

In equity markets, housebuilder Taylor Wimpey closed up 4.34%, having fallen earlier in the week after it raised more than £500m through the sale of new shares to help fund land acquisitions.

Canaccord Genuity said that while the placing was a surprise and raises some questions, on balance, it understands the logic.

"It enables the group to lock in some attractive land-bank value; and if the housing market deteriorates more than expected, it provides (inadvertently) more near-term balance sheet comfort," it said.

On the downside, shopping centre owner Hammerson slid 8.56%, with traders pointing to a rise in short-selling interest in the stock.

Wood Group fell 1.15% after saying it expects a 19% fall in first-half core earnings as the coronavirus pandemic hit the oil and gas sector.

Iron ore miner Ferrexpo lost 5.85% after saying it was appealing against a decision by a district court in Kyiv to place new restrictions covering 50.3% of shares in its Ukraine subsidiary Ferrexpo Poltava Mining held by Ferrexpo AG Switzerland.

William Hill reversed earlier gains to close down 2.23%, after being upgraded to ‘overweight’ at JPMorgan.

It said the £224m of gross proceeds from this week’s placing relaxes the constraints on the company’s ability to chase the US sports betting and gaming opportunity, and bring down the uncomfortably high leverage.

Domino’s Pizza Group was also knocked lower, falling 1.33% after a downgrade to ‘sell’ at Berenberg, which said pressure from competitors more focused on growth and less on returns will continue to mount.

Market Movers

FTSE 100 (UKX) 6,292.60 1.10%
FTSE 250 (MCX) 17,687.26 0.96%
techMARK (TASX) 3,812.12 1.18%

FTSE 100 - Risers

Aveva Group (AVV) 4,169.00p 4.44%
Taylor Wimpey (TW.) 148.95p 4.34%
United Utilities Group (UU.) 978.20p 4.11%
Diageo (DGE) 2,900.00p 3.39%
3i Group (III) 844.20p 3.38%
Hikma Pharmaceuticals (HIK) 2,505.00p 3.30%
Smurfit Kappa Group (SKG) 2,696.00p 3.30%
Intermediate Capital Group (ICP) 1,270.00p 3.08%
Compass Group (CPG) 1,179.00p 3.06%
Severn Trent (SVT) 2,568.00p 3.05%

FTSE 100 - Fallers

Whitbread (WTB) 2,365.00p -2.79%
Land Securities Group (LAND) 605.80p -2.76%
British Land Company (BLND) 405.20p -1.82%
Berkeley Group Holdings (The) (BKG) 4,292.00p -1.78%
Barclays (BARC) 116.56p -1.75%
Legal & General Group (LGEN) 221.00p -1.56%
Carnival (CCL) 1,252.50p -1.15%
Hargreaves Lansdown (HL.) 1,661.50p -0.89%
Rio Tinto (RIO) 4,502.50p -0.84%
Meggitt (MGGT) 315.60p -0.79%

FTSE 250 - Risers

Petropavlovsk (POG) 30.75p 9.82%
Hilton Food Group (HFG) 1,294.00p 9.11%
Avon Rubber (AVON) 3,300.00p 8.02%
TI Fluid Systems (TIFS) 183.00p 7.90%
Airtel Africa (AAF) 67.80p 7.28%
Watches of Switzerland Group (WOSG) 278.00p 6.57%
Coats Group (COA) 62.20p 6.32%
St. Modwen Properties (SMP) 370.00p 6.17%
Pets at Home Group (PETS) 241.40p 6.06%
Hyve Group (HYVE) 124.00p 5.98%

FTSE 250 - Fallers

Hammerson (HMSO) 104.65p -8.56%
Bakkavor Group (BAKK) 71.00p -7.43%
Ferrexpo (FXPO) 178.80p -5.85%
Forterra (FORT) 199.80p -4.40%
Marks & Spencer Group (MKS) 107.85p -3.75%
FirstGroup (FGP) 54.20p -3.73%
McCarthy & Stone (MCS) 70.50p -3.69%
Ascential (ASCL) 290.60p -3.65%
PureTech Health (PRTC) 265.00p -3.46%
Babcock International Group (BAB) 341.10p -3.18%