London close: Stocks mixed as Bailey hints at rate cuts

London's stock markets closed in a mixed state on Friday as investors weighed optimistic retail sales data against remarks from Bank of England Governor Andrew Bailey.

The FTSE 100 ended the day with a modest increase of 0.61%, reaching 7,930.92 points, while the FTSE 250 declined 0.09% to 19,724.32 points.

In currency markets, sterling was last down 0.47% on the dollar to trade at $1.2598, while it increased 0.01% against the euro, changing hands at €1.1658.

“The FTSE 100 continued Thursday's outperformance to a ten-month high following the Bank of England's (BoE) shift to a dovish stance,” said IG senior market analyst Axel Rudolph.

“The 8,000 mark is now within reach as investor money finally heads to the undervalued UK stock market despite retail sales unexpectedly falling flat.”

Rudolph added that oil and natural gas prices continued to slide as the US government pressed Ukraine to halt drone strikes on Russian energy facilities, fearing it could provoke retaliation and drive up global oil prices.

“Gold and silver prices have stalled below this week's highs, with gold making a record high at $2,222.915 per troy ounce on Thursday.”

Retail sales flat in February as Bailey hints at rate cuts

In economic news, UK retail sales remained flat in February, according to fresh figures from the Office for National Statistics.

Despite steady sales after a significant 3.6% growth in the prior month, the performance was ahead of expectations for a 0.4% decline.

The rise in clothing and department store sales was countered by decreases in food and fuel retail.

However, online sales, particularly in clothing, saw an uptick.

On an annual basis, sales were down 0.4% in February, and 1.3% lower versus their pre- pandemic level in February 2020.

“There was a growth in clothing, which rebounded after recent falls as people invested in the new season’s collections, as well as department stores,” said ONS senior statistician Heather Bovill.

“However, these were offset by falls in fuel sales, possibly affected by rising prices, and a reduction in food sales.”

Meanwhile, UK consumer confidence stagnated in March, according to the latest GfK consumer confidence index.

At -21, it remained unchanged from February but showed improvement compared to March 2023.

Despite stable overall sentiment, the major purchase index dropped two points to -27.

“The improved personal finance measure is encouraging, because it’s the first positive and the highest score since December 2021,” said Joe Staton, client strategy director at GfK.

“But is there a note of worry this month? Look back to last year and it’s clear the improvements in consumer confidence seem most months since January 2023 have vanished.

“Are we temporarily on pause, or are consumers about to press reverse? In the run-up to the general election, these are important questions for the future health of the economy.”

In the manufacturing sector, British manufacturers anticipated a pickup in conditions in the coming months despite reporting a decline in output volumes.

The CBI industrial trends survey showed a slight decrease in output volumes in the first quarter, with some sub-sectors experiencing reductions.

However, looking ahead, manufacturers expressed optimism, with expectations for modest output growth in the next three months.

“It is disappointing that manufacturing output volumes fell in the first three months of the year, underperforming last month’s expectations for a slight upturn,” said Anna Leach, deputy chief economist at the Confederation of British Industry.

“But manufacturers remain optimistic that conditions will improve in the quarter ahead.

Speculations about potential interest rate cuts meanwhile gained momentum as Bank of England governor Andrew Bailey hinted at the possibility, citing optimism regarding inflation trends.

Despite maintaining the borrowing cost at a 16-year high of 5.25% during Thursday's Bank of England meeting, Bailey's comments to the Financial Times suggested a shift in the central bank's stance towards monetary policy.

Bailey expressed encouragement over the direction of inflation, highlighting the effectiveness of tighter monetary policies in addressing concerns about a wage-price spiral.

He likened the absence of expected second-round effects to the enigmatic behaviour of Sherlock Holmes' dog that doesn't bark, suggesting that such a scenario indicates the successful execution of monetary policy.

While refraining from specifying the timing or magnitude of potential rate cuts, Bailey acknowledged the presence of a curve projecting cuts throughout the year, indicating a cautious approach towards future decisions.

The recent ease in inflation, dropping from 4% in February to 3.4%, albeit remaining above the Bank of England's long-term target of 2%, further fueled discussions regarding the necessity of adjusting interest rates.

On the continent, German business sentiment improved in March, according to the Ifo Institute.

The business climate index rose to 87.8 from 85.7 in February, surpassing consensus expectations.

Both the current situation index and expectations index saw increases, indicating optimism among German businesses.

The manufacturing and service sectors also showed improvements in sentiment, albeit with some variations across industries.

Phoenix Group jumps, Wetherspoons falls despite solid results

On London’s equity markets, Phoenix Group Holdings jumped 8.4% following the release of well-received full-year results.

Vodafone Group increased 1.38%, drawing investor attention due to concerns raised by the Competition and Markets Authority regarding its proposed merger with Three.

The regulator's warning prompted scrutiny over potential competition issues, urging the companies to address consumer welfare concerns to avoid a full investigation.

On the downside, JD Sports Fashion slid 6.28% after cautionary remarks from Nike regarding future sales projections.

St James’s Place slipped 0.69% after RBC Capital Markets downgraded its shares and revised its price target downwards, citing prevailing uncertainties surrounding the company's outlook.

Pub chain JD Wetherspoon experienced a notable drop of 7.18%, despite reporting improvements in trading as Covid-19 impacts waned.

“Pub chain JD Wetherspoon’s half year results tell a story of an impressive recovery,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

“But the strong operating profit growth reflects the low-base to which this set of numbers were compared to.

“At under 7%, margins are still pretty thin and there was little in the statement to help see where an improvement might come from.”

Nathan said the group had been steadily reducing and optimising its footprint, and had a good record of outperforming its peers.

“A lot of capacity has come out of the market and the hint that there might be potential of about 1,000 pubs compared to a current total of 814, could see the estate start to grow again.

“That may see the return of dividends kicked further down the road.

“Location is key and recent openings include the Stargazer at the old Millennium Dome in Greenwich and the Star Light at Heathrow Airport.”

Elsewhere, Darktrace declined 7.89% after KKR Dark Aggregator, a technology growth fund advised by KKR, sold a substantial number of shares in the cybersecurity firm.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,930.92 0.61%
FTSE 250 (MCX) 19,724.32 -0.09%
techMARK (TASX) 4,518.01 0.36%

FTSE 100 - Risers

Phoenix Group Holdings (PHNX) 530.80p 8.73%
NATWEST GROUP (NWG) 261.10p 3.04%
Reckitt Benckiser Group (RKT) 4,417.00p 2.72%
Prudential (PRU) 778.40p 2.56%
M&G (MNG) 238.80p 2.49%
Croda International (CRDA) 5,124.00p 2.40%
Hikma Pharmaceuticals (HIK) 1,915.50p 2.24%
Airtel Africa (AAF) 99.90p 2.20%
Pershing Square Holdings Ltd NPV (PSH) 4,158.00p 2.11%
WPP (WPP) 742.00p 1.90%

FTSE 100 - Fallers

JD Sports Fashion (JD.) 109.65p -6.36%
Ocado Group (OCDO) 468.30p -1.76%
Frasers Group (FRAS) 792.00p -1.37%
International Consolidated Airlines Group SA (CDI) (IAG) 164.45p -1.35%
Rentokil Initial (RTO) 469.90p -1.34%
Rightmove (RMV) 573.00p -1.27%
DCC (CDI) (DCC) 5,684.00p -1.04%
Taylor Wimpey (TW.) 140.80p -1.02%
Rio Tinto (RIO) 4,997.00p -1.01%
RS Group (RS1) 739.40p -0.96%

FTSE 250 - Risers

Bakkavor Group (BAKK) 104.00p 3.48%
Drax Group (DRX) 487.30p 3.02%
Savills (SVS) 1,031.00p 2.69%
Supermarket Income Reit (SUPR) 78.00p 2.63%
Discoverie Group (DSCV) 727.00p 2.39%
Future (FUTR) 655.50p 2.26%
HGCapital Trust (HGT) 479.00p 2.24%
Inchcape (INCH) 686.00p 2.24%
Energean (ENOG) 1,077.00p 2.18%
Moonpig Group (MOON) 164.60p 2.17%

FTSE 250 - Fallers

Darktrace (DARK) 427.10p -7.35%
Wetherspoon (J.D.) (JDW) 746.00p -6.34%
Wood Group (John) (WG.) 145.00p -5.17%
Hochschild Mining (HOC) 119.40p -4.25%
OSB Group (OSB) 366.20p -3.99%
Marshalls (MSLH) 275.00p -3.71%
Centamin (DI) (CEY) 106.10p -3.55%
TBC Bank Group (TBCG) 3,145.00p -3.23%
Watches of Switzerland Group (WOSG) 333.40p -2.97%
AO World (AO.) 91.25p -2.82%