Market report: Positive start for the FTSE 100 on first trading day of the New Year
- FTSE 100 has opened higher, helped by higher oil prices and mining stocks.
- A better-than-expected reading for the Chinese manufacturing sector is helping sentiment.
- Middle East tensions push up the price of oil but demand outlook is uncertain.
- Pound edges up as investors assess interest rate expectations.
- Retail warning that higher food costs could land in 2024.
- Sainsbury’s flat in trading but M&S shrugs off worries to gain more ground.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The FTSE 100 has begun the first session of the new year with small spring in its step, thanks to encouraging data on China’s economy and gains in oil prices amid fresh geo-political concerns. Worries about the conflict in the Middle East becoming more complex have bubbled up again, amid heightened tensions in the Red Sea. The US-led maritime force destroyed boats whose crews appeared to be attempting to board a container ship. This is increasing concerns about potential supply problems in the region rearing up again, putting upwards pressure on Brent Crude, which is hovering above $78. The gains have put energy giants, Shell and BP on the front foot, heading higher in early trade. However, uncertainties about demand for oil going forward, is keeping a lid on much higher prices for now.
Chinese economic data more positive
The closely watched Caixin PMI manufacturing index showed activity at Chinese factories turned positive in December, with factories were churning out more goods than expected and orders up. There will be relief that authorities’ efforts to stimulate demand appear to be starting to pay off domestically. The effect of falling inflation in key export markets is also likely to be behind this more optimistic outlook, with companies more confident to order.
Sterling edges up against the dollar
The pound has gained some ground against the dollar, trading around $1.275, as investors assess the prospects for interest rates on both sides of the pond. Although bets have increased that the Bank of England might be forced to cut rates a bit sooner than it had been flagging, the Fed is still expected to move faster. Inflation is showing signs of being more stubborn in the UK, and policymakers have warned rates may have to stay elevated for an extended period, while the Fed has already plotted rate cuts this year.
Retail industry warns on higher costs, but M&S shrugs off worries
Although grocery inflation had been heading in the right direction from excruciating hikes, there are fresh worries percolating that the pain could resurface in 2024. The British Retail Consortium has flagged pressure points to come, ranging from new costly border checks for EU imports to higher business rate bills due from April. These costs are likely to be passed on to customers, despite firms’ efforts to absorb them. In the more immediate future, delays on shipments of products ranging from Kenyan tea and South African wine, due to the attacks in the Red Sea could also see prices rise on the shelves.
It’s been a mixed bag in early trading for the big names on the grocery scene. Sainsbury’s has had a lacklustre start, given that its margins have already been under the cosh, as the grocer has tried to stay competitive in pricing, and the thought of more pressure to come isn’t welcome. Tesco has been weathering the cost-of-living storm adeptly thanks to its strong value proposition and deep supplier network, and it’s in positive territory, rising almost 1% in early trade. Marks and Spencer has got off to another flying start on the first day of trading of 2024, adding to last year’s rapid ascent, when shares rose 115%. M&S was up 1.9% in early trade, as investors assess its resilience amid the gloomier outlook for retail, given that its core customers are much more insulated by cost-of-living headwinds and don’t seem to have been put off by higher prices.”
