Market report: FTSE rises on higher commodity prices, Tesco reports full year results
- FTSE rises ahead of US CPI data
- Tesco full year results show volumes are on the rise
- Chip giant TSMC beats expectations on AI demand boom
- Oil price tempers slightly on Middle East diplomacy efforts
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“The FTSE 100 has opened higher as the miner-heavy index is buoyed by higher commodity prices, especially gold. US consumer prices data is also due today, and there will be growing hope that the numbers are heading south, to help guide the Federal Reserve to cut interest rates this summer. More broadly, earning season starts this week, and investors will be looking to economic barometers in the form of major US banks to gauge the health of important economies.
Another area of UK-based optimism is Tesco’s full year results. Tesco has shown once again that it deserves its best-in-class crown. Underlying retail profit has come in a smidge above upgraded guidance at £2.76bn, as the group’s efforts to beat rivals on price pays dividends. Crucially, the supermarket is seeing volumes pick up once more, which is a saving grace as inflation tempers. If prices can’t rise, you need customers to buy a higher number of items if margins are to stay intact. The group’s stellar proposition has meant it’s been able to increase the full year dividend by 11%, thanks to the substantial levels of cash pumping through Tesco’s veins. For all the positives, there are challenges to monitor. This includes the never-ending carousel of competition – this comes not only from discounters like Aldi, but the likes of Sainsbury’s are throwing a lot at honing their proposition. While retail margins aren’t languishing in the basement compared to historical averages, levels of around 4% in the UK don’t leave too much room for manoeuvre where disruption or fierce price wars are concerned. The outlook doesn’t include much expected uplift for retail profits in the new financial year, and remaining competitive will be one reason for this.
The AI demand boom has wrapped its shockwaves around Taiwan chipmaker TSMC, which has reported a 16.% increase in first quarter revenue. Performance was better than expected, and at the higher end of the group’s own target range. TSMC is no small fry – it’s the biggest contract chipmaker in the world, with high calibre customers like Apple and Nvidia on its books. The brief statement was short on details for the outlook, partly because mapping the trajectory of AI-related demand is a very difficult task. However, these numbers do have a positive read across, not only for fellow chipmakers, but for tech stocks relying on AI excitement to continue. As earnings season ramps up, TSMC’s figures will have injected a layer of optimism into the mix.
US crude stockpiles are bigger than expected, which together with ongoing diplomatic efforts between Israel and Hamas, has seen the oil price temper slightly. Brent crude is hovering around $89.7 a barrel, as hopes build that tensions in the Middle East will ease.”
