- FTSE 100 loses steam after a record week
- BHP makes a buyout offer for Anglo American following asset write-downs
- Sainsbury’s full year results speak to strategic success
- Oil price steadies on demand questions
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“The FTSE 100 has risen again after concerns it was about to lose some steam after a record week. Recent warnings from Bank of England chief economist Huw Pill that interest rate cuts may be some way off had the potential to turn the heat down in the market. The FTSE’s record run has increased enthusiasm around the future prospects of the UK’s biggest companies, but prolonged positivity may be a long shot while the macro-economic landscape remains so uncertain.
It’s a big day for earnings in the UK too, with plenty of data capable of moving the dial. There’s also been some downbeat data on the car production front, with year-on-year production declining 27.1% to 59,467 units in March 2024. This alone doesn’t sway the market too much, but it does suggest wider economic malaise which doesn’t help. The US markets have also had a choppy night, after Meta shares dropped 10% unexpectedly.
The biggest headline-grabber today is news that BHP has made a buyout approach for Anglo American. Anglo’s exposure to copper compared to other listed miners is core area of BHP’s focus, as it looks to benefit from the material as the energy transition gathers pace. At the same time, BHP is looking to make hay while the sun shines on the gold price, but a deal of this magnitude does little to reassure investors it’s prioritising cost targets. BHP is also taking advantage of Anglo’s more recent weakness, which has seen it review its assets and write down their value. Should the deal go ahead, it would interrupt the long-term potential for Anglo investors, at a time when a turnaround is likely. If the deal happens, it would add to a global flurry of M&A, and also be BHP’s second major acquisition in around a year. The move also suggests we could see further offers coming to the table for some of Anglo’s other assets, as well as for other smaller companies.
Sainsbury’s has delivered a strong set of results amid its large-scale strategy shift. Crucially, the 6.8% increase in retail sales has been driven by volume. This is a more resilient strategy than price, but can often be more difficult to achieve. The successes are very much showing up in the numbers, with underlying retail operating profits climbing over 4%. Despite the positivity, Sainsbury’s does carry much higher exposure to general merchandise, which isn’t faring so well. This is partly because of where we are on the economic merry-go-round, but can also partly reflect specific stocking decisions. Ultimately, Sainsbury’s has come on leaps and bounds within a very competitive arena, and there’s optimism its volume-led approach can continue this year.
Markets are looking ahead to US GDP data, which has injected concerns over higher-for-longer interest rates back into the oil price. Brent crude has steadied at around $88 a barrel, which is still elevated overall on lower US stockpiles.”
