- FTSE 100 opens slightly higher as China trade data surprises on the upside.
- Bank of England set to keep rates on hold, but there are hopes for fresh signals about a summer interest rate cut.
- Brent Crude rises slightly towards $84 a barrel amid signs of increased demand.
- BAE Systems maintains guidance amid increased pledges of military spending.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The FTSE 100 hasn’t been knocked off its course with positive winds still largely blowing around the index. Although there will be a certain amount of treading water ahead of the interest rate decision from the Bank of England, upbeat trade data from China is keeping optimism flowing. Exports grew by more than expected in April, increasing by 1.5% as customers in key markets around the world demonstrated more appetite for Chinese made goods. This has not only sparked fresh hopes of a steadier recovery for China’s economy, but also may be seen as a measure of more confidence in other economies where interest rate cuts are eyed on the horizon.
Although the Bank of England is set to keep rates on hold yet again later, hopes are high that a summer interest rate cut will be on the agenda. Even though the Bank is set to stay in a holding pattern for now, there will be huge interest in the voting split between policymakers and the accompanying quarterly monetary policy report. Expectations are centring around an interest rate cut in August but if more than one policymaker votes for a rate cut, it will spark greater hopes that a cut could come earlier in June. Likewise, if the Bank forecasts that inflation may be weaker in the months ahead than it flagged previously and gives a lacklustre forecast for economic growth, markets may price in more interest rate cuts this year, expecting a shift around the table at the next meeting. What will be key to watch is the Bank’s expectations for the labour market, as the stubbornness of wage growth has been a worry for policymakers. Today’s KPMG-REC jobs report may be music to their ears, as it highlights that the pool of available labour for businesses has increased sharply, a sign that firms aren’t hiring as quickly. If this fight for talent eases off, it should help bring down wage growth. This has flashed up in the candidate availability index which rose to 60.4 in April from 60.2 in the previous month. With Sweden’s central bank, the Riksbank cutting rates overnight, it’s led to fresh expectations that both the European Central Bank and the Bank of England will move faster than the Fed in reducing borrowing costs this year.
Oil prices have edged a little higher as traders focus on data implying more demand for energy in the United States. US crude stockpiles fell back by 1.36 million last week, partly reversing a big jump in inventories the previous week. Expectations that the Federal Reserve will cut interest rates this year, due to the weakening jobs market, has also lifted expectations for higher demand, as the onerous effect of high borrowing costs on the economy would ease. Crude prices are being held back from greater gains as hopes are kept alive for a ceasefire in Gaza. With the US taking a stricter line with Israel and vowing to withhold weapons if a major invasion of Rafah takes place, there are hopes it will help lead to a breakthrough in negotiations taking place in Egypt.
There were no big surprises from BAE Systems as it maintained guidance amid rising geopolitical tensions around the world, and pledges for increased military spending. With more here’s my colleague Aarin Chiekrie:
Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Defence spending remains high across the group’s sectors and key markets as many governments are expected to continue raising their defence budgets amid escalating global tensions. The recent passing of an additional aid package from the US to Ukraine, and the commitment by the UK to grow its defence spend to 2.5% of GDP by 2030 should build further positive momentum for the group, as it looks set to capture a good chunk of this extra spending. The orders placed with BAE are typically long-cycle too, spread over several years, so it gives the group multi-year revenue visibility. An enviable asset to have in uncertain times.
That’s led BAE to reaffirm all of its full-year guidance, which calls for sales and underlying operating profits to grow by 10-12% and 11-13% respectively. These growth figures are being boosted by the group’s acquisition of Ball Aerospace which closed back in February this year. The integration of the business is going well, with the newly renamed business, Space & Mission Systems, already securing a number of key contracts. The current £1.5bn three-year share buyback programme is moving full steam ahead, now 90% complete after less than two years. And thanks to impressive cash generation, it’s set to be followed up by another three-year buyback programme of the same size, putting extra cash back in shareholders’ pockets.”
