- FTSE 100 set to open higher helped by improved global growth forecasts.
- UK GDP shows economy stagnated in April lifting hopes for interest rate cuts.
- Apple shares hit record highs as it unveils plans for AI to boost sales.
- CAC 40 set to stay under pressure amid political turmoil in France.
- Raspberry Pi IPO enthusiasm shows demand among retail investors for British companies.
- Concerns about deflationary pressures in China continue after inflation number missed forecasts.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’With torrid Tuesday in the rear-view mirror, London stocks are poised to regain some bounce, helped by a slightly more upbeat global growth outlook and rising energy prices. Brent Crude has crept up above $82 a barrel amid expectations of higher demand, especially with the US economy remaining so resilient.
The UK growth figures didn’t provide too many surprises but will undoubtably be frustrating for the Conservatives on the election campaign, given that they show the economy stagnated in April. It’s hardly a shock that construction dropped back by 1.4% and retail trade activity fell 2.3%, as people stayed away from the shops, given how wet the weather was in April. With this hiccup in the recovery, growth set to remain sluggish this year and unemployment rising to 4.4% it may give Bank of England policymakers more confidence that demand is being squashed out of the economy. This keeps hopes alive for interest rate cuts this summer, and while June looks unlikely August is still a possibility.
On the wider markets, enthusiasm about the prospects for AI is colliding with cautious sentiment about the path ahead for interest rates in the US. The Fed is widely expected to keep rates on hold later today, because of the strength of the economy and the robust labour market. Investors will be watching closely where the dots will fall on the interest rate plot, with expectations rising that there may only end up being one cut this year, a big change from the Fed forecast of three back in March.
The S&P 500 and the Nasdaq have been buoyed by a fresh wave of positive sentiment surrounding artificial intelligence innovations. Apple may be late to the AI party, but it’s now shown up and appears to have secured a dominant spot on the dance floor, given that it is set to be crucial in helping drive the integration of the technology into everyday life. The upgraded Siri assistant is expected to turn into a powerful digital co-pilot for consumers and excitement is centring around the new features being a sales driver of upgrades, accelerating the replacement of handsets.
Sentiment regarding the prospects for tech in the UK have also been given a boost by the wildly successful launch of Raspberry Pi. The IPO offer was significantly oversubscribed with demand coming in sharply above retail allocations. It demonstrates there is no shortage in demand to buy British companies among UK retail investors. Instead, the focus should be on ensuring there is a ready supply of IPOs coming to London, and it would be welcome to see a speedy implementation of listings reforms, to ensure the City is attractive as possible for firms planning to list. It is crucial that retail investors are given a piece of the pie for upcoming listings as all too often they have been left out, with opportunities reserved for institutional investors.
A little respite for the CAC 40 is on the cards although underlying risk averse sentiment continues to swirl, as investors assess the prospects for public finances, if National Rally succeeds in the snap poll called by Macron. Financial stocks have been among the hardest hit, as concerns spread about the impact on the financial sector if the pledges by Marine Le Pen for vastly increased spending came to pass, which would make it way more difficult for the government to bring down the fiscal deficit. There is also an expectation that a populist government would attempt to bring in more windfall taxes, restrictions on dividends and share buybacks.
China’s latest inflation snapshot has disappointed, with consumer price rises not budging, and producer prices continuing to fall, albeit at a slower rate. The CPI index rose 0.3% in May from a year earlier, the same as in April, below the 0.4% forecast, while producer prices fell 1.4%. There are concerns that deflationary pressures are continuing to pulse across the wider economy, particularly given the powerful performance of low-cost Chinese retailers recently. This has prompted painful price wars, with discounters slashing prices to win market share and loyalty from consumers who have been ultra-cautious amid the property crisis which has affected their wealth perceptions. The concern is that this could lead to a longer-term deflationary attitude with shoppers always expecting cheaper goods around the corner and putting off purchases. Already suppliers are facing squeezed margins, putting the screws on wage growth, leading to further deflationary pressures.’
