Market Report – UK retail sales much better than expected, AI profit-taking seen on Wall Street
- FTSE opens flat as investors digest BoE decision.
- Profit-taking seen in the US after AI surge.
- UK retail sales much stronger than expected.
- Ocado shares fail to recover after Canadian partnership hits difficulties.
- Oil price stays elevated on US inventory draw.
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“Unsurprisingly, the Bank of England’s interest rate decision is dominating market sentiment today, with UK stocks not moving too much, as investors digest the decision to keep rates static. The macro outlook is more stable than it has been, and this will be contributing to the broadly positive moves seen in recent days. It’s a quiet end to the week on the corporate news side of things, meaning there isn’t too much else for the FTSE to hang its hat on.
Over in the US, some profit-taking has been observed after the AI surge pushed the S&P 500 and Nasdaq to record highs. The increases were helped by Nvidia, as well as positive moves from the likes of Dell and Super Micro Computer, after they received server orders for Elon Musk’s AI venture xAI. The subsequent falls in the market don’t appear to point to anything more meaningful than investors snapping up some profit.
One additional bit of news comes in the form of UK retail sales. These have come in much stronger than expected for May, rising 2.9% against expectations of a 1.5% gain. It’s very telling that clothing, footwear and furniture stores are among those seeing increased footfall and sales. This was partly helped by better weather, but is also being driven by promotional activity. This suggests consumers are behaving in a cautiously optimistic manner, which is good news for businesses. The real test will come once promotional activity tapers off, which it must for many, for the sake of margins, and how willing customers are to continue spending once that sticking plaster’s been ripped off.
Ocado’s shares have seen a small lift, failing to offset a 13% drop on Thursday. News that its Canadian grocery partner, Sobeys, has paused the opening of a fourth Customer Fulfilment Centre, and ended exclusivity rights with Ocado, have made investors jumpy. Ocado’s growth runway relies on its ability to sell its high-tech picking and packaging solutions, and this recent development raises questions not only about demand, but whether there are Ocado-specific problems at play. The future of the relationship with M&S in the retail business is also looking unclear, following a spat on performance-related payments. Ultimately, this is a time of increased uncertainty for the group, when jitters were already on the up.
Brent crude is holding above $85.58 per barrel, with prices up more than 3% so far this week. One pillar of the squeezed price is falling US crude inventories, as data released on Thursday showed that US crude stockpiles declined by 2.5mn barrels last week, which was much higher than the 2mn expected. Tensions in the Middle East are also increasing, as Israeli forces make advances. Continued anxiety about the security of oil supply is likely to keep prices elevated for some time, or until a clear end to the conflict is in sight.”
