- FTSE 100 ends the week on a strong note.
- UK GDP comes in stronger than expected, and US investors await PCE figures.
- EV maker Rivian sees lower-priced second-generation cars on the way following VW lifeline.
- Oil price rises on escalating Middle Eastern conflict.
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown:
“The UK market is celebrating some better news on the economic side of things. GDP for the first three months of the year has come in better than expected, showing the UK economy grew by 0.7%, compared to a decline of 0.3% at the end of last year, and better than initial estimates of 0.6%. While hotter-than-expected growth doesn’t help those looking for a faster route to cutting interest rates, it does help to boost overall optimism. The deep-seated productivity problems in the UK are overall a bigger concern than the immediate interest rate outlook, which is why a beat has gone down well. Investors won’t be under any illusion that 0.7% growth is quite high-octane though, even if it does show the economy’s cornering well on what is a difficult track this year.
An interesting component of the top-line GDP number was a 0.4% increase in real household expenditure over the first quarter. That’s a stark increase from previous declines. It shows improved spending on recreation and culture, and includes stronger spending on things including housing and non-alcoholic drinks.
The FTSE 100 is also taking some cues from the US, where trading is being governed by a lack of information. There’s somewhat of a vacuum being created, because of a lack of major macro or company data, meaning all eyes are keenly trained on this afternoon’s PCE inflation figures. PCE is expected to have cooled, as spectators lean towards the possibility of a September rate cut. The political landscape in the region has also become more intense, following a tricky televised debate between President Biden and Donald Trump yesterday, which saw the Republican emerge as the stronger contender, which caused the yield on the US 10-year Treasury note to rebound above 4.3%.
EV maker Rivian has signalled a wave of lower-cost second generation vehicles could be on the way. The group has said it will be able to cut a fifth of its material costs from electric SUVs and pickups by the end of this year. That comes after a factory overhaul and vehicle redesigns, intended to help streamline the path to profitability. Of course, the ideas are the right ones, but the proof will be in the pudding. The group was handed a lifeline by Volkswagen recently, after it was announced that the traditional carmaker would be investing $5bn in an EV push. That helps stabilise Rivian’s situation and could unlock long term cash flow generation, but rivalling Tesla and surviving long into the future is all about volume growth. Maintaining the share price pop we’ve seen is far from guaranteed.
Brent crude is back over $85.5 a barrel, as escalating tension in the Middle East outweighs fluctuating demand concerns from weaker economic conditions in China. While continued volatility is to be expected, overall, the trajectory in the very near future is more likely to be an upwards trend in the price.”
