- European markets open lower on tariff concerns
- UK economy shrinks for the first time in six months
- US-China rare earth deal secured, but rally is short lived
- Oil and Gold move higher on growing US-Iran tensions
- Tesco delivers the goods
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“There’s more of a downbeat mood in play as tariffs are once again the talk of the town and countries brace for punishment if they don’t play ball with the US. The Trump/Bessent good cop–bad cop routine is in full swing. Trump is saying nations can ‘take it or leave it’ when it comes to tariff deals on offer. But Treasury Secretary Scott Bessent is offering a carrot in the form of potential extensions to the 90-day pause on reciprocal tariffs for those willing to negotiate. Markets have reacted badly nonetheless, and there’s a sea of red across Europe this morning, but the FTSE 100 is escaping the worst for now.
The UK economy was another bearer of bad news, shrinking for the first time in six months. April’s 0.3% drop in UK GDP was a reality check after the strong first quarter, with the boost from exports and investment clearly starting to unwind. Manufacturing and services both saw declines, and trade took a hit as exports to the US fell sharply following a first quarter rush to beat tariffs. While this won’t trigger a rate cut from the Bank of England next week, it adds weight to the case for one in August, especially with growth expected to flatline in the second quarter.
Volatility is back – though, to be fair, it never really left. US markets closed lower last night and are expected to extend that decline when they open later today, breaking their three-day winning streak. President Trump signalled progress with China, and inflation data came in cooler than expected; under normal circumstances, that would be a bullish setup. But markets are harder to please these days. While the rare earth deal was a meaningful step for many US industries, higher tariffs remain in place. Early gains quickly disappeared after escalating tensions in the Middle East and threats of unilateral tariffs aimed at pressuring countries without trade agreements hit the newsreel. Markets are once again on the back foot.
Oil rallied and is hovering near a two-month high, driven by rising US-Iran tensions and fears of supply disruptions. At the same time, optimism about energy demand grew after the US and China reached a trade framework, and US crude stockpiles fell more than expected, signalling strong consumption. Gold was another winner, with its safe-haven appeal gaining traction amid rising Middle East tensions and softer US inflation data, which gave a modest boost to expectations for rate cuts.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Tesco continues to flex its muscles as the nation’s favourite grocer, delivering market share gains and increased customer satisfaction in an extremely competitive market. That’s helped like-for-like sales rise 4.6% in the first quarter to £16.4bn, excluding fuel. A continued focus on value perception, production innovation and new products has all contributed to sales of its Finest range going from strength to strength, up 18%.
Earlier this year, headlines about ASDA slashing prices to win back market share raised concerns of a looming price war in the grocery sector. But so far, those fears haven’t played out. Despite the worries, ASDA still ranks as more expensive than Tesco and ALDI for 56% of core, high-volume products. And even if a price war breaks out, Tesco looks to be on solid footing with plenty of free cash flow pumping around the business. The British powerhouse is arguably the most competitive it’s been for many years, with the ALDI price match and Clubcard prices keeping its customers loyal.
Despite the strong start to the year, full-year underlying operating profit guidance has been maintained at a range of £2.7-3.0bn. That points to a slight decline from the £3.1bn seen last year and looks a little conservative in the current environment, potentially leaving room for some positive surprises as the year progresses.”
