Housebuilders were leading a positive equity market in London early Tuesday, after Taylor Wimpey issued an upbeat trading statement for its annual general meeting.
Meanwhile, shares in AB Foods were being sold after it warned that its discount fashion chain Primark will be forced to raise prices due to surging cost inflation.
Further negative news for the retail sector came from the Kantar survey of UK grocery sales. In the 12 weeks to April 17, these were down by 0.6% from two years ago, the first time since the pandemic when UK grocery sales have fallen on two years prior. They were down 5.9% from one year ago.
The FTSE 100 index was up 47.47 points, or 0.6%, at 7,428.01. It had closed down 141.14 points, or 1.8%, at 7,380.54 on Monday.
The mid-cap FTSE 250 index was up 76.97 points, or 0.4%, at 20,676.19. The AIM All-Share index was up just 0.18 of a point at 1,033.23.
The Cboe UK 100 index was up 0.4% at 739.23. The Cboe 250 was up 0.3% at 18,271.28, and the Cboe Small Companies was 0.1% higher at 15,136.75.
The DAX 40 in Frankfurt was up 0.7%, while the CAC 40 in Paris edged up 0.1%.
‘Risk sentiment, however, remains cautious as markets continue to assess the consequences of global monetary policy tightening to tackle inflation. It was also reported that virus testing is being expanded to most of Beijing, while Russian Foreign Minister [Sergey] Lavrov warned of ‘serious’ danger of nuclear conflict,’ analysts at Lloyds Bank commented.
The pound stabilised on Tuesday morning. Sterling fetched $1.2720, firm on $1.2715 at the time of the London equities close on Monday. It had fallen below $1.27 for the first time since July 2020 on Monday.
UK public sector borrowing for the financial year that ended in March came in markedly lower than a year earlier, figures from the Office for National Statistics showed on Tuesday.
However, borrowing remains at a historically high level and the full financial year figure topped forecasts set out by the Office for Budget Responsibility.
UK public sector net borrowing - excluding public sector banks - amounted to £151.8 billion, around 6.4% of gross domestic product for the year ended March.
It was the third-highest borrowing figure since records began in 1947, but less than half the £317.6 billion in financial 2021, the height of the pandemic.
It was above the OBR’s most recent £127.8 billion forecast. The OBR is non-departmental body which sets out forecasts for UK public finances.
‘Notwithstanding the government’s desire to maintain a war chest of funds for eventual pre-election tax cuts, there appears ample scope for the UK government - like many of its major EU counterparts - to provide additional financial support to households to offset the impact of higher prices of energy, food and other items, that are otherwise set to lead to the sharpest decline in UK real disposable incomes since at least the 1950s,’ commented Daiwa Capital Markets.
The euro slipped to $1.0700 early Tuesday, from $1.0707 at the European equities close on Monday. Against the yen, the dollar rose to JP¥127.82 from JP¥127.70.
Brent prices were on the up, having briefly fallen below the $100 a barrel mark on Monday amid worries of more widespread Covid-19 lockdowns in China. The North Sea benchmark climbed to $102.39 early Tuesday in London, from $100.33 late Monday.
BP was among the best FTSE 100 performers, up 1.5%, tracking Brent prices higher.
Taylor Wimpey rose 3.9%, the best blue-chip performer in London.
The housebuilder said that, for now, the higher cost of mortgages has not hurt demand.
‘The UK housing market remains healthy, underpinned by continued strong customer demand, low interest rates and good mortgage availability. The recent increase in interest rates, from 0.5% to 0.75%, has not impacted customer appetite and the mortgage market remains competitive, with good availability of low-cost fixed rate mortgage products,’ the company said.
Its net private sales rate for 2022 up to April 17 was 0.96 per week, down a touch from 1.00 a year prior. The value of its order book stands at £2.97 billion, up 5.8% year-on-year. Taylor Wimpey is on track to meet annual guidance, it said.
Peers Persimmon and Barratt Developments each rose 2.2%, in a positive read-across.
At the other end of the FTSE 100, AB Foods fell 2.8% as it warned that its Primark discount fashion stores will need to raise prices in order to offset cost inflation.
AB Foods said revenue in the financial first half ended March 5 rose 25% to £7.88 billion from £6.31 billion a year prior.
Pretax profit more than doubled to £635 million from £275 million. Operating profit jumped to £686 million from £320 million.
Chief Executive George Weston said: ‘This half year sales and operating profit for the group returned to pre-Covid levels. Our people have responded well to the many challenges we faced. Our food businesses have once again proved their operational resilience and Sugar had another strong period, building on its recent track record of recovery. Measures to mitigate higher costs in all our businesses have been taken and more are planned. Primark delivered a significant increase in sales and profit, with stores now open and trading largely free of restrictions.’
Weston warned that Primark will need to raise prices to customers in order to offset rampant cost increases.
‘Looking further ahead, inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock. However, we are committed to ensuring our price leadership and everyday affordability,’ Weston said. ‘Notwithstanding the inflationary pressures we are experiencing, our outlook for the year is for significant progress in adjusted operating profit and adjusted earnings per share for the group.’
All the company’s food units also are ‘experiencing increasing inflationary pressures’, the firm said.
HSBC reported a slump in profit in the first quarter, but the expected rise in interest rates in coming months gives the bank confidence for future income generation.
In the three months to March 31, the Asia-focused lender recorded $4.17 billion in pretax profit, down 28% from $5.78 billion in the same period the year prior.
Total revenue in the first quarter dropped 4.1% to $12.46 billion from $12.99 billion.
In addition, profit was hurt by a net charge for expected credit losses, compared with a net release the year before.
The bank booked a $642 million expected credit losses charge in the first quarter, versus a $435 million release last year.
HSBC shares were 2.5% lower. Conversely, other UK high street lenders were on the up. NatWest rose 2.3% and Lloyds added 2.0%.
Swiss peer UBS reported a rise in profit in a ‘strong’ first quarter, as the bank was able to capitalise on ‘volatile’ markets to book record Global Markets revenue.
In the three months to March 31, UBS recorded a net profit of $2.14 billion, rising from $1.82 billion the year prior.
UBS shares were 0.5% higher in Zurich.
Back in London, Novacyt shares tumbled 18% as the Surrey-based biotechnology company’s dispute with the UK Department of Health & Social Care continues.
On Monday, the DHSC issued a £134.6 million claim against Novacyt in relation to a contract for the provision of Covid-19 testing kits, initially announced back in September 2020.
‘The company continues to believe it has strong grounds to defend the claim and assert its contractual rights, including in relation to recovering outstanding sums due from the DHSC,’ Novacyt said on Tuesday.
Gold stood at $1,898.05 early Tuesday, flat from $1,898.25 late Monday.
In Tokyo, the Nikkei 225 closed up 0.4%. The Shanghai Composite ended down 1.4%, while the Hang Seng in Hong Kong was 0.1% higher in late trade. The S&P/ASX 200, playing catch-up after financial markets in Sydney were closed on Monday to mark Anzac Day, ended down 2.1%.
The economic events calendar on Tuesday has the US advance report on durable goods at 1330 BST.
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