17.30 (CLOSE): A smaller-than-expected drop in annual profits helped Tesco shares rally today despite continued uncertainty over the pace of its turnaround progress.
The 3 per cent shares improvement gave Tesco chief executive Philip Clarke some breathing space in the City as he pursues his £1billion strategy of price cuts and store refurbishments in a bid to revive the chain’s fortunes.
Across the wider London market, the FTSE 100 Index climbed 42.6 points to 6584.2.6 after China’s economy grew by a better-than-expected 7.4 per cent in the first quarter, down from 7.7 per cent in the previous three months.
Tough competition: Tesco is caught up in a price war after struggling rival Morrisons recently announced a £1billion investment in cuts.
The pound was given another push higher after the UK’s unemployment rate fell below 7 per cent to the lowest level for five years. The 7 per cent level was a key threshold for the Bank of England to consider raising interest rates until it changed its forward guidance policy earlier this year.
The strength of sterling, which today rose by 0.4 per cent to 1.68 against the US dollar and 1.22 versus the euro, has posed problems for London-listed companies with significant overseas earnings.
Luxury goods group Burberry warned today that currency headwinds were likely to be ‘material’ in the current financial year, although it more than offset this by delivering another set of strong sales figures.
Boosted by demand from consumers in China and Korea, retail revenues rose 13 per cent to £928million in the second half of its financial year.
This was enough to leave the group near the top of the FTSE 100 risers board with a gain of 3 per cent, or 44p to 1466p.
Sports Direct International was the session’s best performer as investors returned to the stock following a slump triggered by founder Mike Ashley’s decision to sell £200million worth of shares.
Shares recovered 42p to 787.5p, helped by an upbeat note from Bank of America Merrill Lynch as the broker said it saw potential for further strong trading due to online growth and expansion into Europe.
FTSE 250 rival JD Sports Fashion, which yesterday posted healthy profit figures, also benefited as its shares jumped 7 per cent or 108p to 1708p.
Tesco’s rise of 7.5p to 293.8p came as it announced that profits were 6.9 per cent lower at just over £3billion, while fourth-quarter like-for-like sales slumped by 3 per cent, after a 1.5 per cent fall in the third quarter.
Elsewhere in the supermarket sector, Morrisons rose 1.2p to 202p and Sainsbury’s lifted 1.2p to 320.6p.
In corporate updates, housebuilder Persimmon’s shares were 10p higher at 1275p after it reported a strong start to the year, with weekly private sales rates per site up 25 per cent on the same period a year earlier.
The biggest FTSE 100 risers were Sports Direct International up 42p at 787.5p, International Airlines Group ahead 19p at 395.2p, Ashtead up 42.5p at 888p and Travis Perkins ahead 64p at 1775p.
The biggest fallers were BAE Systems down 15.9p at 376p, Barratt Developments off 8.1p at 365p, Fresnillo down 17.5p at 884p and Aggreko off 26p at 1502p.
15.00: The Footsie retained its gains in late afternoon trading as US stocks bounded higher in early deals, extending yesterday’s rally on further earnings reports and after China’s economic growth exceeded expectations.
With an hour of trading to go, the FTSE 100 index was up 34.7 points at 6,576.3, recovering after falls in the previous session paced by gains in the mining sector following the data from top metals consumer China.
The world’s second-largest economy grew at its slowest pace in 18 months at the start of 2014, but the rise was still better than expected and showed some improvement in March.
More gains: The Dow Jones notched up a further recovery in early deals, adding to Tuesday’s triple digit bounce
On Wall Street, the Dow Jones Industrial Average jumped 88.5 points to 16,351.0, after notching up a triple-digit rally yesterday as concerns over valuations – particularly in the technology sector – abated as investors digested more earnings reports.
Internet giant Yahoo was a good gainer, up 7 per cent, boosted by the strength of revenue growth in Chinese e-commerce giant Alibaba, in which it has a 24 per cent stake. Yahoo’s own results, released overnight, were in line with expectations.
Alibaba’s revenue growth accelerated in the last quarter of 2013 for Alibaba in a timely lift as it prepares for a highly anticipated US initial public offering
But Bank of America shares fell nearly 3 per cent in volatile trade as the US’s number two bank posted a first-quarter loss after it notched up a $ 6billion charge for litigation expenses related to a settlement with the Federal Housing Finance Agency and other mortgage-related matters.
The day’s US data was mixed, with housing starts up less than expected in March and building permits down, pointing to underlying weakness in the housing market, although applications for mortgages rose last week as interest rates declined.
And markets continued to keep an eye on the situation in east Ukraine, where government forces and separatist pro-Russian militia staged rival shows of strength on the eve of talks in Geneva on the former Soviet country’s future.
13.30: London shares held firm in lunchtime trading, tracking gains by global markets with miners in demand helped by solid growth data from top commodities consumer China.
By midsession, the FTSE 100 index was up 0.5 per cent, or 33.1 points to 6,574.7, although that was below the morning peak of 6,596.99.
China’s economy grew by a better-than-expected 7.4 per cent in the first quarter, albeit down from 7.7 per cent in the previous three months.
Gains again: The Footsie rallied after falls yesterday in tandem with gains by global markets
European bourses were higher as well on hopes for economic stimulus measures from the European Central Bank as the spectre of deflation continued to haunt the Eurozone.
Germany’s Dax 30 index was up 1.0 per cent, with France’s CAC 40 index ahead 0.9 per cent as March euro zone inflation fell to its lowest level since November 2009 keeping pressure on the ECB to intervene should prices not rebound.
The year-on-year inflation rate in the 18 countries sharing the euro was 0.5 per cent in March against 0.7 per cent in February, according to Eurostat.
On currency markets, the euro rose against the US dollar on ECB intervention hopes but was lower against the pound.
Sterling was given another push higher today, rising 0.4 per cent against the US dollar to 1.68, after the UK unemployment rate fell below 7 per cent to the lowest level for five years and average earnings in February breached the inflation rate for the first time in four years.
Andrew Goodwin, senior economic advisor to the EY ITEM Club said: ‘Today’s figures suggest that the labour market is in good shape. The economy is creating jobs and we continue to make progress towards the Chancellor’s aim of achieving the highest employment rate in the G7 – in the past year alone the employment rate has risen by 1.2 percentage points.
’At the same time unemployment is steadily falling back and, having breached the 7 per cent threshold, we are now officially in phase two of forward guidance. Nevertheless, with the labour force continuing to expand strongly and levels of under-employment remaining high, even if job growth remains robust it will still be some time until we have used up enough slack to force the MPC’s hand. We continue to forecast that the first interest rate hike will come in the second half of 2015.’
The 7 per cent level had been a key threshold for the Bank of England to consider raising interest rates, until it changed its forward guidance policy earlier this year.
The strength of sterling has posed problems for companies with significant overseas earnings and luxury goods group Burberry warned today that currency headwinds were likely to be ‘material’ in the current financial year, although it more than offset this by delivering another round of strong sales figures.
Boosted by demand from consumers in China and Korea, Burberry’s retail revenues rose 13 per cent to £928million in the second half of its financial year which was enough to push the group higher on the FTSE 100 board, up 39.5p to 1,461.5p.
Retailer Sports Direct International was the best blue chip performer as investors returned to the stock following a slump triggered by founder Mike Ashley’s decision last week to sell £200million worth of shares.
Sports Direct shares recovered 42.75p to 788.25p, helped by an upbeat note from Bank of America Merrill Lynch as the broker said it saw potential for further strong trading due to online sales and expansion into Europe.
And Tesco shares remained higher after the under-pressure supermarket chain posted a smaller-than-expected drop in profits.
The rally gave Tesco chief executive Philip Clarke some breathing space in the City as he pursues his £1billion turnaround strategy of price cuts and store refurbishments in a bid to revive the chain’s fortunes.
Tesco’s rise of 6.3p to 292.6p came as it announced that profits were 6.9 per cent lower at just over £3 billion, while fourth-quarter like-for-like sales slumped by 3 per cent, after a 1.5 per cent fall in the third quarter.
10.20: The Footsie pushed higher as the morning session progressed, mirroring gains by global markets, with retail giant Tesco topping the blue chip gainers as chief executive Philip Clarke won some breathing space from the City despite another decline in annual profits.
By midmorning, the FTSE 100 index was up 25.7 points to 6,567.3 tracking gains on Wall Street and in Asian markets after figures showed that China’s economy grew by a better-than-expected 7.4 per cent in the first quarter, down from 7.7 per cent in the previous three months.
Today’s domestic data was also encouraging, with UK unemployment falling to 6.9 per cent in the three months to February, the lowest level in 5 years.
Clarke relief: Tesco shares bounced back today relieving some of the pressure on CEO Philip Clarke although profits dropped, as expected
That was better than the 7.1 per cent forecast and down from 7.2 per cent in the previous quarter, and below the Bank of England’s (BOE) 7 per cent threshold.
Meanwhile, average earnings rose 1.9 per cent year-on-year in February taking pay growth above UK inflation at 1.7 per cent that month for the first time in four years, easing the pressures on British households.
Ishaq Siddiqi, market strategist at ETX Capital said: ‘That was always the big concern – labour market may be improving but average earnings were still below inflation but that has changed this week with inflation easing and jobs growth accelerating.
‘So the BOE will now have to update forward guidance and introduce fresh thresholds to unemployment – it’s very unlikely we will see any trigger of monetary tightening as the Bank continue to say that below 7 per cent is not a trigger for an automatic hike in rates but the market will certainly now expect the BOE to offer further hints to when the Bank will consider monetary tightening.
‘Add to the, with inflation below 2 per cent, the BOE are less inclined to act any time soon – expect no change to the status quo for now.’
Weak food price inflation was a factor behind a 6.9 per cent drop in annual profits at Tesco to just over £3billion, but with the food retailer’s CEO backing his strategy of price cuts and store refurbishments for reviving the chain’s fortunes, Tesco shares bounced back from recent weakness to climb 4 per cent or 11.5p higher to 297.8p.
Elsewhere in the supermarket sector, William Morrison followed Tesco’s lead with a rise of 4.4p to 205.2p, while Sainsbury’s was 1.75p higher at 321.15p.
Sports Direct International was among other retail risers as investors returned to the stock after a slump in recent days.
The stock, which has dropped in the wake of founder Mike Ashley’s decision last week to sell £200million worth of shares, recovered 27p to 772.5p following an upbeat note from broker Bank of America Merrill Lynch.
And housebuilder Persimmon was also in demand, 16p higher at 1281p after it reported a strong start to the year, with weekly private sales rates per site up 25 per cent on the same period a year earlier.
08.30: The FTSE 100 has opened 55.1 points higher at 6,596.7, recouping some of the previous session’s losses after China’s latest economic growth update came in a touch above forecasts.
China’s economy expanded at its slowest pace in 18 months in the first quarter of 2014, official data showed. The growth figure of 7.4 per cent was slightly stronger than the median forecast of 7.3 per cent in a Reuters poll, although it showed a slowdown from 7.7 per cent in the final quarter of 2013.
Evidence of waning momentum has already prompted limited government action to steady the world’s second-largest economy.
Expansion slows: China’s economy grew at its slowest pace in 18 months in the first quarter of 2014
Investors are also keeping an eye on the crisis in Ukraine, where pro-Russian supporters in the east of the country have clashed with Ukrainian authorities.
The Ukrainian government said forces launched a ‘special operation’ yesterday against separatist militia in the Russian-speaking east of the country, although aside from a landing by airborne troops the action was limited.
The FTSE 100 closed down 42.15 points at 6,541.61 yesterday, its lowest finish since March 24.
Monthly figures on average earnings in the labour market are due out later.
Stocks trading without the attraction of their latest dividend – ARM Holdings, BAE Systems, Barratt Developments, Capita, Melrose Industries, Petrofac and Smith & Nephew – will knock 3.2 points off the FTSE 100 today.
Stocks to watch today include:
TESCO: The retailer said it expected tough trading to continue as it posted a 6 per cent fall in annual profit, its second straight year of decline.
BURBERRY: The luxury retailer said strong sales in China and Korea helped it to a 19 per cent rise in second-half revenue, but it expected currency headwinds to hit profits in the next two years.
HARGREAVES LANSDOWN: The investment firm saw record quarterly net inflows of money from clients in the three months to March 31 as low interest rates pushed more people into playing the stock market.
PERSIMMON: The housebuilder said its new financial year has started well.
RECKITT BENCKISER GROUP: The company reported a 4 per cent rise in like-for-like sales at constant currency rates, excluding its shrinking pharmaceuticals business, and said it was on track to achieve its full-year targets.
BHP BILLITON: The world’s biggest mining company lifted full-year iron ore production guidance by 5million tonnes to 217million as it pushes ahead with expansion work in Australia.
BUNZL: The business supplies distributor announced three acquisitions for a total of £80million after reporting a 5 per cent rise in first- quarter revenue.