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FTSE rebounds as retail sales lift Wall Street

The FTSE 100 rallies after strong US retail sales figures remind investors an interest rate hike this week would be a sign of strength in the world's largest economy. 

FTSE rebounds as retail sales lift Wall Street
  • FTSE 100 overcomes earlier losses to close 52 points up
  • Wall Street opens brightly on strong retail sales figures
  • UK inflation falls back to zero
  • Miners rebound with one investor highlighting Anglo America

(Update) The FTSE 100 bounced back in afternoon trading after a strong opening on Wall Street following good retail sales data.

Having dropped 52 points, or 0.9%, to 6,031, the UK's leading index regained momentum and towards the close was 67 points, or 1.1% higher, at 6,152.

This followed a 17 point, or 0.9%, rise in the S&P 500 index after US core retail sales, which exclude cars, petrol, building materials and food services, rose 0.4% in August, following an upwardly revised 0.6% increase in July,

Rate debate

European shares rallied too, with the FTSEurofirst 300 adding 15.5 points, or 1.1%, to 1,409 as investors decided to take a positive view of this latest sign of US economic strength. This is despite the fact that it increases the likelihood of the Federal Reserve raising interest rates on Thursday for the first time in nine months.

Investors have often viewed a rate rise as a threat since the outbreak of market volatility last month, although there is an argument in some quarters that the Fed should clear the uncertainty and make its move.

The dollar surged at the news, notwithstanding separate data showed weakness in US manufacturing with output falling 0.5% in August as car production fell.

Against the dollar the pound fell 0.4% to $1.5356 and the euro slipped the same amount to $1.1272.

Disinflation not deflation

Earlier the pound had been on the ascendant at $1.5428 after new data showed UK inflation fell back to zero in August from 0.1% in July, although avoiding another dip into negative territory.

The Office of National Statistics said the fall in inflation was due to the slump in the oil price, a wet summer deterring shoppers and the price war between supermarkets.

Maike Currie of Fidelity Personal Investing said it was important to distinguish between this disinflation, which was a slowdown in the rate of inflation, and deflation, which was a persistent fall in prices that discouraged people from spending.

‘The two are not the same thing,’ she said. ‘Both food and fuel – the main drivers of the historically low inflation numbers we are seeing – are two essential items. No-one is going to delay their weekly trip to the supermarket or stop filling up their car’s petrol tank, because they expect prices may fall next month.’

'Resilient' Anglo American

In London US exposed stocks took the lead, with Weir Group (WEIR), the pump and valve manufacturer, surging nearly 5% to £12.99, followed by ARM Holdings (ARM), the chip designer and Apple supplier, advancing a further 3.5%, and brewer SABMiller (SAB), up 3.2%.

Miners rebounded from earlier losses with Anglo American (AAL) adding 2.6% to 736p.

In an investor update, Alex Savvides (pictured), the Citywire AAA-rated manager of the JOHCM UK Dynamic fund, highlighted Anglo American as a resilient miner which was poised to recover.

‘Part of our original thesis on Anglo American was our expectation of a positive inflection in free cash flow generation, brought about through a mixture of cost cuts, production increases, expansionary capex reductions, new assets coming on stream and non-core asset sales.'

‘This uplift in cash flow generation would, we felt, protect and enhance the value of the group's equity,’ he said. Anglo American is currently the ninth biggest position in the fund at 3.55%.

Aberdeen Asset Management (ADN) marked its acquisition of Advance Emerging Capital with a 2.5% gain to 607.5p in the rally.

Kingfisher disappoints

But Kingfisher (KGF) remained the big FTSE 100 faller, falling 2.2% to 352.5p, after the home improvements retailer disappointed investors with a 2.3% fall in half-year profits. This was caused by the weak euro and poor trading in France, although the UK business did well and the group plans to open 200 more British Screwfix stores.

Bid speculation lifted Thomas Cook (TCG) 2.3% to 116.5p after the Daily Mail suggested Fosun International of China, which bought 5% of the travel agent in March, could mount an offer for the whole company.

The FTSE 250 also reversed direction, closing the day 36 points, or 0.2%, higher at 16,961 while the FTSE Small Cap index was unchanged at 4,568.

The day had started on a sour note as China’s Shanghai index fell 2.5% and nervousness extended to Japan where the Nikkei 225 shed early gains to close 0.3% higher after the Bank of Japan disappointed some investors by not announcing new stimulus measures.

The news that there would be no extension of the ‘quantitative easing’ or ‘money printing’ policy lifted the yen, however, which rose against the dollar and euro.

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Alex Savvides
Alex Savvides Average Total Return:
33.06%
20/165 in Equity - UK (All Companies) (Performance over 3 years)
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