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Wednesday, August 17, 2022

FTSE dips on sterling strength after retail sales surprise

By Helen Reid

LONDON (Reuters) – Britain’s FTSE 100 (.FTSE) edged down on Thursday after an unsteady start, with surprisingly strong retail sales data boosting the pound and triggering a move lower for the index whose constituents mainly earn foreign currency.

British retail sales for February beat all economists’ expectations in a Reuters poll, jumping by 1.4 percent from January, and triggering a jump in sterling.

Clothing retailer Next (NXT.L) was up 7.2 percent and the top FTSE gainer in heavy volume. It was set for its best day in nine months after its results. It kept its guidance for 2017-18 from January when it issued a profit warning.

“The absence of fresh bad news is one source of support today for a share price which has fallen from 80 pounds to 42 pounds and a stock which has de-rated from an 18 times multiple of all-time high profits to barely ten times depressed profits,” said Russ Mould, investment director at AJ Bell.

The stock has been the worst-performing large cap over the last three months, down 21.5 percent to Wednesday’s close.

Peer M&S (MKS.L) was also a top gainer, up 3.4 percent.

The mid-cap index (.FTMC) was up 0.2 percent. Results drove big moves in individual stocks.

Online trading company IG Group (IGG.L) was down 4.4 percent, a top faller after posting a 3.8 percent drop in quarterly revenue as it earned less per client especially in the United Kingdom and Ireland.

IG said regulatory uncertainty has had no impact on its business so far. Britain’s financial watchdog has been seeking to tighten controls on the fast-growing spread-betting market.

“We continue to see the outcome of the FCA’s consultation as the biggest risk to IG,” said analysts at Liberum. “In the absence of any clarity about what new regulation looks like, the business is impossible to forecast at this stage and therefore we maintain our unrated rating.”

Safety and medical company Halma (HLMA.L) was also among top European gainers, up 5.7 percent after it posted strong order growth. Its shares were set for their biggest one-day gains since November 2015.

Investec analysts said the results were good enough to see a re-rating in the stock which has suffered as investors rotated to cyclicals.

Analysts at Liberum, however, saw the stock being further pressured: “Halma remains at an elevated premium to the sector […] despite a wobble in the Trump rally in recent days, we believe reflation is a multi-year cycle and see further compression of Halma’s defensive premium.”

Dixons Carphone (DC.L) was also among top mid-cap gainers. The stock joined the FTSE 250 (.FTMC) on Monday after being demoted from the blue-chip index. Demoted stocks tend to see increased trading in the days after transitioning as passive index-tracking funds modify their positions to adapt to new constituents.

(Reporting by Helen Reid; Editing by Toby Davis)

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