Investment Market Update
Following last month’s General Election and my recent article regarding the immediate market impact this has had, the May stock market reflected the increased confidence offered by the prospect of a unified government. Medium-sized and smaller UK companies generally outpaced their larger counterparts throughout the month particularly as their business tend to be more exposed to domestic economic developments rather than international events.
Indeed the FTSE 250 index achieved new highs in the immediate aftermath of the election results with shares in the banking, energy and house building sectors all being boosted. A particular example of the response to the end of uncertainty and confidence in perceived regulation was the announcement by Barratt Developments that it had increased its forecast for the number of housing completions this year, citing an improved mortgage market and a benign environment for borrowers.
Over May as a whole, the FTSE 250 rose 3.9%, while the FTSE Small Cap index climbed 2.9%. By way of comparison, the FTSE 100 index edged 0.3% higher during the month. Among the blue-chip companies, ongoing uncertainty over the outlook for Greece helped to curb demand for banking shares during May.
At the date of writing Greece has also just notified the IMF that they propose to delay their ongoing debt repayments due in June, and bundle them together for payment at the end of the month. Whilst this of itself does not create a problem, it is symptomatic of the political brinkmanship that is taking place in the on-going issue of whether Greece will remain part of the European Union.
Elsewhere in the UK Banking sector, the UK government cut its stake in Lloyds Banking Group to 19.93% following the sale of another tranche of shares, whilst the Government has recently made clear it intends to sell more shares direct to the public later this year in order to further pay down government debt.
In the wider retail sector Supermarket retailers remained under pressure during May, with Sainsbury announcing full-year losses of £72m, while Morrisons revealed a 2.9% drop in first-quarter sales. The Confederation of British Industry (CBI) warned that food retailers remain under pressure as a result of “stiff” competition from newer rivals.
Nevertheless, the CBI reported that UK retail sales are “bounding ahead” – growth in retail sales volumes is beating expectations, with 60% of companies reporting an annualised increase in volumes. At the same time, the current deflationary environment is believed to have increased the spending power of households.
Indeed the UK was also confirmed to have tipped over into deflation during April for the first time since March 1960. Nevertheless, Bank of England policymakers believe inflation will rebound later in the year. For the time being however, most people will find themselves better off as retailers fight for market share in a very competitive market, forcing prices down further.
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By Sabre Financial | Monday, June 01, 2015