(Update) UK equities reversed the tentative gains made this morning as US technology stocks suffered a second day of steep sell-offs prompted by valuation concerns.
The FTSE 100 ticked down 0.1%, or 8 points, to 6,602 and the mid-cap FTSE 250 index inched 15 points, or 0.08%, lower to 20,964 as the Nasdaq tumbled more than 2% as the US technology index headed into its longest running losing streak since 2019.
Blue chips were weighed down by Scottish Mortgage Trust (SMT ), which slumped 5%, or 63p, to £12.04 thanks to its exposure to large tech names, including Tesla, which slumped 13% as investors turned on the stocks that have led the pandemic rally.
Cryptocurrency Bitcoin, which has soared this year, was another loser, taking a 10% hit to take it below the key level of $50,000.
ThinkMarkets analyst Fawad Razaqzada said despite the technology rout ‘it is not entirely risk off’ with some European bourses venturing into the black.
He said the technology sell-off and the outperformance in value stocks alongside commodities such as copper and crude oil provide ‘clear signs of rotation into assets that are expected to do well during good economic times’.
‘If this is the case, then the weakness for technology shares could be short-live, and dip buyers will be happy to get back in at relatively inexpensive levels again,’ he said.
However, there is the concern that markets have already priced in a global recovery thanks to the vaccine roll-out and when inflation expectations become a reality, this could trigger an easing in central bank bailouts that have supported markets.
‘This is the key risk facing the markets in the months ahead and so trading could become two-ways again rather than just up, up amd more up for major US equity indices,’ said Razaqzada.
Nasdaq’s continued decline hit tech-laden trusts other than Scottish Mortgage.
Herald (HRI ), the UK focused tech fund managed by Katie Potts, dropped 3.1% or 70p to £21.70 after annual results showed 37% growth in net asset value contributed to a 51.7% total shareholder return in 2020.
The veteran fund manager, who has run the trust since launch in 1994, issued a ‘cri de coeur’ calling for more respect to entrepreneurs ‘who take responsibility, pay taxes and create wealth’ as the UK looks to grow its way out of a pandemic slump.
Russ Mould, investment director at AJ Bell, said investors ‘dumped names like Apple and Amazon amid growing concerns about rising inflation expectations, the direction of interest rates, and how that would put tech stock valuations into question’.
Elsewhere, CIP Merchant Capital (CIP ) jumped 3p or 5.4% to 59p after falling yesterday in response to family office CFE yesterday withdrawing a 50p per share offer that the board of the UK smaller companies trust had previously rejected twice.
Sequoia Economic Infrastructure (SEQI ) dipped 1.3p to 106.9p after the debt income fund looked to raise £172.9m in a placing of new shares at 105.25p.
HICL Infrastructure (HICL ) eased 3p or 1.8% to 165.1p on a trading update in which the income fund said it continued to work closely with HS1 management and co-shareholders over the impact on the train link of Eurostar’s financial problems. It extended its 8.25p dividend target for the current financial year to 31 March until 2022 when it expected the payout to be cash-covered.
TR European Growth (TRG ) slipped 18.8p or 1.4% to £12.91 after the Ollie Beckett managed smaller companies trust reported a 37.1% total return on net assets in the six months to 31 December, beating the 23.2% recovery in its Euromoney Smaller Companies index benchmark.
The first half outperformance was driven by a mix of growth stocks boosted by the pandemic’s acceleration of e-commerce, and cyclical value stocks rallying on hopes of an economic recovery.
(09.49am) FTSE, sterling edge up on UK’s roadmap
London-listed stocks pushed higher after prime minister Boris Johnson unveiled his roadmap out of lockdown measures despite unemployment recording its biggest leap in a decade.
The FTSE 100 inched 0.2%, or 13 points, higher at 6,625 held back by sterling hitting a three-year peak, advancing 0.14% to trade at $1.4079 against the dollar.
The boost to the pound helped the FTSE 250 shoot past its large-cap counterpart, adding 1%, or 211 points, to hit 21,192.
Coronavirus bellwethers such as travel and leisure stocks led the charge on both indices following Johnson’s plans for a cautious lockdown easing that confirmed schools will reopen on 8 March, but it will be until 21 June before the government considers dropping all limits on social contact and allowing large gatherings again.
Investors piled into stocks that should benefit from the reopening of the economy, with aerospace engineer Rolls-Royce (RR) leading the blue chips higher, adding 7.8%, or 8p, to trade at 113p. British Airways owner International Consolidated Airlines (IAG) followed, gaining 5.9% to 188p while hotel groups Whitbread (WTB) and InterContinental Hotels (IHG) added around 4% each.
Travel and leisure stocks were the mid-cap winners, with Cineworld (CINE) soaring 9.8%, or 8p, to 96p, food-on-the-go group SSP (SSP), which owns Upper Crust, leaped 9.7% to 344p, and EasyJet (EZJ) climbed 8.9% to 972p, while travel operator Tui (TUI) advanced 6.6% to 413p, Hopes of a return to the pub pushed JD Wetherspoon (JDW) up 5.9% to £14.17.
Neil Wilson, analyst at Markets.com, said travel stocks showed optimism on ‘the promise of a salvaged summer season’ but warned that ‘international travel will remain problematic and subject to restrictions, isolation, and testing’, although bookings have nevertheless shot up.
UK stocks were, however, not just buoyed by the Covid-19 roadmap but by the hidden good news story in the unemployment data from the Office for National Statistics.
Although unemployment recorded a jump of 5.1% to reach its highest point in almost three years and the biggest move up since the financial crisis, there was good news buried in the data. The average earnings index for the three months to December rose from 3.7% to 4.7%, beating estimates and the number of people claiming jobless benefits in January dropped 20,000 versus the 14,000 increase forecast.
‘While the unemployment rate might be stealing headlines, the rest of the report was good enough to, at the very least, keep the UK markets from posting any major losses,’ said Spreadex analyst Connor Campbell.
‘The UK markets find themselves at an interesting crossroads after Johnson’s lockdown easing announcement. Investors have been handed a bunch of new yardsticks by which to judge the next few months.’
Campbell predicted ‘jittery trading’ in the approach to the milestone dates the prime minister has laid out.
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