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FTSE hits 2016 high after Chinese data, while Halfords accelerates on update

Discussion in 'Market News' started by Lily, Apr 13, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Miners and retailers in focus as Tesco and WH Smith disappoint

    Mining shares are leading the way forward after better than expected Chinese trade data renewed hopes of a positive outlook for the world’s second largest economy, helping the FTSE 100 to a new high for the year.

    But retailers are also in focus, with Tesco leading supermarkets lower despite signs of a turnaround, and Halfords higher following a strong fourth quarter.

    Sales exceeded our low-end expectations although profit guidance is unchanged. Nevertheless against some challenging comparisons we would view this as a positive retail performance, following the resilient third quarter in Retail. Given the flat 2017 growth outlook, we believe the shares could continue to trade in the 320-420p range.

    We see a strong fourth quarter as encouraging, although one quarter does not make a trend and we need to see further momentum before turning more positive. We maintain our sell recommendation, but acknowledge that there are some clear positives, including a healthy balance sheet, a 4%+ dividend yield and the potential for near-term special cash returns.

    The headline figures are promising, but Tesco is like an oil tanker that takes a long time to turn around and although not through the turn at least it’s started to head in the right direction...

    Nevertheless, there appear to be no shortage of problems ahead for Tesco, with continued competition on both sides of the high street; from the likes of Aldi and Lidl at the low-end to Waitrose at the high-end. Tesco also has to contend with the emerging threat from Amazon in the online sector. Despite reducing net debt by 40%, at £5.1 billion Tesco still has too much debt and its bonds are rated as junk.

    That’s been a rather impressive start to the day’s session for equities with the FTSE-100 charging higher at the opening bell and punching rather unexpectedly through the 6,300 level. Commodities remain very much in focus – we’ve seen base metals soaring in the last few hours helped by upbeat Chinese import data and even if oil prices are coming off the boil a little, the bulls are still winning out at least for now. Critically there’s an element of uncertainty hanging over whether producer nations will be able to agree a meaningful production freeze this weekend and we’ve seen a little profit taking on crude as a result, but so long as we can hold onto the majority of these recent gains – that $40/barrel level holds psychological significance - then the broader based equity rally may be sustainable.

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