Two of the stock market’s most-popular stocks are on the move. Our companies analyst explains why and rounds up other top news.
A session of big sector moves meant gains for Lloyds Banking Group (LSE:LLOY) and Rolls-Royce (LSE:RR.) as markets digested the hawkish tone of US rate-setters and a possible easing of UK travel rules.
Last night's guidance from the US Federal Reserve that it could begin raising interest rates a year earlier than expected in 2023, helped the margin outlook in the banking sector but sent mining stocks lower after the US dollar rose in response to the guidance.
High-growth technology firms were also negatively impacted by the sight of US bond yields trending higher, but there was much-needed cheer in the travel sector amid signs that Britons may yet be able to have quarantine-free travel to holiday hotspots.
The prospect of summer breaks to countries including Spain and France will depend on travellers having had both Covid-19 vaccine doses. This development has reversed investor fears of another summer washout for airline and holiday stocks, with easyJet (LSE:EZJ) and BA owner International Consolidated Airlines (LSE:IAG) both 4% higher and tour operator TUI AG (LSE:TUI) 3% stronger.
Rolls cheered 3% on hopes of a pick-up in engine flying hours, while other big risers in the FTSE 100 index included Lloyds, Barclays (LSE:BARC) and NatWest Group (LSE:NWG) after gains of more than 2%. The recent strong run of BT Group (LSE:BT.A) also continued at 202.7p, but miners surrendered ground for a second day in a row as commodity prices were dented by the higher dollar.
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Overall, the market appeared relatively relaxed about the need for rate rises to stop the US economy from overheating, with the FTSE 100 and FTSE 250 benchmarks only 0.5% lower.
Investec Securities economist Ryan Djajasaputra continues to think that tapering of current stimulus measures will be announced in December and that the first hike in interest rates will be near the end of 2023.
He added: “Given the robust recovery and inflation prospects, there is a risk of an earlier move. Much will depend on the evolution of the pandemic and the strength of the recovery.”
The session also saw a number of big moves in the FTSE 250 index, with Trainline (LSE:TRN) getting a much-needed 3% boost after its latest trading update but Dr. Martens (LSE:DOCS) giving up 7% in the wake of its maiden results.
The figures from the bootmaker were near the top end of hopes after a 22% rise in full-year adjusted earnings to £224.2 million. But with no update on the outlook investors took the opportunity to take profits after a strong run. Shares fell 35p to 460p although they are still well ahead of the 370p starting price in January's £3.7 billion IPO.
Peel Hunt is looking for earnings growth of 15% this year but is sticking by its 'hold' recommendation for now: “There's lots to like about Dr Martens, apart from the valuation.”
Trainline's rebound came as the easing of travel restrictions helped it finish last month selling more tickets than the same period two years ago. Sales for the past three months jumped 305% in the UK and chief executive Jody Ford is confident about the company's long-term prospects despite the government's plans for its own Great British Railways ticketing service.
Shares were today 8.6p higher at 279.8p but that's still a long way off the 428p seen last month prior to the release of the Williams-Shapps plan for UK rail.
Others FTSE 250 companies to watch included Safestore Holdings Ordinary Shares (LSE:SAFE) which remains near a record high after declaring a 27% increase in its dividend to 7.5p a share with half-year results. Chief executive Frederic Vecchioli reported “accelerating momentum” as demand for self-storage space is driven by house movers and those decluttering in order to work from home.
Shares were 2.5p cheaper at 958p but analysts at Liberum reiterated their price target of 1,060p. They added: “Rising long-term demand for storage space, above average barriers to entry, latent occupancy and rate upside underpin long-term growth potential.”
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In the FTSE All-Share, Halfords (LSE:HFD) shares continued their recent momentum after annual results from the retailer revealed underlying earnings per share jumped 67.5% to 40.7p.
Demand in its core motoring and cycling categories remains strong and the company is well placed to benefit from the trend towards staycations this summer. Analysts at Peel Hunt praised the company's “outstanding” performance as they upgraded their earnings forecast for this year by 23%, despite the potential threat of cost inflation.
Shares are at their highest level since 2016 and rose 16.6p to 422.4p today, but Peel Hunt thinks a price of 480p is appropriate based on a mid-teens price/earnings multiple.
The broker added: “Management is making a really good fist of elevating Halfords onto a new standing with consumers and investors. It won‘t be easy and not everything will work but the evolution to a services-led, joined up multi-channel business is well underway.”
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