Must read: new FTSE 100 record, BP, Apple, oil, UK house prices, retail sales

GLOBAL MARKETS

The FTSE 100 has hit a fresh record high after the long weekend, playing catch up after Wall Street’s major averages staged notable gains on Monday.  

In Europe, shares in UBS Group AG (SIX:UBSG) are outperforming, surging over 6% after the Swiss lender returned to profitability in the first quarter, reporting results that blew past analyst expectations. Shares are up by more than 50% over a one-year period. 

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The Aussie dollar is trading around a two-month high after the Reserve Bank of Australia kept its cash rate unchanged at 4.35% overnight for the fourth time in a row since it raised rates last November. Meanwhile, the Japanese yen fell past 154 per dollar, giving back last week’s gains despite comments from currency diplomat Masato Kanda to say the government ‘will continue to take the same firm approach’ to the yen’s volatility. 

In the US, Apple Inc (NASDAQ:AAPL) is expected to unveil new products at its ‘Let Loose’ event today with new OLED iPad Pro models likely to be the highlight of the event. But Wall Street is likely to be more focused on Apple’s AI reveal at its worldwide developers’ conference (WWDC) in June.

Last week, Apple reported quarterly results which weren’t as bad as many had feared. However, since then billionaire investor Warren Buffett disclosed that he sold more than 100 million shares in Apple, sending shares into the red on Monday. Unlike other tech giants like Meta Platforms Inc Class A (NASDAQ:META) and NVIDIA Corp (NASDAQ:NVDA), shares in Apple are nursing losses year-to-date, highlighting the pressures facing the iPhone maker. Elsewhere in the US, results are due from The Walt Disney Co (NYSE:DIS), Rivian Automotive Inc Class A (NASDAQ:RIVN), Twilio Inc Class A (NYSE:TWLO) and Virgin Galactic Holdings Inc Shs A (NYSE:SPCE) today. 

BP / OIL 

BP (LSE:BP.) reported a quarterly miss on both the top and bottom line. First-quarter earnings, or underlying replacement cost profit, hit $2.7 billion, sliding 40% year-on-year and below analysts’ expectations for $2.87 billion.

The oil giant expects lower upstream production in the second quarter and lower margins. Cash flow fell by more than expected while net debt increased in the quarter. Nonetheless, it continues to return cash to shareholders via a dividend of 7.27 cents per share and a share buyback programme of $1.75 billion over the next three months. Plus, BP is planning to deliver at least $2 billion in cost savings by the end of 2026. 

Unlike rival Shell (LSE:SHEL) which last week managed to report earnings which were down year-on-year but still higher than analysts expected, BP’s quarterly scorecard disappointed investors, partly driven by lower energy prices – the average Brent crude price hit $83.16 a barrel in the first quarter versus $84.34 a barrel in the final quarter of 2023.

But BP has also struggled with weaker refining margins and problems relating to a US refinery power outage in February and March. The Whiting plant in Indiana is the largest refinery in the US Midwest accounting for 435,000 barrels per day. On top of that, compared to its US rivals, BP has put a much greater emphasis on the green energy transition, and unfortunately has suffered as a consequence. 

The oil giant has also been facing significant changes at the very top of the business after its former CEO Bernard Looney departed last September for failing to disclose historical relationships with colleagues. New BP CEO Murray Auchincloss was appointed permanently to the top job in January. 

Shares in BP have dipped today, reducing the company’s year-to-date gain to around 8% compared to Shell which is up over 12% and Exxon Mobil Corp (NYSE:XOM) up 14%. However higher underlying oil prices this week are stemming a steeper drop for shares in BP.

UK HALIFAX HOUSE PRICE INDEX

According to Halifax, British house prices rose 0.1% in April month-on-month and 1.1% year-on-year. The average house price in April now stands at £288,949. In the previous month, UK house prices fell by about £2,900 in March with the typical property value down around 1%, the first drop in six months. This morning’s data is boosting housebuilder stocks, with the FTSE 350 Construction and Materials index in the green.  

Despite the modest rebound in April’s data, Halifax said ‘average house prices have largely plateaued’, reflecting the challenging backdrop of expensive borrowing costs and a chronic shortage of housing supply that have stemmed a steep slide in house prices that would support housing market activity and first-time buyers in particular. Halifax said first-time buyers are looking more and more towards smaller properties to offset affordability problems instead. 

It looks like mortgage rates will continue to remain elevated, with the Bank of England poised to keep interest rates at 16-year highs of 5.25% this Thursday. Financial markets have been pushing back their forecasts for the timing of the first rate hike this year, with August currently pencilled into the diary, although that could certainly change depending on the data.

UK RETAIL SALES

According to the British Retail Consortium (BRC), UK retail sales fell by an annual rate of 4% in April, swinging from growth of 3.5% in March. Disappointing weather conditions and an early Easter dented shoppers’ appetite to spend last month. ‘A dull, wet April’ hurt demand for clothing and footwear as well as DIY and garden furniture. 

While the macroeconomic backdrop is improving with inflation cooling, wages still strong, and the UK moving beyond last year’s recession, consumers are still reeling from the painful cost-of-living crisis with prices still much higher than they were around the time of the pandemic, and borrowing costs and rents significantly more expensive, both squeezing households’ budgets.