FTSE 100 Shrugs Off US Concerns But Continues to Trade Sideways
With a lack of company and economic data today, the FTSE 100 opens flat on this quiet morning. US markets had a bad day yesterday evening as nerves continue to linger over a possible government shutdown with poor consumer confidence not helping either. However, the UK's main index has shrugged this off.
Nonetheless, one of the bigger movers yesterday was Barclays. Shares in the Blue Eagle Bank soared over 3% after an upgrade from Morgan Stanley. Analyst Alvaro Serrano upgraded the stock's rating to Buy from Hold with a price target of 230p. Serrano cited Barclays’ strong consumer strategies, profitable deals, and the under-appreciation of its US credit card growth. He also added that he expects the lender's Consumer, Credit, and Payments (CC&P) business to drive better capital efficiency which could lead to higher profits and dividends.
On that basis, investor sentiment could return to Barclays shares, says John Choong, Equity Research Analyst at Investingreviews.co.uk. With the stock being one of the cheapest banks on the FTSE, he believes the long-term picture for the bank remains bright with plenty more upside potential than downside risks. To complement this, he also added, “An uptick in investment banking income could be on the horizon as several US big banks reported more bullish outlooks in Q2".
Moving in the other direction is Sainsbury's. The UK's second-largest grocer has seen its stock retrench over the past week, down 6%. This comes on the back of hot competition on its heels, as Aldi reported a three-fold increase in profits last year. As a result, both German discounters in Aldi and Lidl now hold almost 18% of the UK grocery market share as per Kantar's latest data, while Sainsbury's continues to stall at the 14.8-15.0% mark. Still, there are encouraging signs that the orange supermarket is beginning to turn a corner as it was the second-best performer in August, growing sales by 9.1%, just 0.2% behind Tesco.
On that theme, Choong said, “With real wages now trending positive and inflation beginning to abate, the impact of trading down to discounters is beginning to dissipate, and this was evident in Kantar's latest data with Tesco and JS returning to their familiar positions at the top for sales growth. As such, investors shouldn't read too much into Aldi's latest results as they're out of date. As Nectar Prices begin to roll out with more merchants coming on board, the potential is certainly there for Sainsbury's to regain its lost market share over the years”.
Moving on to housebuilders, gilt yields continue to slide. The yield on the all-important 2-year (seen as crucial in this rate environment for mortgage demand) has dropped 47bps over the past month. This has seen housebuilder stocks like Persimmon finding a bottom as green shoots begin to appear. Even so, the property developer still has to contend with a sea of analyst downgrades with the company's earnings estimates also taking a hit over the past quarter, especially after its demotion from the FTSE 100.
Despite that, Choong remains optimistic about the developer's long-term prospects as he sees Persimmon's return to the FTSE 100 as a “matter of when and not if”. The analyst said, “Considering the huge disparity between housing supply and demand in this country, Persimmon is bound to benefit from this as one of the UK's biggest housebuilders. With its vertically integrated efforts also expected to provide a windfall to its gross margins in the medium term, Persimmon's bottom line could see considerable expansion with the possibility of a return to double-digit dividend yields”.