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FTSE Rises Despite Spanner From Speaker; Sterling Finds Even Keel

Published 19/03/2019, 10:25
Updated 14/12/2017, 10:25

The London gauge is trading higher despite high Brexit drama unfolding in the background after Parliament's Speaker John Bercow blocked the Prime Minister’s plan to put her twice-rejected Brexit deal to a third vote Tuesday. This leaves Mrs May with little to take to Brussels on Thursday when she is due to ask the EU for a delay in Britain’s departure from the EU.

While news, fake news and conflicting news are battling it out for investors’ attention, including unconfirmed reports that Jeremy Corbyn is looking to resign from the Labour party leadership, actual company news is helping the FTSE trade higher with copper miner Antofagasta (LON:ANTO) and online retail specialist Ocado (LON:OCDO) leading the way.

Sterling finds even keel

With speculation swirling on whether John Bercow’s decision will make it more likely for Britain to end up in a hard Brexit situation at the end of March or if it will mean that Brussels will try and impose an extended delay on Brexit, the currency market is trying to find its feet. An initial plunge of 1% in sterling/dollar has since reverted into only a minor decline in sterling’s value against the dollar and the currency has steadied to trade in a similar range as on Monday.

Dollar slides ahead of Fed meeting

In contrast, the dollar is lower ahead of the start of the Federal Reserve’s two-day rate setting meeting Tuesday and is losing ground against the euro and the yen. Recent weaker US economic data has lowered the yields on 10-year Treasuries and has made the dollar less appealing to investors. US rate setters are widely expected to stick to their plans announced earlier this year of a much slower pace of rate increases, but given that since their last meeting the labour market showed some weakening while the housing market started overheating, it is possible that the Fed may go back on its plans for two more hikes this year.

Wall Street is already reflecting some of the rising caution about the state of the US economy with stock markets showing much smaller increases than earlier in the year. The expected resolution of the US China trade talks still has the potential to give US industrials a major jolt, but without it some of the spectacular gains in the second part of last year may become a thing of the past.

ASOS (LON:ASOS) face problems meeting demand in the US

While this update is not nearly as disappointing as December's dreadful downgrade, it's a reminder that ASOS still faces its fair share of demand and execution challenges.

Sales growth has slowed in the UK compared to the first quarter, indicating once again that online retailers aren't necessarily immune from the broader slump in consumer confidence caused by Brexit jitters.

Problems meeting demand in the US demonstrate the execution risks faced by Asos as it attempts to expand its platform worldwide.

Management is right when the say the demand surge in the US is a silver lining, but that demand won't linger for long if the company keeps failing to deliver.

Ocado sales hit by warehouse fire

The fire at Ocado's robotic warehouse has slowed growth and we're still yet to find out how the incident will affect this year's sales guidance.

But management is most probably right when they say the fire damage is more of a short-term hitch than a long-term hindrance.

An investigation into the incident appears to indicate that the fire wasn't caused by some deep system issue that could raise its ugly head again -- though we'll have to trust Ocado on that until we get the results of the investigation in more detail.

Otherwise the retail business is performing reasonably well, with the average order size remaining pretty much stable despite the uncertain consumer environment.

The M&S deal will of course cut the level of profits that Ocado can make from its retailing arm in half. But it will also provide it with £750m to plough into a promising technology offering, which, accidents aside, is where Ocado's real growth potential lies.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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