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FTSE head and shoulders ahead of European stocks in May

Published 31/05/2018, 18:36
© Reuters. FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain
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By Kit Rees and Helen Reid

LONDON (Reuters) - Britain's top share index ended May as the month's best-performing major European index, shrugging off worries over a political crisis in Italy as commodities-related stocks rallied.

The blue chip FTSE 100 (FTSE) index ended the day down 0.2 percent at 7,678.2 points, while mid-caps (FTMC) rose 0.1 percent. A fall in financial stocks weighed on the market on the day as Deutsche Bank (DE:DBKGn) shares tumbled.

UK stocks were caught up earlier this week in a broader market sell-off as a political crisis deepened in Italy, which has had trouble forming a government since inconclusive elections in March.

The impact on the FTSE has however been limited. The index ended May up 2.2 percent while euro zone stocks (STOXXE) fell 2.5 percent over the course of the month. The FTSE 100 and its mid-cap counterpart the FTSE 250 both reached record highs earlier in May.

"A lot of it is due to the fact that (the FTSE) ... is detached from Europe in many ways. Essentially, it's about the make-up of what the bulk of those large caps on the FTSE do," Ken Odeluga, market analyst at City Index, said.

Odeluga pointed to the FTSE's large weighting in energy stocks, which have benefited from a higher oil price, as well as miners.

More broadly, investor sentiment on British stocks has become more optimistic in recent weeks.

Investor confidence in UK assets has grown over the past quarter, with the number of investors looking to decrease their holdings falling to a record low of just 14 percent, State Street's "Brexometer" survey showed.

"UK equities are well positioned for a late cycle backdrop, given the combination of higher quality and commodities exposure," said Bank of America (NYSE:BAC) Merrill Lynch analysts, adding that valuations and low positioning made it attractive.

On the day, materials stocks gave the biggest boost to the FTSE. Shares in miners Anglo American (L:AAL), Randgold Resources (L:RRS), BHP Billiton (L:BLT) and Evraz (L:EVRE) rose 1.2 to 5.8 percent as metals prices were boosted by positive manufacturing data from China, the world's top metals consumer.

Chemicals group Johnson Matthey (L:JMAT) rose 3.4 percent after it declared a 7 percent increase in its final dividend.

Irish building materials group CRH (L:CRH) gained 3.2 percent after the firm said it would streamline certain European and American businesses by combining them to try to boost profit margins.

While the FTSE 250 ended the day in positive territory, some sharp single-stock moves marred the picture.

Shares in rail and bus operator FirstGroup (L:FGP) sank 19 percent after the company replaced its chief executive, following what its chairman called a disappointing year, and said it was putting its Greyhound bus business in the United States under review.

Retailer Card Factory (L:CARDC) saw its shares drop 9.2 percent after weak demand on the British high street hit its quarterly sales.

Marks & Spencer (L:MKS) and National Grid (L:NG) brought up the rear on the FTSE after the two stocks traded ex-dividend.

M&S was also in focus after avoiding demotion from the FTSE 100 in a quarterly reshuffle of the index that saw online supermarket Ocado (L:OCDO) promoted to the UK's index of biggest companies.

© Reuters. FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain

The index rejig, which is based on a company's market capitalisation, demonstrates the growing dominance of disruptive firms with strong online positions over the traditional high street retailers struggling to keep up in a digital age.

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