Market report: FTSE pulls back from record high despite rosier GDP picture
Derren Nathan, head of equity research, Hargreaves Lansdown: “UK GDP for December grew by 0.4% ahead of the 0.1% expected. Services and production strength were enough to outweigh a 0.2% fall in construction activity. That’s not been quite enough to lift the FTSE beyond its best ever close of 8,807.44 after notching up 30 points on Tuesday.
US stocks lost ground yesterday after the monthly CPI print showed core inflation coming in hotter than expected. Hopes for a further rate cut by the Federal Reserve Bank this year have slipped to 70% from 80% earlier in the week.
European markets are in an optimistic mood with DAX futures pointing upwards after the leading German index mirrored its British counterpart by closing just shy of another all-time best, shrugging off concerns about wider US tariffs. The interest rate outlook this side of the Atlantic is looking much more benign which is helping to give equity markets a boost. But don’t forget that’s partly due to a more sluggish economic environment. Corporate earnings can often provide the most accurate pulse check and there’s plenty to unpack today.
On Wall Street, tech investors will be closely watching earnings from semi-conductor equipment manufacturer Applied Material and Cybersecurity firm Palo Alto Networks. Quarterly earnings per share are expected to rise 12% and 5% respectively over the same period last year. Tractor maker Deere & Co is another key reporter. Shareholders will want to hear how it plans to navigate the latest Chinese tariffs on agricultural equipment.
Brent Crude has given up its recent gains heading back below $75. Prospects of a truce between Russia and Ukraine have taken the edge off fears about Russian supplies. With US inflation numbers coming in the wrong side of forecasts the potential expectations of a tighter grip by the Fed on monetary policy is also weighing on dollar priced commodities.
Plenty happening in UK and European earnings. British American Tobacco’s full-year results delivered single digit growth in underlying revenue and operating profit to £25.9bn and £11.9bn even as more smokers kick the habit or switch to new categories such as vapes and heated tobacco. Traditional combustible volumes fell by 5.2% but BATS managed to offset this through strong pricing and product mix. Revenue from New Categories grew faster at 8.9% but that’s lagging the high-octane rates seen in recent years. It’s going to have to take up more of the slack in years to come too as the noose tightens around cigarette smoking. Regulatory and fiscal headwinds have been called out as factors impacting combustible demand in Bangladesh and Australia. That’s soured the outlook for this year with revenue growth guidance of 1% coming in way below the mid-term target of 3-5%, sending the shares down 8% in early trading.
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Nestlé wrapped up the year with a solid performance, surpassing expectations and proving it’s still got the recipe for success. While North America faced a bit of a rough patch, Europe and Latin America were cooking with gas, serving up impressive growth thanks to smart pricing and savvy cost-saving moves. However, 2025 is shaping up to be a bit of a tricky year, as soft consumer spending in the US and Europe could stir up some challenges, along with rising costs and a heavier focus on promotions and marketing. Still, the company’s optimistic about spicing things up with stronger sales and steady profits, though its high debt and struggles in North America are the key ingredients to keep an eye on.
Barclays has set a strong benchmark for the banking sector, closing the year with an impressive final quarter as both its UK and Investment Banking arms delivered. Credit quality remains solid, with loan loss rates comfortably below target, and while there was a dip in the final quarter, stripping out the higher-risk business from the Tesco deal shows that credit performance actually improved. With more exposure to US consumer trends than most UK peers, stable US card default rates should also be reassuring for investors.
In Investment Banking, Barclays didn’t disappoint, surpassing profit expectations and seeing growth in fixed income and equities that outpaced even the US giants. On motor finance, the bank set aside £90m in provisions, and with players like Close Brothers maintaining optimism, there’s growing hope that the impact won’t be as severe as first feared – Lloyds will be the key one to watch and the most exposed from the major UK banks.
The £1bn buyback taps into its strong capital position, and with £10bn expected to be returned to shareholders between 2024 and 2026, there’s enough on offer to keep markets happy. The only minor downside was the lack of guidance upgrades, but overall, investors should be pleased, with the immediate price reaction likely a result of the strong run up coming into results.”