FTSE starts higher with jobs and Brexit in focus, and Ocado and Marks & Spencer venture off to a strong start

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“As the US markets regained their poise overnight following the recent wobble the FTSE 100 made its own steady start, again looking to solidify its position above the psychologically significant 6,000 threshold,” says AJ Bell Investment Director Russ Mould.

“Providing a boost to the FTSE’s overseas earners was the continued weakness in sterling on a mixed jobs report and the ongoing ructions over Government legislation which would row back on the exit deal agreed with Brussels and thereby break international law.

“While unemployment remains low by historical standards this figure is flattered heavily by the job retention scheme with the figures revealing much higher levels of people temporarily away from work.

“In corporate news G4S delivered a robust rebuttal of the £3 billion takeover offer on the table from Canadian rival GardaWorld, though the company’s patchy track record could undermine its attempts to fend off a bid.

“Bus and train operator FirstGroup was boosted by news of a stronger than expected financial performance in recent months, though this was underwritten by state support for the travel industry with passenger levels only half of pre-pandemic levels. This situation will not be sustainable in the longer term.

“Oil prices were lower on the unsurprising forecast from producers’ cartel OPEC that demand will face an extended hit from Covid-19. Gold prices trended higher, tilting back towards the $2,000 mark amid continuing appetite for its safe haven credentials.”

Ocado / Marks and Spencer

Ocado’s joint venture with Marks & Spencer has got off to a good start, depending on how you look at the situation. On one hand, it says sales have been strong with the average basket size higher year-on-year. Yet the launch was marred by order cancellations, making some long-standing customers frustrated at having to wait for another slot.

“The timing of the joint venture’s operations going live couldn’t have been any better. Marks & Spencer has effectively flicked the switch exactly at the point when people across the country have become reliant on ordering groceries online. Just imagine if it hadn’t had the deal with Ocado in place – Marks & Spencer would have looked foolish for being the one UK food seller woefully behind with its digital strategy at a time when there has been a radical shift in consumer behaviour.

“It is also important for Ocado that the Marks & Spencer joint venture got off to a strong start. It is effectively passing the baton to the supermarket partner so it can truly concentrate on providing grocery systems to third parties globally and finally shake off that reputation of being a van driver delivering food and drink to people’s homes.

“The joint venture is a huge deal to Marks & Spencer, but it is just a cog in the machine for Ocado as its attentions arguably lie elsewhere. It is in a sweet spot as the grocery sector around the world races to strengthen their digital capabilities and Ocado could easily pick up some big contracts in the coming year or two to supply its systems.

“Profit remains a long way off for Ocado, yet you cannot argue that it isn’t working hard to lay the foundations for future earnings. It just needs to spend a lot of money on that journey.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.