FTSE 100 flat after retail sales plunge, Natwest plans Irish exit as dividends return

“Unsurprising news that retail sales slumped significantly in January thanks to the latest lockdown left the FTSE 100 struggling for direction on Friday, broadly unmoved at a little above the 6,600 mark,” says AJ Bell Investment Director Russ Mould.

“A strong pound isn’t helping the index – crimping the relative value of its dominant overseas earnings in the latest reminder that the multi-national index is in no way a proxy for the UK economy.

“The run for sterling towards the $1.40 mark against the dollar reflects, in part, optimism about what a rapid vaccine roll-out would mean for reopening in the UK, setting quite high expectations ahead of Boris Johnson’s statement on the easing of restrictions on Monday.

“An interesting story continues to play out in the commodities space as gold prices remain dull. The precious metal is often seen as an inflation hedge so you might have expected the growing concern about rising prices to see it shine.

“It suggests gold may have been supplanted for now by other alternative assets like cryptocurrencies. However, before it is entirely written off, it is worth remembering that it has an extremely long history as a store of value.”

Natwest

“Having gorged itself on acquisitions in the run up to the financial crisis, Natwest (formerly Royal Bank of Scotland) feels like it has been in a slimming down process for much of the last decade and more.

“The latest move to shake off some excess weight comes as the group confirms plans to exit its Irish business. While this might eventually release some capital, the process looks set to take some time.

“The rest of the report card on Natwest’s results would be a bit mixed, as dividends were reinstated at the maximum level stipulated by the regulator and provisions for bad loans were slightly below expectations but margins and overall returns looked pretty weak.

“This reflects the extremely difficult backdrop faced by Natwest and other banks. Interest rates are still extremely low, with the potential threat of negative rates simmering in the background, the economy is facing a huge shock and many people who can afford to are paying down debt, while avoiding big purchases on credit.

“Natwest wants to place the focus on its medium-term ambitions to boost returns by increasing lending in its core UK market and reducing costs, while benefiting from an anticipated reduction in impairments.

“These are laudable ambitions but chief executive Alison Rose, in post for a little more than a year, wouldn’t be the first person at the helm to attempt a revival of Natwest’s fortunes and yet, for all these efforts, it remains 62% owned by the state.”

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