UK stocks rally as the economy opens up and ScS sees surge in demand

“Sterling rallied on Wednesday after a pick-up in UK CPI inflation, which jumped to 2.1% in May from 1.5% in April and which was driven by the cost of fuel and clothing. The British currency advanced 0.3% against both the US dollar to $1.4119 and the euro at €1.1638,” says Russ Mould, Investment Director at AJ Bell.

“The currency gains helped to drive the domestic-facing FTSE 250 0.5% higher, with housebuilders Bellway and Vistry, building materials group Travis Perkins and property group Unite were among the top risers. The economy is picking up thanks to strong consumer spending and anything related to the buoyant property market has also been fired up.

“The FTSE 100 moved forward despite a stronger pound being a headwind for its multitude of overseas earners. A 0.3% rise to 7,196 was driven by NatWest as banks should benefit from a stronger UK economy thanks to increased appetite from consumers and businesses to borrow money, as well as gains from B&Q owner Kingfisher which is riding the DIY boom.

“It’s worth remembering that the FTSE 100’s constituents are more representative of the global economy rather than simply the UK. Names like Diageo and Unilever were in demand from investors as they should benefit from greater consumer spending around the world, and increased economic activity bodes well for oil consumption which is pushing up shares in Royal Dutch Shell.

“With Covid increasingly being put in the rear-view mirror and life getting back to normal, we’re getting more lockdown winners seeing their purple patch fade away. The latest casualty is car competition provider Best of the Best whose shares crashed 20% after it revealed that customers have become less engaged since lockdown restrictions started to ease. It thrived when we were all stuck at home, but everyone is bored of that now and desperate to enjoy the great outdoors.”

SCS

“We didn’t necessarily all become couch potatoes during lockdown but we certainly learned the value of a good sofa as most of our evenings were spent sat in front of the TV.

“While it is possible to buy your new suite online, many of us would feel more comfortable going out and sampling its comfort factor for ourselves. This created pent-up demand which has now been unleashed in full force.

“It’s unsurprising that ScS has seen a big improvement in trading as physical shops were able to reopen, particularly given there is a cohort of consumers who have saved up cash during the pandemic through reduced outgoings on things like commuting and socialising.

“Given ScS sells flooring too, it is likely benefiting from the wider push to refresh interiors as people have been forced to confront their fraying or worn carpets and stained kitchen and bathroom lino.

“The scale of the improvement may still have caught some off guard though and that is reflected in the shares pushing to fresh all-time highs as analysts hastily upgrade forecasts. ScS also deserves credit for its ability to meet this surge in demand, particularly at a time when there is a shortage of some raw materials.

“ScS needs to be prepared for fluctuations in demand as pent-up demand eases and with the economic outlook and recovery from Covid still fairly uncertain. The company at least has the buffer of a strong balance sheet to fall back on.”

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.


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