By Patrick Munnelly, Market Strategist, Tickmill
The FTSE 100 posted gains on Friday as investors embraced a more optimistic outlook and increased risk appetite following the successful passage of a U.S. deal to avert a debt default. The internationally-focused FTSE 100 rose by 1.6%, reflecting the positive sentiment among global investors. The index closed the week up 117 points at 7607.28.
Investors to watch for stagflation
The U.S. Senate’s approval of legislation to raise the government’s $31.4 trillion debt ceiling, coupled with hopes that the Federal Reserve may refrain from raising interest rates, contributed to the improved market sentiment.
However, concerns about potential adverse effects on corporate earnings due to further monetary tightening by the Bank of England continued to weigh on the FTSE 100, resulting in a second consecutive weekly decline. The principal market risk right now is the potential of stagflation, combining stagnant economic growth with inflationary pressures. This will be a major factor to watch in the market.
FTSE 100 biggest movers
Prudential LON:PRU received a positive boost as JP Morgan placed the insurer on Positive Catalyst Watch, giving it an overweight rating. Despite the uncertainties surrounding IFRS17, the recent quarterly trends indicate that Prudential is expected to surpass consensus estimates for new business sales and profits under its embedded value framework, according to the investment bank. The bank remains optimistic about reinsurers and Beazley LON:BEZ, but suggests waiting for a more opportune time to purchase at the end of the quarter. As a result of this positive sentiment, Prudential shares climbed by over 5.5% and left the insurer sitting at the top of the index into the close.
On the negative side of the ledger is BT LON:BT.A, after they announced a dividend payment of £0.0539 due September 13th, resulting in a dividend yield of 5.2%, which aligns with the industry average. However, prior to this announcement, the company’s dividend was well supported by cash flow and earnings, allowing for significant reinvestment in the business. Looking ahead, there is a forecasted decline of 19.1% in earnings per share over the next year. Although BT has a long track record of paying dividends, there have been instances of cuts in the past. Over the past decade, the annual dividend payment has decreased from £0.095 in 2013 to £0.077 in the most recent fiscal year. This represents an average annual decline of approximately 2.1% during that period. Investors have taken a dim view of BT’s dividend move and they sit at the bottom of the table today, down over 3%
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