UK equities are trading higher at the end of the week, with the domestically focused FTSE 250 on course for a second consecutive weekly gain. Sentiment is also supported by signs of easing geopolitical tension involving the U.S. and Iran and by softer expectations for further UK interest rate increases.
Highlights
- FTSE 100 rises 0.3% to 10,459.94 and FTSE 250 gains 0.8% as Ocado jumps 11.3% on an Asda technology partnership.
- Oil prices drop nearly 2% after reports of a U.S.–Iran ceasefire extension and eased shipping restrictions in the Strait of Hormuz; Shell and BP trade mixed.
- Bank of England maintains 2% inflation target amid uncertainty, with traders pricing at least one 25-basis-point rate hike this year and retailer stocks falling up to 2.2% on rating downgrades.
Ocado deal lifts FTSE 250
As reported by Reuters, the FTSE 100 rises 0.3% to 10,459.94 points by 1118 GMT and is set to finish the week largely flat, while the FTSE 250 adds 0.8% on Friday.Ocado shares surge 11.3% after Asda agrees a deal with the technology firm to revamp its online grocery business across the UK. The move gives a strong boost to the midcap index, which is more exposed to the domestic economy.
Oil prices fall nearly 2% after reports say the U.S. and Iran reach an agreement to extend a ceasefire and remove restrictions on shipping through the Strait of Hormuz. Among major energy stocks, Shell and BP trade mixed.
Rate expectations and retail pressure
Domestic shares have been supported over the past two weeks by hopes of de-escalation between the U.S. and Iran and by reduced expectations of additional UK rate hikes.Bank of England Governor Andrew Bailey says allowing inflation to remain above the central bank's 2% target is justified given economic uncertainty, repeating comments from last week that the BoE has tightened monetary policy by taking rate cuts off the table.
Money markets show traders are pricing in at least one 25-basis-point interest rate hike this year and see about a 30% chance of another move, down from 50% earlier in the week. At the same time, UK retailers including B&M, Currys, Dunelm and Wickes Group fall between 1.5% and 2.2% after Deutsche Bank cuts its ratings, citing weaker consumer spending and confidence.
In our earlier article on European stocks rising on U.S.-Iran ceasefire extension signals, we noted that investors turned cautiously more optimistic as oil prices eased on reduced fears of disruption through the Strait of Hormuz. We also highlighted that the prospective 60-day extension supported broader risk assets even as defense shares remained strong amid ongoing geopolitical tensions.
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