Early market roundup: Stocks higher on US-Iran deal hopes; oil lower

Stocks in Europe opened higher amid US-Iran deal hopes, while the pound remained above $1.34 despite weak UK retail sales data.

The FTSE 100 index traded up 36.56 points, 0.4%, at 10,480.03. It is up almost 3% so far this week.

The FTSE 250 shot up 141.66 points, 0.6%, at 23,089.58, and the AIM all-share rose 3.01 points, 0.4%, at 799.65.

The Cboe UK 100 edged up to 1,041.51, the Cboe UK 250 was up 0.7% at 20,021.96, and the Cboe small companies edged down 0.1% at 18,607.75.

In Paris, the CAC 40 was up 0.6%. The DAX 40 in Frankfurt also rose 0.6%, on the back of data which confirmed the German economy expanded 0.3% on-quarter in the first three months of the year.

In the US on Thursday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.6%, the S&P 500 up 0.2% and the Nasdaq Composite up 0.1%.

In Tokyo on Friday, the Nikkei 225 surged 2.7%. In China, the Shanghai Composite rose 0.9%, while the Hang Seng Index in Hong Kong shot up 0.8%. The S&P/ASX 200 in Sydney rose 0.4%.

A barrel of Brent fell to $105.11 early Friday, from $107.98 at the time of the London equities close on Thursday. Gold rose to $4,524.26 an ounce from $4,508.26.

In London, BP was the worst FTSE 100 performer, down 1.1% on the oil price decline. Shell 0.5%.

XTB analyst Kathleen Brooks commented: ‘The market continues to think that a deal between the US and Iran is likely, even if we have had mixed messages from both sides. The US has said that a deal is near, but Iran cannot have a nuclear weapon, whereas, Iran has said that it wants to keep its uranium stores. From a trading perspective, it is best to ignore the noise and rhetoric from both sides and concentrate on the numbers. Lower oil prices and bond yields can keep stocks supported in the short term, even if the longer-term outlook depends on the full reopening of the Strait of Hormuz.’

US Secretary of State Marco Rubio on Thursday said there were ‘some good signs’ in the negotiations between the US and Iran, but added that he did not want to be ‘overly optimistic’.

The yield on the 10-year US Treasury narrowed to 4.57% from 4.62% late Thursday. The 30-year yield cooled to 5.09% from 5.14%.

Brooks added: ‘At the same time as stocks are rising, bond yields have retreated this week. UK yields have been extremely volatile in the past week. Concerns about a change in PM and a shift to the left under Andy Burnham sent yields surging last week, yet losses have now been reversed. The UK’s 10-year yield is down 22bp this week and is only higher by 4bps so far this month. What has triggered this reversal? The main driver has been worse labour market data and lower than expected inflation. This has virtually eradicated the possibility of a June rate hike from the Bank of England.’

The yield on the UK 10-year gilt sat just under 5.18% at the end of last week, but has abated to 4.93% on Friday.

Sterling rose to $1.3418 early Friday, from $1.3401 late Thursday afternoon. Against the euro, it faded to €1.1558 from €1.1566. The euro climbed to $1.1605 from $1.1587. Against the yen, the dollar faded to JP¥159.12 from JP¥159.17.

UK public sector borrowing was higher than expected last month, numbers on Friday showed, while retail sales were shy of expectations.

The Office for National Statistics said borrowing in April totalled £24.34 billion, rising from £11.48 billion in March and higher than the £19.46 billion recorded a year prior.

The ONS said the April figure was ‘£3.4 billion more than the £20.9 billion forecast by the Office for Budget Responsibility’.

However, borrowing in the financial year to March was below an OBR forecast. Borrowing in the financial year ended March was provisionally estimated at £129.0 billion, down 15% on-year and £3.7 billion below the OBR’s £132.7 billion forecast.

Borrowing in the year to March was estimated at 4.2% of gross domestic product, the lowest figure since financial 2020 when it was 2.6%.

The ONS said its forecast for borrowing in the year to March was reduced by £3.0 billion from its last estimate.

Separately, the ONS said retail sales volumes fell 1.3% in April from March. They had risen 0.6% in March, revised down from an initially reported 0.7% climb. A lesser decline of 0.6% had been expected for April, according to consensus cited by FXStreet.

Ebury’s Samuel Edwards commented: ‘In what is traditionally a strong month for retailers, April saw consumers rein in spending.

‘While mixed weather conditions and the timing of Easter may have skewed spending patterns, the wider picture points to households remaining cautious amid ongoing economic uncertainty. Concerns around the impact of the Iran conflict on the cost of living, alongside higher mortgage costs and continued pressure on household finances, are weighing heavily on consumer confidence. Looking ahead, questions around Prime Minister Keir Starmer’s leadership will likely add an additional layer of caution to already fragile sentiment.’

Back in London, Softcat shares shot up 11% on a guidance hike. Softcat said profit in the third quarter surged, and it is ‘encouraged’ by momentum it is seeing.

The provider of IT infrastructure products said it saw double-digit year-on-year growth in gross profit and underlying operating profit in the third quarter ended April 30.

Softcat added: ‘Growth remains broad-based with particular strength in corporate, supported by customer demand for AI-enabled infrastructure and continued pull forward of some orders due to memory shortages. The board is pleased with progress to date and now expects mid-teens growth in underlying operating profit for the full year, up from high single-digit previously. Looking further ahead, the board is encouraged by the momentum in the business and prospects for continued market share gains, while recognising the uncertainty caused by the ongoing memory shortages and macroeconomic environment.’

Floor coverings distributor Headlam rose 3.8%. It has netted proceeds of £15.3 million from the disposal of surplus properties.

‘The proceeds will strengthen the balance sheet and be used to invest in working capital. The company continues to evaluate the potential sale and leaseback of our Coleshill property and will update the market in due course,’ Headlam added.

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