Daily market update: defence and oil stocks, Trainline, Klarna

“Despite a mixed session on Wall Street last night and a small rise in the Vix volatility index, pockets of Europe and Asia moved higher on Thursday,” says Russ Mould, Investment Director at AJ Bell.

“The UK’s FTSE 100 led the charge in Europe as defence and energy stocks were at the top of investors’ buy lists. Ongoing geopolitical tensions have led investors to have confidence in the defence sector, believing earnings prospects are strong given a fragile backdrop. BAE Systems’ share price has risen by 45% over the past 12 months and up 271% over five years.

“Oil producers Shell and BP were in demand despite oil prices taking a breather from the recent rally. The industry is undertaking a broad cost-cutting exercise, slashing jobs and pausing projects. However, big oil companies are still making profits, and dividends and buybacks are not under threat at current oil price levels, hence ongoing investor interest in the sector.

“Interest rates and inflation are on today’s menu for investors. The European Central Bank is expected to leave rates unchanged. The euro zone economy has been coping with tariffs and uncertainty, and inflation isn’t running hot, meaning the ECB may feel comfortable with rates at their current level. What’s more interesting to the market is any commentary on what it would take for rate cuts to recommence, and whether that’s likely in the near-term.

“US inflation data will shine a light on tariffs and whether that’s led to higher prices for consumers. However, energy prices are falling, and wage growth is slowing, meaning that the headline inflation reading might not be troublesome enough to stop the Fed from cutting rates next week.”

Trainline

“Investors have taken Trainline’s trading update to be the ‘all aboard!’ signal for the shares. News that earnings growth will be at the top end of earlier guidance was the trigger for many people to reappraise the stock and hitch a ride.

“Trainline has reported broad-based growth, with net ticket sales and overall revenue rising in the UK, overseas and in its business travel solutions arm. A £150 million share buyback is the cherry on top.

“The shares had been weak this year amid concerns about new competitive threats in the UK, but the trading update is a reminder that Trainline is a bigger beast. France is acting like a rocket for the company’s sales growth and that is helping to offset pockets of weakness elsewhere.

“The overall tone is upbeat and that’s exactly what the market needed to hear to get the share price moving higher again.”

Klarna

“Investors often love to get a foot in the door with IPOs in the hope of having a front-row seat when the stock begins trading. That means either having a private stake or participating in an IPO offer. Stocks can easily ‘pop’ on the first day as the broader investor base gets their first chance to buy in – and we saw that yesterday with buy now, pay later provider Klarna.

“Interestingly, the shares opened 30% above the IPO price but momentum waned as the day went on. It was ‘only’ up 14.6% at the end of the trading day, and pre-market trading today puts the share price 1.4% lower than last night’s close.

“This might simply be early investors banking some gains or day traders going in and out quickly, deciding the loss of momentum in the shares soon after the market open didn’t warrant hanging around.

“It’s more common to see popular IPOs creep higher over a few weeks and then pull back as short-term traders exit and longer-term investors subsequently build positions, driving the shares back up.

“Klarna’s unusual share price behaviour means it is one to watch, as clearly some investors don’t believe it is worth owning at the current price. Whether that’s a straight valuation call or concerns about the business model and its prospects remains to be seen.”