Markets in holding pattern, Conservatives’ relaxed planning permission move fails to lift housebuilders and TUI beats expectations ahead of delisting vote

“Markets remained in a holding pattern, awaiting the next wave of inflation, manufacturing and GDP data to see if it is possible to second guess when central banks might press the magic ‘cut’ button on interest rates,” says Russ Mould, Investment Director at AJ Bell.

“The Nasdaq tried and failed to hit a new record high last night on Wall Street, even though it is only a whisker away. The FTSE 100 was stuck in the mud as a rebound in AstraZeneca following yesterday’s broker downgrade-induced sell-off was offset by weakness in the technology and industrial sectors.

“Stronger than expected labour data from the UK didn’t help matters as it effectively gives the Bank of England another reason to keep rates steady and not rush to cut them. That’s more of a negative to domestic stocks rather than the large chunk of FTSE members which do business overseas.”

Housebuilders

“It’s an election year which means we can expect the different political parties to target areas which they know will strike a chord with the public. The nation’s obsession with the property market means that housing is an obvious place to try and win votes. The country has a chronic shortage of housing versus demand and the dream of getting on the property ladder is unattainable for a lot of people.

“The Conservatives look set to unveil their latest spin on solving the housing crisis by telling urban councils they can refuse planning permission on brownfield land only in exceptional circumstances. In effect, it means housebuilders could find it a lot easier to get permission to construct more properties in city areas. That removes part of the problem currently holding back the sector and also paves the way for a potential uplift in profits if sales volumes get a boost off the Conservatives’ scheme.

“The market reaction would suggest this is not a slam dunk for the Conservatives. The likes of Persimmon, Barratt and Taylor Wimpey all saw their share prices fall on the news, illustrating scepticism among investors that flicking this switch will give a rocket boost to the sector. Labour called it ‘a threadbare announcement’ and the market seems to share this view.

“However, it is worth noting there are other factors weighing on the sector today. Stronger than expected UK wage growth data effectively deals a blow to the idea of a near-term rate cut from the Bank of England, and disappointment around interest rates casts a dark cloud over housebuilders because it implies mortgage rates might stop falling in the near-term.”

TUI

“That TUI seems to be getting back on track just as it primes for an exit from the London market feels like rubbing salt in the wounds.

“The company’s first quarter numbers were better than expected as it notably swung from a big loss to a modest profit. A winning combination of higher demand and higher prices helped to deliver stellar results in what is traditionally the weakest period for the travel sector.

“It shows people are still willing to prioritise spending on holidays despite pressures on household budgets. How much further operators can push up prices is up for debate.

“There seems a good chance the sector may have to absorb a greater proportion of any increase in costs in the future if it doesn’t want to price too big a chunk of the population out of overseas holidays.

“At a meeting later, TUI is pushing for shareholders to vote to delist from the London Stock Exchange – in yet another blow to the prestige of the UK as a listing venue. There is an obvious logic to upgrading to a prime listing in Frankfurt given it is a German company and more of its shares are traded in its home country.

“As a patchy performer, TUI may not be massively missed by UK investors given the amount of turbulence they have had to endure – not helped by a global pandemic. However, if shareholders approve the London delisting, then it reduces the breadth and depth of a UK market already reeling from several snubs and high-profile departures.”

These articles are for information purposes only and are not a personal recommendation or advice.