Ftse 100 Hits A High On A Wave Of Resilience, Discounters Surf The Big Squeeze, Rolls Royce Car Sales Surge

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  • FTSE 100 hits a four year high as commodity, travel and energy stocks power ahead
  • 4 million homeowners will see fixed rate deals end this year
  • Average increase for those trying to re-mortgage of £250 a month
  • Discounters expecting a fresh wave of business as households try and cut bills
  • Lidl gained 1.3m British shoppers at Christmas amid living costs crisis
  • Consumer brand with pulling power unlikely to be completely immune to belt tightening
  • Rolls Royce and JLR see surge in sales as luxury market remains resilient.

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FTSE 100 Hits A Four Year High

The FTSE 100 has hit a four year high on a wave of resilience despite the headwinds whipping around the global economy. After an upbeat opening, stocks dropped back  before re-finding their mojo by mid-afternoon and reaching levels not seen since May 2018.

Fresh optimism has flowed into the index after the dismantling of Covid restrictions in China. The lifting of quarantine requirements for incoming travellers with now only a negative PCR test needed, has helped boost airline stocks with IAG (LON:IAG) among the biggest gainers today, up almost 4%.

China's Reopening

Hopes are high that China’s reopening will give consumers a big jolt of confidence, and help power the country’s recovery from the pandemic, particularly once waves of infections subside.

Expectations of higher demand for commodities in China has helped lift mining and energy stocks, and hopes are also rising that there may be a softer landing for the US economy from the ravages of interest rate rises.

The tech light nature of the FTSE 100 means it’s more immune to the uncertainty still hovering around the prospects for the tech sector while the weight of mining, energy and financial stocks in the index has helped add layers of resilience despite the volatility still swirling on US indices.

However, it’s unlikely to be plain sailing ahead for the FTSE 100 as worries about the cost-of-living crisis are hanging around.

Discounters Surf The Big Squeeze

The discounters are surfing the big squeeze, as a wave of bargain hunting crashes through the retail sector. With household budgets super-tight and with grocery prices still rising at eye-watering levels, the search for ways to trim bills is set to continue.

With borrowing costs rising for 1.4 million homeowners wanting to find new fixed rate mortgage deals this year, there will be little let-up in the search for value. Faced with an average rise of £250 a month, the average homeowner trying to re-mortgage will be attempting to cut costs elsewhere to try and make ends meet.

The axe is likely to fall on discretionary purchases, those goods and services we want, but we don’t really need. JD Sports which had shown resilience, amid hopes it could ride out the cost-of-living wave given the popularity of brands like Nike, has fallen back by around 2%. It comes amid worries that even sought-after names won’t be immune to belt tightening.

The extent to which households are feeling the pinch is clear in the HL Savings & Resilience Barometer, published today with Oxford Economics.. Almost nine in ten of the lowest income households suffer poor or very poor financial resilience, while those on middle incomes are starting to feel the squeeze too.

Lidl's Sales Surge

Lidl’s cheap offers helped attract more than 1.3 million more shoppers in the seven days to Christmas Eve compared with a year earlier and was bullish about the months ahead, expecting many more cash strapped consumers to switch to its trollies, with sales rising 24.5% during the festive four weeks.

The big grocers will be revealing the extent to which margins are being squeezed later this week, as they try and fight off the encroaching competition from the discounters, and it looks like there will be a tough scrap ahead.

Rolls Royce Car Sales Surge

The luxury end of the market looks set to ride out the cost-of-living storm, because wealthier consumers have much deeper pools of resilience to dip into. This is a trend not just evident in the UK, but in other countries around the world.

BMW owned Rolls-Royce Holdings PLC (LON:RR) has seen a record number of luxury cars sold, thanks to a surge in orders from the Middle East, as oil revenues pour in. Demand is also outstripping supply for Jaguar Land Rover given that the order backlog has risen to 215,000 cars.

Wealthier consumers are clearly brushing off the rise in grocery and energy bills with sales rising 13% in the UK alone. China remains a bleak spot, but as the economy reopens and consumer confidence returns, it may be a land of opportunity ahead.

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown