UK rate cut talk lifts housebuilders, banks and supermarkets, FTSE 100 hit by oil price retreat, De La Rue bounces on division sale, Nvidia at new record high and Bellway shares soar on upbeat outlook

“Domestic-focused UK stocks were in the spotlight as the latest economic data strengthens the argument for a drop in the cost of borrowing,” says Russ Mould, Investment Director at AJ Bell.

“The Bank of England is carefully engineering a soft landing as the UK economy loses momentum. A decline in the unemployment rate suggests the labour market isn’t in trouble, yet lacklustre GDP figures for July and August, combined with a slowdown in the rate of pay growth, means a small interest rate cut might be warranted to help grease the wheels and get the country moving a little bit more.

“Markets are now pricing in an 83.5% chance of a quarter percentage point rate cut when the Bank of England’s monetary policy committee meets next month. Shares in housebuilders, banks and supermarkets responded favourably to the latest economic data and how it could lead to a rate cut, but not every consumer-facing stock got a bounce. Retailers Next and Currys were in the red which suggests some caution on behalf of investors, namely that another rate cut isn’t a guaranteed ticket to consumers splashing more cash.

“A big decline in the oil price is welcome news for businesses and consumers as there was a moment last week when it looked like energy and transport bills could go through the roof. Brent Crude fell 3.7% to $74.59 per barrel, an unusually large single-day movement for the commodity price as markets take a more cautious view over demand. The trigger was a report yesterday from OPEC which lowered its outlook for global oil demand growth this year and next. The drop in the oil price acted as a drag on the FTSE 100, with oil and gas producers BP and Shell and commodities trader Glencore among the biggest fallers.

“Among small caps, De La Rue soared after striking a deal to sell its authentication business for £300 million. That will help to boost its balance sheet and put it in a stronger financial position to strengthen its currency division which is expected to be sold in the near future. It’s already held talks with interested parties but has kept quiet on who they are and how much they are willing to pay.”

Nvidia

“Nvidia was the talk of the town after its share price hit a new record high, closing at $138.07 and valuing the business at $3.39 trillion. It is closing in on Apple’s $3.52 trillion valuation and extending the gap between Microsoft which is worth $3.12 trillion.

“After seeing a bout of market rotation into defensive stocks over the summer, it seems as if investors are once again feeling brave enough to ratchet up the risk rating in their portfolio and go after more go-go growth names.

“The Federal Reserve is widely expected to cut rates by another quarter percentage point next month which could add some fuel to the momentum in tech stocks, assuming no drama from the US presidential election.

“More companies are now embracing artificial intelligence in their everyday tasks and demand remains strong for Nvidia chips. It is certainly in a sweet spot and so long as we avoid a big economic downturn in the US, there is a feeling that companies will continue to invest heavily in AI capabilities, creating a healthy tailwind for Nvidia.”

Bellway

“The stars are finally aligning for the housebuilding sector. The new government has pro-housing policies with a promise to relax the planning system which has caused hold-ups and headaches in recent years; interest rates are coming down which makes mortgages more affordable; and property prices are strengthening. It’s no wonder that Bellway is so optimistic despite reporting a drop in profits.

“Bellway is sitting on a big bank of land, ready to build more houses which should underpin future profits. It is also in a relatively strong financial state with only a small net debt position.

“The public is growing more interested in buying its homes. Average weekly reservation rates are going up, which is encouraging for the business. However, there is still a lot more work to do before it can truly be sitting pretty. Margins were hit over the past year and it needs to rebuild them. It also needs to improve the returns on the money it spends.”

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