FTSE 100 hits new record high, retail sales plunge, reports of merger talks between Rio Tinto and Glencore, DFS warns of weak demand and upgrades at William Hill owner

“The FTSE 100 has hit a new record high despite all the doom and gloom around Budget-related cost pressures on businesses and a sell-off in the government bond market,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“It’s refreshing to see positive news around the UK stock market given its unloved reputation.

“Helping to drive the index up more than 1% and above its previous intraday record of 8,474 in May 2024 was a further slump in the pound as retail sales came in below expectations for December.

“Three quarters of companies in the FTSE 100 generate their earnings overseas, and the relative value of those foreign earnings is boosted when the pound weakens. The natural resources sector was also lifted by merger and takeover chatter, encouraging investors to bid up shares in the likes of Glencore and Anglo American.

“Weak UK retail sales in December are a worry as they indicate further pressure on the economy following weak GDP data yesterday. Traders are pricing in an 81.5% probability that the Bank of England will cut interest rates by a quarter percentage point next month. Retailers will be keeping their fingers crossed this happens as it could help to take some of the pressure off household finances and encourage more spending.”

Rio Tinto / Glencore

“The prospect of Glencore merging with Rio Tinto is like trying to force a square through a circle-shaped hole. Fundamentally it wouldn’t fit, and the only solution would be to trim off the sides such as getting rid of Glencore’s coal assets. Even then, it would be like picking up two magnets and putting the like poles together, instantly repelling each other. This would not be a marriage made in heaven.

“Culturally, the two companies are worlds apart. Rio Tinto has gone down the path of being an environmentally responsible miner, ditching coal years ago and trying to forge a reputation of being a cautious, more considered business.

“Glencore is all about making the big bucks, no matter what it takes. It has a reputation of being the bad boy of mining and a US attorney once declared that ‘bribery was built into the corporate culture’ at Glencore. It recently committed to keeping coal in its portfolio, believing it to still be a lucrative source of income despite it being an environmentally unfriendly product.

“Both companies have a keen interest in copper and Glencore also markets third party iron ore while Rio Tinto is a big producer of that commodity. That’s where the similarities end.

“So why has there been merger talk? The commodities industry goes through peaks and troughs, and miners can get frustrated when prices aren’t surging ahead. They’re addicted to M&A and prolonged share price weakness only serves to drive curiosity around combining forces with a rival in the quest for cost efficiencies and increased market scale.

“For example, BHP moved on Anglo American last year following share price weakness in the target. We’ve also seen quite a bit of M&A activity among gold miners before the recent precious metals price rally.

“Over the past 20 years there have been plenty of multi-billion-dollar mergers and takeovers in the mining sector, such as Glencore joining forces with Xstrata, Rio Tinto buying Alcan, and Vale buying Inco. By combining forces, the hope is that the enlarged company will profit big time when there’s the next upcycle in commodity prices.”

DFS Furniture

“A sofa is an expensive purchase for most households so the likes of DFS need people to be feeling confident about their finances and for there to be a healthy property market in order to be confident on demand. If that isn’t the case, households might be tempted to stick with their old suite even if it is starting to look a bit tired and worn.

“Unfortunately, the situation in the UK is uncertain and that is reflected in DFS’ warning of sluggish demand as 2025 gets underway.

“Reupholstering the company’s strategy delivered improved profit in the six months to the end of December as costs came out of the business. However, cost pressures are likely to increase again thanks to hikes in the National Living Wage and employers’ National Insurance contributions.

“All DFS can do is ensure its business is run as efficiently as possible and wait for an upturn in consumer confidence to encourage increased spending in its stores again.”

Evoke

“William Hill owner Evoke has signalled a change in fortunes as it said annual results would come in ahead of forecasts.

“One of the big negative factors that’s weighed on its share price is an onerous debt pile. Therefore, when the company announces its numbers in full, investors will want to see evidence of strong cash generation and that the company is bringing its borrowings back under control.

“Today’s positive update follows on from the first positive quarterly revenue growth in two years reported in October and suggests the company is starting to lay the foundations for recovery.”

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