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FTSE rallies 1% as tech rebounds, Macron wins big

Brexit fears set aside as US technology stocks rally and Europe lifted by French president Macron's electoral success.

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by Gavin Lumsden on Jun 19, 2017 at 17:30

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FTSE rallies 1% as tech rebounds, Macron wins big

A rebound in US technology stocks and optimism over French president Emmanuel Macron's stunning electoral success pushed markets higher.

In the UK the start of formal Brexit talks with the European Union caused nervousness but no market pull back as the FTSE 100 extended its early gain to close 60 points or 0.8% higher at 7,523.

US technology stocks have been under pressure for over a week following a Goldman Sachs note that questioned investor complacency towards the highly valued growth stocks.

However, a $13.7 billion bid on Friday from Amazon (AMZN.O) for Whole Foods Market (WFM.O) has restored the sector's mojo with the tech-heavy Nasdaq Composite up 1.2% to6,225.

The S&P 500 advanced 0.7% to 2,449 as other tech giants such as Apple (AAPL.O), Microsoft (MSFT.O) and Alphaet (GOOGL.O) rose strongly.

David Jane, multi-asset manager at Miton, said the argument that the big tech 'FANG' stocks were in bubble territory was weak. 'The rise has been steady, but not accelerating. Clearly, this may change and we may enter the period of irrational exuberance, but right now we would not be panicking.

European markets jumped nearly 1% with the FTSEurofirst 300 index up 14 points at 1,541.6 and French blue chips pushing the CAC 40 09.9% higher at 5,310.7 after Macron secured an overwhelming majority in parliamentary elections yesterday.

Banking stocks led the rally after Macron’s fledgling En Marche party won 350 out of 577 seats in the republic’s lower house, a remarkable result only marred by low voter turnout.

Investors hope the centrist politician will use his astonishing rise to power to reform France’s restrictive labour laws and expensive pension system and revive faith in the European Union, which has been battered by Brexit.

Elliot Hentov, head of policy and research at State Street Global Advisers, called the result a ‘wholesale political revolution’ although he cautioned Macron would encounter public hostility to his reforms.

‘The impact could be structural and two-fold, both in boosting French investment and productivity gains as well as in setting the stage for more audacious reforms of the eurozone,’ he said.

On currency markets the euro edged higher against the pound to 87.57p as sterling eased as Brexit talks kicked off in Brussels.

The pound also retreated against the dollar, down 0.3% at $1.2738, as senior Conservative politicians on both sides of the Brexit debate vied for influence as speculation about prime minister Theresa May's future mounted following the party's poor showing in the general election and criticism of the government after the Grenfell Tower fire last week.

In the UK supermarket shares remained in the spotlight after Amazon's unexpected bid for US premium grocer Whole Foods.

J Sainsbury (SBRY) was among the initial fallers on both sides of the Atlantic after the news broke on Friday as investors worried about Jeff Bezos’ ecommerce giant upping its expansion into grocery deliveries.

Today the shares bounced back 2.2% or 5.6p to 258p on reports that Sainsbury had beaten rivals Co-op and Morrisons (MRW) in bidding for convenience chain Nisa.

Nisa, a mutual network with 1,400 members running 2,500 shops, recently hired advisers to help it respond to the threat of Tesco’s controversial takeover of wholesaler Booker. Swallowing Nisa would enable Sainsbury to match its rival’s bid to beef up its presence in corner shops, although it requires the support of three quarters of the group’s members to go ahead.

Sainsbury’s advance helped lift the FTSE 100 35 points or 0.5% to 7,498, although the top blue chip riser was G4S (GFS), up 4% to 334p, as the security firm continues its rally after returning to the index this month.

Meanwhile Ocado (OCDO) shot up 11% or 30p to 296.4p after analysts at Exane upgraded the online grocer to ‘outperform’. They reckoned Ocado stood a chance of becoming Amazon’s distribution partner as it sought to expand its home shopping business.

Its spike helped the 'mid cap' FTSE 250 index rise 56 points or 0.3% to 19,873.

Also buoying sentiment was shareholders sealing the merger between Standard Life (SL), up 2.4%, and Aberdeen Asset Management (ADN), up 5% to 294p.

Investment trusts dominated the top risers in the FTSE Small Cap, helping the index add 11 points to 5,625. JPMorgan Smaller Companies, Schroder Income Growth (SCF ) and Edinburgh Worldwide (EWI ) notched up gains of around 3.5%.

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3 comments so far. Why not have your say?

This `Macron effect' will turn out to be a huge delusion.

A mere 42% of the electorate bothered to vote at all, and by definition those most likely to vote are those who are excited by a new political party.

But what it actually means is that the large majority of French people are apathetic, believing nothing will change, and this probably includes most of the people that Macron expects to be enthused by his labour reforms.

Neither he nor most of his MP's have any significant experience of government, and there is a huge gulf between theoretical reforms such as reducing the rights of the unions, and actually achieving them.

French unions are far more aggressive and effective than those in the UK, and they have brought far more experienced guys than Macron to their knees.

Likewise, the average member of the petit bourgeoisie is fairly reactionary and opposed to any more of his salary disappearing in tax, so Macron's got his work cut out there as well.

But what will really turn his dreams to dust is the French public sector. They are used to having comfortable, overpaid jobs and they will not just sit back and let him change things. They are experts in silent resistance, and will simply tie up any reforms they don't like in red tape .

I predict he'll be gone within 18 months, back to the private sector where his talents might actually work, and that French politics will then settle comfortably back into its old ways.

It's no coincidence that it was he French who invented the phrase, "Plus ça change, plus c'est la même chose."

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An interesting comment Michael, but if Macron fails where does France go next?

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an elder one

Jun 19, 2017 at 21:26

A good summary Michael!

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