Interactive Investor

FTSE 100 dogs have their day

18th October 2016 15:19

Lee Wild from interactive investor

A yo-yo period for the FTSE 100 continues Tuesday as out-of-favour stocks made a comeback. Among them was handful of the companies we featured in our 'new dogs of the Footsie' strategy late last week.

Next is top of the risers, up 5%, after Deutsche Bank repeated its 'buy' rating and 5,950p price target, and Marks & Spencer is doing well. The pair are down 35% and 27% in 2016 so far despite the FTSE 100 recently hitting a record high.

Clearly, investors like the latest inflation data. Headline consumer price inflation (CPI) came in at a bigger-than-expected 1% for September versus 0.6% a month earlier, driven largely by clothing, especially a 6% month-on-month increase in prices for women's outerwear.

This increase in clothes prices during September is, as the Office for National Statistics (ONS) points out, in line with normal seasonal trends and follows a sustained fall in prices between March and July.

"CPI inflation has risen to its highest for nearly two years, though it remains low by historic standards," said Mike Prestwood at the ONS. "The prices paid by manufacturers for raw materials were unchanged over the month and there is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods."

Shilen Shah, bond strategist at Investec Wealth & Investment, says the September figure "is a confirmation that the long period of low inflation is over", adding: "Governor Carney's comments last week are however a confirmation that the BoE will not react to the data, as it continues to view the currency's fall as a shock absorber to the uncertainty created by the Brexit vote."

The problem for UK PLC could come if wages fail to keep pace with rising prices.

There are gains for another of our "dogs" as buyers chase easyJet up 5% to prices not seen for a week. And that's despite a mild profits warning from fierce rival Ryanair. Less than a fortnight after easyJet cut forecasts again, the Irish budget airline has cut full-year profit expectations by 5%.

Ryanair now expects to make €1.30-€1.35 billion this year, down from €1.75-€1.425 billion previously. It blames the weak pound for a bigger-than-anticipated drop of 13-15% in fares during the second half. However, profit is still tipped to increase by 7% over the 12 months.

British Airways owner International Consolidated Airlines is up too.

Traders are also piling into Dixons Carphone just a few weeks after bailing out on concerns Samsung's decision to scrap its new Galaxy Note 7 smartphone would hit business.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Related Categories