Ftse hits new record as grocery shares climb

Christmas spending at UK supermarkets and weak sterling helped boost London’s Ftse 100 blue-chip index, which hit fresh record highs yesterday, as other European shares also ended slightly in positive territory.

The Ftse 100 rose 0.5% after hitting an all-time high 7,284.81 points. France’s Cac 40 was flat and Germany’s Dax added 0.2%.

The Iseq Overall index rose 0.3% to 6,596.12. Coming on the heels of its best performance relative to the Stoxx Europe 600 Index in three decades, the Ftse 100 has climbed 1.9% this month as a further slump in sterling boosted UK exporters, and commodity producers rallied.

“It’s been an unbelievable start to the year — the UK economy is looking fine and additional sterling weakness continues to improve the outlook for corporate earnings,” said Yogi Dewan, chief executive of Hassium Asset Management.

“Ftse 100 CEOs must be high- fiving each other. But I would say the market is getting overbought now and it’s time to be a little more cautious,” he said.

In London, retail shares were heavily in focus. Morrisons raised its profit forecast after enjoying its strongest sales growth in seven years over the Christmas period, while industry data showed market leader Tesco was also a festive winner.

Morrisons was among the top gainers after Christmas trading results exceeded expectations. Its shares ended up 3.6% in heavy volumes.

Shares in Britain’s largest retailer, Tesco, rose 6%. Metro underperformed its UK peers with a flat close after the German discount retailer reported sluggish festive sales.

Britain’s overall grocery market sales grew 1.8% in the 12 weeks to January 1, the fastest growth since June 2014, data from market researcher Kantar Worldpanel showed. It said higher prices were returning to the market after two years of deflation.

While a return to food price inflation, in moderation, would be welcomed by investors in food retailers as it can boost sales and profit margins, the flip side is that it may begin to squeeze UK consumers’ purchasing power later this year.

Analysts at Jefferies said the sector’s major players faced a tough 2017, given the weakness of sterling, oil, and commodity price rises, a deterioration in the outlook for UK disposable income, and discounters’ willingness to sacrifice profit margins with further price cuts.

Nevertheless, they see Morrisons, for which they have a “hold” recommendation, as better able to withstand these pressures than rivals.

Led by a new management team, Morrisons reported a fifth straight quarter of underlying sales growth, showing it was getting to grips with the turmoil sparked by the advance of German discounters Aldi and Lidl. Sainsbury’s was up 1.6%.

Sainsbury’s and Tesco publish their trading updates today and tomorrow, respectively.

Morrisons, Britain’s fourth-biggest grocer, said more competitive pricing, new premium products and improved store standards helped it beat expectations for Christmas trading.

“We’re delighted to have found our mojo,” chief executive David Potts said. “We’re still in the fix phase of this company’s recovery programme. However, our customers are responding.”

Morrisons said sales at stores open over a year, excluding fuel, rose 2.9% in the nine weeks to January 1.