Markets around the world were generally trading flat on Wednesday, with UK markets registering very little movement either up or down. The FTSE 100 index bounced between small gains and losses throughout the trading day, eventually edging up by 10 points by the close of the day. The benchmark London index is now closed at 5,484. Meanwhile, the FTSE 250 index, which tracks London-traded mid-cap companies, recorded a small loss. The index fell by 23 points, or 0.2%, to close at 10,539.
“[Today’s] choppy trading is a testament to short term trading habits,” explained Joshua Raymond, chief market strategist at City Index. “This is understandable given the fact we have a significant election pending this weekend in Greece which could well culminate in whether Greece is forced to leave the single currency or not ... We have [also] seen benchmark Italian and Spanish bond yields fall marginally today but remain at extremely high levels, keeping investors cautious.”
Sainsbury and WPP Shares Slide
While the overall markets were not registering any major gains or losses, there were some key companies within the FTSE 100 that were seeing significant price movements.
Specifically, shares in the retailing giant J Sainsbury (SBRY) tumbled by 2.6% after investors expressed dismay based on the company’s latest first-quarter trading statement. The company reported a 1.4% increase in like-for-like sales, excluding fuel.
“Sainsbury released fiscal first-quarter sales in line with our and consensus expectations,” said Morningstar analyst Michael Keara. “The positive like-for-like sales contrast with the negative comparable-store sales at rival and industry leader Tesco, which suggests market share gains. However, Sainsbury's quarterly results included Queen Elizabeth II's Diamond Jubilee, while Tesco's latest sales release did not.”
Clive Black, an equity analyst at Shore Capital, also explains Sainsbury’s declining popularity amongst investors: “The UK food retailing sector is understandably out of favour at present reflecting the tough consumer economy manifested in falling volumes and compressed margins; Sainsbury is struggling to build its return on sales [and] is also girding its loins for whatever a self-improving Tesco UK can throw at it by way of competitive pressure.”
Shares in WPP (WPP) also fell by 2% after 60% of the marketing agency’s investors voted against the remuneration packages of the firm directors and its chief executive, Martin Sorrell.
Across the pond in the US, new data was released showing May retail sales fell by 0.2%, making this the second consecutive month of declining sales.
Upcoming Banking Reform Announcements
Looking ahead to Thursday, Chancellor George Osborne will be making a major Mansion House speech about banking reform plans. It is widely expected that he will announce proposals that savers be given extra protection in the event of a bank collapse. However, there are concerns that enacting this proposal could be costly for banks.
Professor Philip Booth from the Cass Business School expressed concerns over the costs of some of the regulatory reforms. “In revealing the government’s proposals on the regulation of the banking sector, it is important that George Osborne does not impose costly policies that will have no benefit. Already we are seeing the UK economy strangled by the lack of bank funding caused partly by additional regulation and it is important that this is not exacerbated. The ring-fencing of deposit-taking and other banking functions from each other is largely irrelevant and may drive banks away from the UK.”
