Biggest Stories of the Week

A Record High

The FTSE 100 (an index tracking the 100 largest firms in the UK by market capitalisation, including names like St James’ Place, Marks and Spencer’s, and Unilevers) has recently been closing on consecutive record highs. At first glance, this might seem somewhat strange: arguably we are still in a cost of living crisis and the rather disastrous “Kami-Kwasi” budget that ended Truss’ government still has lingering effects in the economy. So, why is the market closing on such highs?

Understanding the UK Stock Market Rally: Key Drivers

1. Rolls-Royce Holdings (RR): This company, known for making airplane engines, saw its stock price jump by 82.03% over the last six months. The increase is driven by the rise in travel and transport since the pandemic, pushing the stock to a record high. The company is also enjoying good expectations from investors for its growth in Green Industry.

2. Antofagasta (ANTO): You probably haven’t heard of this company before. But Antofagasta is a London-based multinational, and one of Chile’s largest conglomerates. Mining is the firm’s core business, representing over 96% of revenue and EBITDA. Antofagasta operates four copper mines in Chile, and it has seen its share price increase by 61.06% due to high copper prices.

3. NatWest Group (NWG): Despite not-so-great headlines about the government seeking to sell off its shares in the company, this British bank's share price rose by 55.04%, benefiting from higher interest rates which increase profits from loans and mortgages.

4. Persimmon (PSN): A large house builder whose shares are up by 15% as economic conditions improve and investors anticipate interest rate cuts and changes in government policies that might favour housing development. This is being fuelled by the fact that many people see Labour winning the 4th July general election, and one of their key promises is increasing the rate at which housing developments are built in the UK.

Shift in Investor Sentiment

Abby Glennie from abrdn notes that global sentiment is shifting in favor of UK stocks. After a period of low interest, more investors are now seeing the UK market as a good place to invest their money. This change is partly because the excitement around the US economy has cooled due to persistent inflation and delayed rate cuts.

Takeovers and Mergers

Laura Foll from Janus Henderson highlights that the UK market is experiencing a wave of takeovers. Big companies are being bought, which boosts their share prices. For example, Anglo American saw its shares rise after rejecting a bid from BHP Group, and DS Smith agreed to a takeover by International Paper.

Domestic Economic Improvement

Approximately 25% of UK companies' revenue comes from the domestic economy, which is showing signs of improvement. This domestic growth is reflected in share prices, especially for smaller companies more dependent on the UK economy.

While there are positive signs, the UK economy still faces challenges. The IMF predicts modest growth due to weak labor productivity and high illness-related inactivity. Inflation is decreasing but remains slightly above the Bank of England's target, which may delay interest rate cuts.

Another factor contributing to the prevailing bull market is that many UK companies are buying back their own shares, a trend that boosts share prices. This mirrors practices in the US where companies use excess cash to repurchase shares instead of paying special dividends, pleasing shareholders who prefer this method of returning value.

Though it is important to remember that, despite the current rally, UK markets haven't performed as well as those in the US, Europe, and Japan over the long term. Over the past twenty years, US stock markets have significantly outperformed their European counterparts, including the UK.

Financial Glossary

1. Bull Market: A period when stock prices are rising.

2. Interest Rates: The cost of borrowing money, which can influence bank profits and consumer spending.

3. Inflation: The rate at which prices for goods and services increase, affecting purchasing power and economic policies.

4. Gross Domestic Product (GDP): A measure of a country's economic activity, important for assessing economic health.

5. Takeovers: When one company buys another, often leading to a rise in the share price of the acquired company.

6. Share Buybacks: When a company repurchases its own shares to reduce the number of shares available, often boosting the share price.

From the Team…

Tourism Economics – By Katie Daly, Finance Reporter

Tourism economics explores the effects of tourism on the economy, which can simply be job creation, but also othermulti-faceted benefits it brings. However, it is important to recognise that tourism can also cause harm towards the economy, and the social community of an area. Throughout these bi-weekly articles, I’ll be exploring these dynamics and providing updates within the sector.

A prime example of this right now, which is currently making headlines both in the news and in social media, is Spain. It is currently experiencing a record surge in foreign tourists to the country, likely due to the slow-down of the COVID-19 pandemic and its subsequent affects. Tourism makes up a substantial part of the country’s economic services breakdown, in fact in 2023 it accounted for 71% of real growth within the country. Therefore, the increase in tourismthis has led to job creation and growth, proven by the 16-year low unemployment rate. This started the chain of multiplier affects, and consequently economic growth. This has been proven by Spain’s first quarter growth of 2024, which outperformed many European economies.

This appears to have been a good thing for Spain and its residents, however that is clearly not felt, as demonstrated by the many ‘Go Home’ markings across the city of Barcelona. A reason for this could be due to the high investments within the city, and Spain in general, that is pushing prices up for properties and forcing locals out of their area. This has also been seen in the Canary Islands, where last month, tens of thousands of locals took to the street to protests the mass tourism experienced, and the subsequent negative effects.

So how can Spain continue to enjoy this boom of tourism, whilst satisfying residents? They have already begunin certain regions, such as the imposition of hotel water usage within the Catalonian region, and tougher laws to curb excessive drinking within the Balearic Islands. A ban on tourism in Spain has been dismissed by Tourism Minister Jordi Hereu on the 8^{th of} May, however he did mention the potential limits on the tourist offer, which is already being seen as mentioned above. Will they work? They may certainly help on the ‘bad behaviour’ and even ecological worries of local residents, however it is hard to see how they will continue to enjoy this tourism boom without property prices and potential gentrification looming.

It is important that Spain does not rely on the tourism sector too much, as the economic growth and even boom as some are describing will not be sustainable, and if it crashes, could cause devastating affects for the country and its economy. The public spending being pumped into the country at the minute will not be sustainable either. Therefore, Spain must find a balanced approach to take advantage of this tourism opportunity, whilst mitigating the challenges faced at the same time.

Stories to Watch

Protectionist subsidies are back in vogue! The story of a US-China trade war is nothing new, and now Mr Musk is weighing in on Biden’s 100% tariff of Chinese EV imports

The chocolate industry has been quite the unlikely target of headlines recently, with accusations of shrinkflation, collusion, and anticompetitive behaviour;

Opportunities in Finance

Thanks for reading through another issue! If you’ve read this far, you might be interested in joining the Girl Economics Ambassador program for sixth form and college students that will be launched at the start of next week.

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• Erin