Analysis of Stock Market Trends in the UK and Key Market Movers

Much of the UK’s stock market is on a downturn, especially sectors closely tied to the Chinese economy. The trade disappointing trade data from China is partly to blame. Recently, the FTSE 100 closed up 0.5% at 8,198.78, driven by Rentokil’s 7.8% surge amid takeover talks. Conversely, airline stocks, including easyJet and British Airways, saw significant declines.

The FTSE 100, the top index of the LSE, is often used to measure the overall UK stock market. It includes well-known blue-chip companies. During the Covid-19 pandemic, the FTSE 100 plummeted from 7,500 to 5,000, which was the accurate picture of the struggling market.

Even with the general downturn, some stocks show growth potential. They have solid fundamentals backed by resilience and growth in less explored market areas. These stocks are beyond the FTSE 100. Smaller companies like those in the FTSE Fledgling index have shown superior returns. Investors in this index enjoyed a nearly 60% total return over the last three years, outperforming the FTSE 100.

In the FTSE 250, Ocado rose 12% due to a significant order from Kroger Co., while Ceres Power jumped 7.5% after a new licensing agreement.

The CAC 40 and DAX 40 in European markets rose 1.2% and 1.4%, respectively. Meanwhile, US markets also saw gains, with the DJIA up 0.4%, the S&P 500 up 1.0%, and the Nasdaq Composite up 1.5%. This follows President Biden’s decision to withdraw from the race. His decision could have negatively influenced the market. But Vice President Kamala Harris provided much-needed stability. Her presence helped prevent panic.

Short Overview of the UK Stock Market

The London Stock Exchange (LSE) is one of the world’s oldest and most significant stock exchanges. It facilitates issuing and trading shares and bonds for companies and governments. It comprises two primary markets: the Main Market and the Alternative Investment Market (AIM).

Main Market

The Main Market hosts over 1,000 companies from around 100 countries. Some major names here include Shell, AstraZeneca, HSBC, and Unilever.

This market has three segments: high-growth companies, specialist funds, and premium companies. It has stringent listing regulatory requirements by the Financial Conduct Authority (FCA). But, it recently relaxed some rules to attract more initial public offerings (IPOs). The ‘free float’ requirement is now 10% from 25%, but the minimum market capitalization increased to £30 million from £700,000.

Alternative Investment Market (AIM)

AIM serves as an alternative for small and medium-sized companies to access funding. It was Established in 1995 and has approximately 800 companies listed. Some popular names here include Jet2, BooHoo, Hotel Chocolat, and YouGov.

Companies choose AIM for its lighter regulatory requirements. It is easy to list here and less costly than the Main Market. AIM has no minimum ‘free float’ or market capitalization and doesn’t require a three-year trading history.

AIM attracts higher-growth companies in earlier development stages. According to Grant Thornton, AIM companies average a 40% revenue growth in their first three years post-IPO. AIM is not limited to smaller companies; it includes firms with market capitalizations exceeding £1 billion. Notable companies like ASOS and Domino’s Pizza began on AIM before moving to the Main Market.

The LSE generally provides diverse opportunities for companies at various growth stages. Traders and investors can find potential growth stocks in either market.

Recent Trends in the UK Stock Market

In technical analysis, trendlines or price action show higher swing highs and lows for an uptrend and lower swing lows and highs for a downtrend. A trend shows the overall direction of a market or an asset’s price.

The LSE closed in the red on Friday due to a significant global IT outage and a drop in UK retail sales. But on Monday, with the news that US President Joe Biden will not seek re-election, stock prices closed predominantly higher. His decision to withdraw from the race could have sent the market down. But Vice President Kamala Harris’s presence prevented the market panic as she provided for continuity. Biden’s exit might weaken the dollar, which had surged in value over the past years due to the Federal Reserve raising interest rates.

Individual stocks showed mixed results. Airlines slid after Ryanair’s warning, while Rentokil led the FTSE 100 higher, closing up 43.06 points, or 0.5%, at 8,198.78. The FTSE 250 gained 71.00 points, or 0.3%, to close at 21,138.68, and the AIM All-Share edged down 0.1% to 783.24. The Cboe UK 100 ended up 0.8% at 819.01, the Cboe UK 250 rose 0.6% to 18,471.98, and the Cboe Small Companies fell 0.2% to 17,315.81.

European markets also saw gains, with the CAC 40 in Paris up 1.2% and the DAX 40 in Frankfurt up 1.4%. In the US, the DJIA rose 0.4%, the S&P 500 climbed 1.0%, and the Nasdaq Composite increased 1.5%.

Notable stock movements included Rentokil, which jumped 7.8% amid takeover talks. Conversely, airlines like EasyJet and British Airways saw significant declines. In the FTSE 250, Ocado rose 12% following a major order from Kroger Co. Elsewhere, Ceres Power jumped 7.5% after signing a global licence agreement.

Brent oil was quoted at $82.15 a barrel, down from $84.04, and gold at $2,397.10 an ounce, down from $2,404.10.

Learn about Global Economic Recovery Post-Pandemic in our other guide.

Key Market Movers

Market movers are events or factors that can cause price changes. Understanding market movers is crucial for traders’ analysis before entering or exiting a market.

Predictable Market Movers

These include macroeconomic data, such as the GDP, employment rates, and central bank decisions. The data release dates are available on an economic calendar. Critical economic data, including a eurozone consumer confidence reading and US GDP, are expected later in the week.

Sudden Market Movers

These are unexpected events, such as natural disasters or geopolitical events. They can cause abrupt market movements.

Economic indicators include GDP, employment rates, inflation, and consumer spending.

Interest rates and political events are trading market movers. Central bank changes in interest rates significantly influence currency values and stock markets.

Political events like elections, policy changes, and trade agreements can also create market volatility.

Pre-market movers 

These factors affect market fluctuations before the market opens, so traders who review these movements early have an advantage.

To trade using market movers:

1. Stay updated with economic calendars and news.
2. Analyze past data to see how events usually affect the markets.
3. Practice strategies with a demo account before investing real money.

By understanding market movers, you can make better trading decisions.

Final Thoughts

The UK stock market is down, with declines in China-linked sectors and airline stocks. The FTSE 100 rose slightly due to Rentokil’s increase. Despite the slowdown, smaller indices and companies show growth potential. Track key indicators and market movers, like interest rates and political events. In a few easy steps, start trading by choosing a broker from the listed options.