By Barbara Kollmeyer
Better-than-expected growth data gave the pound a boost on Wednesday, but that came at the expense of U.K. stocks, weighed by major oil companies and a poor debut for a highly anticipated initial public offering.
U.K. gross domestic product rose 1.3% in the final quarter of 2020, versus the previous three months, upwardly revised from 1%, according to the Office for National Statistics. “Even so, this still puts the U.K. economic contraction for 2020 at -9.8%, the largest contraction in three centuries,” said Sophie Griffiths, market analyst at Oanda.
The household savings ratio rose to 16.1% in the fourth quarter, up from a revised 14.3% in the previous quarter. For the year as a whole, the savings ratio hit a record high of 16.3%.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0141% rose 0.4% to $1.3802, while the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.02% fell 0.5% to 6,740.32. A stronger pound can work against the index, as many listed multinational companies derive revenue from overseas and the currency’s strength makes their goods less competitive.
The FTSE is poised to gain 4% on the month and 4% on the quarter, against gains of 6.3% and around 8% gain for the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP +0.17% .
“While expectations were that U.K. stocks would outperform this quarter given its underperformance versus peers, that hasn’t rung true so far. The FTSE needs to see a move above 6800, out of its current holding pattern, in order for the bulls to gain momentum,” said Griffiths.
Weighing on the downside, shares of oil companies BP /zigman2/quotes/202286639/delayed UK:BP +0.44% /zigman2/quotes/207305210/composite BP -0.81% and Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA -0.43% /zigman2/quotes/205095589/composite RDS.A -1.76% fell over 1% each. Shares of heavily weighed bank HSBC /zigman2/quotes/208272822/composite HSBC +0.10% /zigman2/quotes/202090296/delayed UK:HUKX +0.06% dropped 1.3%.
There was a disappointing debut for shares of Deliveroo, which tumbled 25% in London. The food delivery company is backed by online retailer Amazon /zigman2/quotes/210331248/composite AMZN -1.17% . Shares of Deliveroo dropped to as low as 275 pence within the first 20 minutes of trading on Wednesday, from the IPO price of 390 pence, wiping more than £2 billion ($2.8 billion) off the company’s initial £7.6 billion ($10.5 billion) valuation.
“There are multiple ways of looking at the business. Bulls will say the [COVID-19] pandemic has made online food ordering part of everyday life and this trend will remain intact once life returns to normal,” said AJ Bell investment director Russ Mould, in a note to clients.
“Bears will say it is a highly competitive space, Deliveroo doesn’t make any money and that takeaway ordering volumes will ease once the pandemic ends. Fast growth jam tomorrow shares are no longer in fashion as investors now prefer lowly-valued stocks that offer jam today. That meant Deliveroo was already fighting a headwind as soon as it hit the stock market,” Mould said.