UK Giants Tesco and HSBC Soar to New Highs

The UK's premier supermarket chain continues its upward course as inflation eases, while the largest bank aims to double down on its strategy in China.

Growing Gains in Grocery

The UK's leading grocer has seen its share price reach levels not seen since late 2013, an upward trend largely uninterrupted since September of last year. Despite a slump in UK retail sales in December, Tesco (along with M&S) bucked the trend. Tesco , a feat attributed by the company's leadership to providing improved value. In fact, along with other budget-friendly grocery outlets like Lidl over the past year, at the expense of more "mid-range" competitors, indicating that the UK grocer market is still being impacted by consumers concerned about the effects of inflation.

According to Kantar, grocery inflation has been slowing down, partly thanks to increased supermarket promotions. The company itself is optimistic about continuing to benefit from investments made earlier in the year, which have pushed its market share to its highest level in nearly a decade. Tesco reports that food sales (+3.7%) are growing faster than non-food (+1.8%), but this does not appear to adversely affect its bottom line, as it raised guidance along with its interim results. The company also completed a £1 billion share buyback programme recently, and with £1.4-1.8 billion in free cash flow expected for the current fiscal year, it could announce another repurchase along with its final results on April 10.

A Historic Recovery for HSBC?

Europe's largest bank has seen its stocks rise over 7% since the start of the year, the latest leg up in a years-long upward trend that could see it return to levels not seen since the subprime crisis. This comes as the bank continues its reorientation with , moving away from its struggling Europe and Americas investment arm to focus on Asia and deepen its connections in China.

HSBC has been affected by the Chinese housing market as one of the banks offering mortgage loans, particularly in Hong Kong. However, the company's CEO, Mark Tucker, was in Beijing last week along with UK Chancellor Rachel Reeves to "accelerate and sustain forward momentum" in . While the company looks to double down on the areas where its operations are the most profitable, it is caught between geopolitical tensions that have set the US and Europe at odds with China. After announcing its major refocus, investors were initially unsure of how to react, with the HSBC stock largely stable in the immediate aftermath. The bank will report earnings on February 19th, with investors likely keen to see what effect the changes will have on guidance and what could be the catalyst for a move higher.

Tesco Breaks Ascending Triangle?

Tesco might have left behind an ascending triangle pattern, a bullish continuation signal that suggests further upside could be in store. The measured move indicates a potential move to 410 GBX from the breakout point of 375 GBX, though this remains valid as long as the stock continues trading above the triangle. A breakout above the 400 GBX handle at this level could confirm the pattern and open the door to the objective. On the other hand, coming back within the triangle would expose 360 GBX, with further declines paving the way for the triangle low of 340 GBX.

Key Takeaways

UK giants Tesco and HSBC have seen remarkable share price gains in recent months, with the former supported by slowing inflation and the latter expected to capitalise on a strategic shift towards Asia and China. While Tesco may see further progress from a technical perspective, HSBC's earnings on the 19th may provide the catalyst markets are waiting for.