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“It has been a turbulent week as the sceptre of inflation once again spooked investors however it looks like last night’s Wall Street rally is providing a port in a storm for the FTSE 100 as it enjoyed a solid bounce on Friday morning,” says AJ Bell Investment Director Russ Mould.
“The big economic update coming down the pipe later is the US retail sales release. We’re operating in a through the looking glass world where seemingly bad news is taken positively by the markets on the basis it means central banks won’t pull back on the stimulus front or put up rates.
“If retail sales have surged across the Atlantic then that would likely be a headwind for equities as it would stoke the concern about rising prices and what the US Federal Reserve might need to do to keep them under control.
“Keeping cases of the so-called Indian variant of Covid-19 under control is the something the UK is facing up to and it is prompting some concern that the next phase of reopening might be delayed, or localised restrictions introduced. This uncertainty could hit the hospitality and travel sectors.”
Sage
“The latest results from accounting software firm Sage may be a little hard to pick through but the conclusion seems to be that the company is heading in roughly the right direction.
“Critically there was evidence of at least some of the organic growth in recurring revenue which is front and centre in the company’s strategy.
“Historically Sage was a ‘steady-eddy’ business built on a license sales model, where most of the contracted cash came up front with high margin servicing and maintenance income rolling in over the term of the contract.
“In recent times its market has been disrupted by cloud computing as clients look to access applications on any internet-enabled device and this has led to volatility in the share price.
“Even if users stick with Sage’s cloud offering, the shift away from licences typically diminishes upfront revenue and cash flow, and requires significant investment.
“This in turn drags down growth rates in the near term even if it produces a typically reliable subscriptions-based income stream over time.
“Plus Sage operates in a competitive marketplace and has plenty of rivals who were ‘born in the cloud’ and therefore don’t face the same painful metamorphosis it does.
“To convince the market it will eventually emerge as a beautiful butterfly of a business, the company needs to show it can improve profitability while continuing to grow its subscription revenue.”
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