FTSE recovery stalls, Unilever hit by rising costs

“The FTSE 100 was pausing for breath on Thursday having done its best to pick itself off the canvas after being felled by Covid and inflation concerns at the start of the week,” says AJ Bell Investment Director Russ Mould.

“The market could be given some direction by the European Central Bank meeting later which may announce a shift in its plans as it looks to contend with mounting inflation.

“US weekly jobless figures will also be closely monitored later given US central bankers have long signaled that the jobs market is pretty much their lodestar when it comes to making decisions on monetary policy.

“Part of the narrative behind the market rebound in the last couple of days has been the idea that support for economies might be sustained for longer as the world stares down the barrel of rising Covid infections linked to the Delta variant.”

Unilever

“Consumer goods giant Unilever’s first half results followed a similar pattern to a lot of recent corporate updates. Yes they are enjoying a surge in demand but their ability to fully benefit from this surge in terms of profit is being compromised by rising costs.

“This also demonstrates some limitations on the pricing power of the company’s brands given it has not been able to pass on all of this extra cost to the consumer.

“The best Unilever can hope for is that it can keep operating margins flat for the remainder of the year.

“However, the strong sales performance does show that the company is well positioned against the current backdrop with its combination of cleaning and hygiene products alongside comforting household favourites which we have all reached for during the pandemic.

“Unilever is also streamlining its operations, separating out its tea and smaller beauty and care brands as it looks to focus on the really strong parts of the business.

“The surge in infections in the developing world is unhelpful to Unilever given its strong emerging markets footprint.

“Unilever has made a big play of its ESG credentials, however the recent decision by the independent board of its Ben & Jerry’s ice cream brand to stop sales to Israeli settlements in the occupied Palestinian territories, and the furious response it has triggered from Israel’s government, shows there can be costs to taking a stance.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.


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