FTSE consolidates gains as Fed hedges its bets, Royal Mail upbeat despite cost pressures, and pubs look to prepare for a difficult winter

“The FTSE 100 consolidated its recent gains on Thursday after a meeting of the US Federal Reserve overnight which ultimately revealed few surprises,” says AJ Bell Investment Director Russ Mould.

“There was nothing to really upset the apple cart. Tapering is still ‘coming soon’. As a teaser this is about as welcome for markets as a trailer advertising a sequel to historic box office stinker Howard the Duck would be for moviegoers, but, still, nothing investors weren’t already aware of.

“There does appear to be some hardening around the idea of a rate rise in 2022 but again this is not a major shock and at least indicates some confidence around economic prospects despite the recent volatility in equities.

“There is unlikely to be any movement from the Fed’s counterparts at the Bank of England later today – despite inflationary pressures creeping up. However, there will be an expectation of some kind of signal on when its own asset purchases will be scaled back and if a UK rate rise could be in prospect next year.

“Both central banks need to ward off the nightmare scenario of stagflation and for both this involves walking a bit of a tightrope at present.”

Royal Mail

“There is a common theme in the markets, namely that lockdown winners haven’t been able to match the volume of product sales as in 2020 but they are ahead of the same period in 2019. That must be judged as progress, given how last year was such an unusual period for all businesses.

Royal Mail certainly falls into this category, with its latest update showing parcels down on last year but up versus 2019’s figure.

“The company seems convinced that the world has changed permanently and we’ll all going to be sending parcels in greater volumes.

“There is a lot of merit to this view as the pandemic has accelerated the shift to e-commerce and so many people have realised it is a lot more convenient to order goods online and have them delivered to their doorstep than trudge round the shops.

“Royal Mail seems unusually bullish, maintaining earnings guidance despite clear headwinds from cost pressures. That’s a dangerous stance to take as the stock market likes companies that under-promise and over-deliver, not the other way round.

“The surge in parcel volumes has given Royal Mail a reason to be more optimistic but it isn’t necessarily the final solution to its years of disappointing investors.

“Longer term Royal Mail still needs to work hard at improving operations and making them efficient. Parcel delivery remains an incredibly competitive space and letter volumes are likely to keep falling. To boost profit margins, Royal Mail must become a leaner, meaner business with even greater automation.”

Pubs

“Fans of Shaun of the Dead may have been disappointed that, unlike the stars of the film, sitting out the pandemic in their local until it all blew over wasn’t an option. Now punters are permitted to head back to the pub it looks like they are doing so in decent numbers.

“Judging by the latest updates from pubs groups Mitchells & Butlers and Fuller, Smith & Turner it is food-led rural and out-of-town venues which are leading the way, helped by a big surge in domestic tourism and the fact they typically enjoy greater amounts of outdoor space.

“Trading is still soggy for wet-led city centre establishments, though there are at least signs of that situation improving, particularly in Fullers’ central London estate.

“Pubs are doing what they can to make patrons feel comfortable with the idea of returning and of preparing for what could be a more difficult winter.

“Fullers’ investment in ‘winterisation’ projects, for example, are intended to ensure pubs can still make good use of their outdoor space even when temperatures start to drop.

“However, there’s no escaping the reality that the whole sector could face a difficult few months of uncertainty given the sceptre of reintroduced restrictions or even just increased levels of infection reducing peoples’ ability or willingness to go out and have a few pints.”

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.