UK dodges big equity sell-off seen in other parts of the world, Currys delivers a turkey of an update, and Cineworld is walking a tightrope

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“Investors cannot make up their minds whether they’re worried about inflation and rising interest rates, or that they’re comfortable central banks can work their magic and get inflation under control,” says Russ Mould, Investment Director at AJ Bell.

“Fear has returned, with a miserable showing on Wall Street last night including a 2.5% drop in the tech-heavy Nasdaq index.

“That negativity spread to Asia where the leading indices in China and Japan were down 1% or more.

“In Europe, the Stoxx 50 was down 0.7% but the FTSE 100 managed to escape the pain and traded flat at 7,563. The UK market was propped up by gains in energy, healthcare and utilities.

“The big shocker in Europe was EDF which was hit by a cap on power prices in France, sending its share price down 22%. The company is also suffering from delays to finishing repairs on several nuclear power plants.”

Currys

“The nation loading up on laptops and phones throughout 2020 set the bar high for 2021 in terms of Christmas technology sales to beat. While there was still a steady trickle of purchases in recent months, there just wasn’t enough festive demand to beat the year-on-year comparative figures for Currys.

“Only game-related items were noteworthy, meaning that Currys has fallen short of its guidance set only a month ago.

“In December, it guided for £160 million full-year pre-tax profit. That figure has now been cut to £155 million which explains the negative share price reaction to the news. It means Currys is one of the few retailers to issue a turkey of a festive update.

Sainsbury’s gave a hint with its results a few days ago that tech demand might not have been as strong as some people thought, given it was highlighted as an area of weakness in its Argos brand.

“While we live in a world now dominated by technology, it doesn’t necessarily mean that people keep needing to spend money on new kit. Laptops and phones can comfortably last for many years without the need to upgrade, so Currys needs to find extra ways for customers to spend money with it.”

Cineworld

“The precious nugget in Cineworld’s latest update is news that it turned cash flow positive in the fourth quarter.

“Given the cinema operator’s precarious financial position it literally cannot afford to have more cash going out the door every month than it is taking in through sales of confectionary, drinks, snacks and film tickets.

“Cineworld has a symbiotic relationship with Hollywood, and this was severely strained during the pandemic as some film studios opted to release titles on their own streaming platforms, rather than wait for the restrictions keeping cinema’s curtains closed to be drawn away.

“Premature obituaries for the cinema industry have been printed before and it has proved a highly resilient medium through wars, economic depressions and even the birth of home videos in the 1980s.

“Cineworld was boosted in the fourth quarter by the release of films such as the latest instalment in the Spiderman franchise with revenue on course to move back to pre-pandemic levels – forthcoming releases of a rebooted Top Gun film and the latest Jurassic World adventure should help this year too.

“However, Cineworld faces its own unique challenges due to the way it was run pre-Covid, over-stretching finances to complete the big US takeover of Regal Entertainment and then getting buyer’s remorse and walking away from another deal to buy Canada’s Cineplex.

“Ordered to pay the best part of a $1 billion in damages for abandoning the deal is a drain on Cineworld’s resources.

“The danger is that this leaves Cineworld short of funds to invest in its cinema estate, meaning its theatres start to look less attractive to cinema-goers than rivals – particularly with Odeon and Vue upgrading many of their cinemas to have plenty of comfortable reclining seats.”

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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.