Inflation dominates market sentiment, big cash outflow at Berkeley and JD Sports’ record results overshadowed by gloomier outlook

“There may have been a bit of relief this morning that UK consumer price inflation, while still at decades-long highs, was nonetheless bang in line with expectations,” says AJ Bell Investment Director Russ Mould.

“However, this relief will have rapidly dissipated as it dawned that retail prices are now experiencing double-digit increases and factory gate prices are above forecasts and the highest since the 1970s.

“The echoes of that decade, reflected in strike action and Kate Bush topping the charts, continue to dog the markets.

“Inflation will also be on the agenda when US Federal Reserve chair Jerome Powell testifies before lawmakers in Washington.

“His comments will be closely followed for clues on what the Fed might do next with monetary policy and whether the risks of a recession in the world’s largest economy are increasing.

“The FTSE 100, which has held up better than many of its global peers, is now flirting with a drop below the 7,000 mark for the first time since the March sell-off.

Berkeley is known as the cream of the crop when it comes to housebuilders and its latest update suggests it is continuing to deliver on its strategy which involves taking brownfield land and turning it into desirable housing developments.

“It’s worth noting the significant drop in its net cash position from more than £1 billion to a little more than £250 million.

“While this was used to invest for future growth and Berkeley still enjoys a healthy buffer, there may be some concern among shareholders that the company doesn’t have more cash on hand to help sustain capital returns if there is a pronounced downturn in the housing market.”

JD Sports

“While JD Sports has reported a record set of results, it must be noted that this financial period ended before the Ukraine crisis unfolded and inflation surged higher.

“Therefore, it is not representative of the current environment in which consumers are under considerable financial pressure and are losing confidence with regards to the economic outlook, which will curb their ability and willingness to keep spending at levels seen in 2021.

“This headwind is clear to see in the retailer’s forward earnings guidance. After seeing pre-tax profit more than double in the past financial year, JD now expects no profit growth at all in the current year.

“To make matters worse, the company is still searching for a new leader after splitting with executive chairman and architect of the group’s success, Peter Cowgill. Fortunately, whoever it hires will inherit a strong business with fingers in many pies.

“JD Sports is more than premium trainers. It is now more involved in the biking space, capitalising on interest from those having a mid-life crisis and happy to splash several thousand pounds on the latest carbon frame road bike, as well a general trend for people to be healthier and do more exercise.

“It has also expanded its presence in the gym market where there is a large cross-over with its customer base for clothing, outdoor equipment and bikes.”

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.