FTSE 100 dips ahead of rates decision, Next enjoys summer weather boost, and Rolls-Royce sputters

“The FTSE 100 dipped ahead of a Bank of England meeting where it is expected to introduce a 50 basis point hike in rates,” says AJ Bell Investment Director Russ Mould.

“Attention is likely to be focused on the surrounding commentary and any signals it provides about inflation expectations and the trajectory of interest rates for the remainder of the year.

“Elsewhere, Glencore became the latest natural resources player to deliver bumper returns to shareholders. However, with the risks of recession bubbling, investors may not see such high levels of generosity going forward.”

Next

Next is widely considered a best-in-class retailer and today’s results offer ample evidence of why that is the case.

“Bosses at Next are well-versed in how to operate successfully as a public company, demonstrating fluency in the art of expectation management.

“This helps explain how, right in the middle of the worst cost-of-living crisis in a generation, the company has been able to deliver better-than-expected numbers.

“Next has also benefited from market share gains as competitors like Topshop and Debenhams have disappeared from the high street.

“It seems the hot weather has been helpful too as it encourages shoppers to splash out on summer outfits, while a flood of weddings, after people were prevented from celebrating their nuptials properly during the pandemic, has also contributed to the robust trading.

“True to form, while it has lifted expectations modestly for the full year, Next is not getting carried away. There is no value for the company in letting exuberance about its resilient performance go too far.

“Next isn’t just playing a game here either, it is likely that things will get tougher before they get better.

“At least people can have some confidence that Next will do the best possible job of managing whatever challenges it faces and that it should do OK where other less durable competitors have fallen by the wayside.”

Rolls-Royce

“For a one-time champion of British engineering, the company is at a pretty low ebb. Today’s results demonstrate the size of the task facing the newly appointed chief executive Tufan Erginbilgic.

“If even a well-regarded figure like Warren East, who will hand over to Erginbilgic at the beginning of next year, can’t fix the business then what hope is there for anyone else?

“Despite seeing some recovery in the all-important civil aerospace business, Rolls-Royce is still left trailing behind expectations.

“The pandemic was clearly a once-in-a-generation shock to the aviation sector which Rolls serves, and it was always going to impact the lucrative spares and repairs revenue, derived from the company’s base of installed engines. These are directly linked to how long aircraft are in the air, so the fewer planes in the sky, the greater the damage to revenue.

“However, the company’s problems undoubtedly predate Covid, with the businesses struggling to generate consistent cash flow for years.

“Hopes for a second-half revival could prove forlorn. Given the inflationary pressures and impact from conflict in Ukraine, the incoming CEO may need to find a more dramatic fix for a now rather broken business.”

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.