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“After yesterday’s shocking assessment of the UK economy from the Bank of England, the FTSE 100 was down modestly this morning,” says AJ Bell Investment Director Russ Mould.
“Actually the resulting weakness in the pound is not a bad thing for the index as it flatters the relative value of its dominant overseas earnings.
“That is balanced out this morning by weakness among heavyweights BP and Shell as oil prices dip on the negative economic outlook.
“We should get some further insight into the health of the world’s largest economy later with the release of the influential non-farm payrolls data.
“Back in the UK, the gravity-defying run in house prices seems to be over, at least for now. The property market had eluded rising mortgage costs and wider pressures on consumer spending power for months. But the latest data from Halifax shows the first fall in more than a year.
“Shares in the housebuilders are broadly flat this morning and the market has arguably already priced in a softening of the housing market. However, rising input costs mean even a slight drop in selling prices could put industry profitability under real pressure.”
WPP
“Advertising agency WPP has long been considered a bellwether for its industry. Some see if as a decent barometer for the wider economic climate too - when companies are feeling confident they will spend more on advertising and marketing, and when they are more cautious this spending will be cut back. WPP is a particularly useful indicator because of the scale and breadth of its operations.
“WPP’s first-half numbers actually look fairly solid, but investors are so concerned about the economic backdrop, and what it says about WPP’s prospects, they have reacted negatively.
“Clearly there is a belief that WPP’s recent momentum, which helped it lift its annual sales outlook, can’t last in the long-term.
“While chief executive Mark Read argues WPP is yet to see any evidence of a big retrenchment in spending by its clients, this feels likely to come at some point.
“And while the UK, now braced for a recession following the Bank of England’s woeful update, makes only a relatively limited overall contribution to the group, the global economic picture is not that healthy either.
“At least WPP will head into any downturn in somewhat better shape than it was in a few years ago. It is now a more streamlined business, following Read’s turnaround efforts.
Pets at Home
“Britain loves its pets like few other nations and there was further evidence of that in the latest trading update from specialist retailer Pets at Home.
“The company itself has emphasised that spending in its shops should be fairly resilient - dogs and cats still expect their food bowls to be full whatever the economic climate - and it seems to be playing out that way as its first quarter update reveals sustained demand.
“Items like pet food purchased for furry friends don’t seem to be experiencing a slide in demand impacted by higher prices, perhaps because that outlay typically represents a modest portion of overall household spending.
“The pandemic also saw the UK’s pet population increase as people welcomed lockdown puppies, kittens and other cute critters to their home.
“While some may have subsequently lost interest in their new additions, the emotional attachment involved means the majority of pet owners will still keep catering to the needs of their furry friends.
“Pets at Home does face competition from non-specialists like the supermarkets, although because it offers grooming and veterinary services under the same roof, it has a convenience factor which rivals can’t match.
“Successful loyalty schemes are also supporting customer retention even if the spiralling cost-of-living crisis is going to put Britons’ commitment to their pets to the test.”
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