FTSE 100 ticks higher after gains in the US and Asia, attacks disrupt shipments through the Red Sea, De La Rue and Superdry hit by warnings

“The FTSE 100 ticked higher after gains on Wall Street and in Asia as investors await readings of inflation and economic growth later this week,” says AJ Bell Investment Director Russ Mould.

“News the Bank of Japan is sticking with negative interest rates saw the yen fall and provided a boost to the export-heavy Nikkei 225.

“Still, it feels like the party which started last Wednesday when the Federal Reserve signalled potential rate cuts in 2024 has fizzled out – as the central bank has looked to put a lid on market hopes for an easing in monetary policy.

“Tomorrow’s UK CPI reading should set the tone for rate expectations in the UK going into next year – anything below the forecast 4.3% could be supportive to UK stocks but a number above that level could trip them up as we head for the end of the year.

“Events in the Red Sea, where companies like Maersk and BP are diverting vessels thanks to a series of attacks, are a reminder of the impact of the ongoing conflict in the Middle East and may well act as a renewed inflationary pressure – as a disrupted supply chain leads to a higher cost of goods.

“Shares in banknote printer De La Rue may have posted better-than-anticipated first half results on an underlying level – amid strong demand for currency across the globe – but on a statutory basis profit widened and the company’s full year outlook was left unchanged.

“A warning of ‘a number of significant operational uncertainties’ in its two main divisions was unlikely to go down well given the thing investors hate above all is uncertainty.”

Superdry

“We’ve seen various troubles across the fashion sector including H&M being stuck in the mud for some time, Inditex seeing a slowdown in growth and ASOS recently saying sales would not meet market expectations. Consumers are being more cautious about fashion spending and they’re leaning more on cheap names such as Chinese group Shein, which is proving to be a serious competitive threat to Western brands.

“True to form, Superdry has joined the club with a poor trading update that’s pulled its share price down more than 20% to 32p. It’s hard to believe that this time six years ago the shares traded around £20. This business has not simply faced more competition, it has truly lost its way.

“Superdry has been trying to revive its fortunes for years but the wholesale channel has proved problematic. Margins have been hit by continued clearance of old stock at a discount and in September it said trading had suffered by unseasonal weather and highly promotional markets. While the weather has been on its side more recently, it’s not enough to save Superdry from racking up yet another profit warning.

“The true test of whether Superdry is now a basket case would be if Frasers takes a stake in the business. The Sports Direct owner likes to make equity investments when rivals are in the gutter and Superdry certainly has enough wounds to qualify. Frasers rarely wants to buy a business outright, but it does like to build decent stakes so it can have influence on strategy and strike favourable distribution deals.

“While Frasers is not currently on the shareholder register, it must surely be a matter of time if Superdry continues in its current direction. A selection of Superdry t-shirts and hoodies with Japanese writing are already being sold in Sports Direct and one could imagine the brand having a bigger presence in the future.

“Superdry’s problems also raise a bigger question – will Christmas trading be terrible for the broader retail sector? Judging by their ongoing share price gains, the market doesn’t appear to be worried about Marks & Spencer and Next. However, we’ve had recent profit warnings from motoring accessories and cycling retailer Halfords and car seller Vertu Motors so there are signs of pain beyond the fashion side of retail. The jury is still out, but Superdry’s warning will almost certainly put retail sector investors on edge.”

These articles are for information purposes only and are not a personal recommendation or advice.