“The FTSE 100 ticked higher at the start of the week with bargain hunters swooping on Reckitt after a big sell-off last week linked to baby food legal claims,” says AJ Bell Investment Director Russ Mould.
“Mining stocks moved higher as Chinese industrial production was above expectations. Given the world’s second largest economy is the most rapacious global consumer of commodities, the fortunes of the resources space are closely tied to its economic fortunes.
“At one time, this week would have been pegged as the point at which central bankers in the US and UK pivoted to rate cuts but although that is now unlikely, the meetings of the Federal Reserve and Bank of England will still be watched closely for signals of when this pivot might finally come.
“The worst performer on the FTSE 100 was Haleon as Pfizer sold down more of its stake in the consumer health business which was formed from a spin-off from Pfizer and GSK. The nature of its birth means it has contended with a large overhang on the shares since the start and even after today’s sale, Pfizer still owns nearly a quarter of the company.
“Shares in building materials outfit Marshalls took another big hit as it downgraded guidance and slashed its dividend. While the latest data from Rightmove shows signs of an improving outlook for the property market, this may take some time to filter down to Marshalls.
“Significantly, the company has seen a downturn in both new build housing and repair, maintenance and improvement work and even its non-housing and infrastructure businesses have not been spared entirely.
“Audio equipment specialist Focusrite sounded a bum note with investors as it warned on profit. A beneficiary of the explosion in podcasting during the pandemic, this effect seems to be waning.”
Sainsbury's / Tesco
“Sainsbury’s saw £59 million wiped off its market value following Saturday’s technical meltdown which led to online order cancellations and customers struggling to use chip and pin payments in-store. The chaotic situation meant that Sainsbury’s might have lost a big chunk of its normal daily takings and its reputation will have been severely battered.
“While the problems appear to have been fixed, there will inevitably be some customers who shop elsewhere for the time being so as to avoid taking the risk that payment problems will happen again.
“Supermarkets use loyalty schemes to keep customers coming back for more, but there are plenty of alternative grocers each with their own attractions and capable of capitalising on Sainsbury’s woes.
“Tesco also saw technical problems impact certain online deliveries on Saturday, but the situation seems to have been much smaller in scale than its arch-rival. It saw £28 million wiped off its market value, less than half that of Sainsbury’s and a reflection of how its problems were less severe.
“Card usage continues to grow versus cash in the UK and consumers expect payments to be processed smoothly. Sainsbury’s and Tesco’s problems come hot on the heels of an IT outage at McDonald’s in the UK and several other countries which caused customers to have problems with in-store payments.”
Currys
“Currys’ latest trading update vindicates its decision to fight off takeover interest from Elliott Advisors and shows how its stance also deterred Chinese firm JD from making a formal bid. The retailer argued Elliott’s bids undervalued the business, implying they didn’t reflect the progress it had made in turning its fortunes around. Currys is now punching its fists in the air by revealing that sales have been better than expected. That gives it the confidence to say that full-year profit will come at the top end of previous guidance.
“Investors would have been annoyed had it not delivered such a strong update as that would have strengthened the argument to accept a bid. After all, many investors are very short term in their thinking and only judge a company on quarterly performance. Fortunately for chief executive Alex Baldock, he’s been able to stump up the goods to show that Currys is doing perfectly fine on its own and doesn’t need to be swallowed up by a third party.
“It's important to note the line ‘still-challenging markets’ in the trading update. That’s a reminder that Currys will have to work hard to keep growing profit. High interest rates and an uncertain economic backdrop equate to a cautious consumer who is watching every penny. Currys might want to lean harder on its services arm to encourage people to get broken electricals fixed as shifting new products is not going to be easy.”
These articles are for information purposes only and are not a personal recommendation or advice.
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