Market report: stocks edge higher, oil rises and Novo Nordisk slims down
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’The Footsie is edging higher in early trade, taking a cue from an upbeat Wall Street and a positive session for indices in Asia. Geopolitical tensions are pushing up oil prices amid spreading supply concerns. Despite weakening global growth prospects, optimism is still swirling given that an interest rate cut from the US Federal Reserve looks firmly on the cards this month.
Sentiment could turn sour if today’s inflation snapshot comes in higher than expected. The headline rate is expected to come in at 2.9% but the real number to watch will be core CPI, which strips out volatile food and fuel prices. Its broadly expected to be stable, coming in at 3.1% on an annual basis, but if it ticks higher month to month, it could put the cat among the pigeons. A sign that elevated inflation isn’t just stubborn but heading higher, could dent hopes for a succession of cuts to come. It’s unlikely to push the Fed off course this month, but the ‘dot plot’ path of cuts ahead may look shakier. Nonetheless president Trump is expected to keep up the pressure on the Fed to go further and faster with rate cuts. He’s just been dealt a setback after a federal judge temporarily blocked his removal of Federal Reserve governor Lisa Cook. The saga is being closely monitored amid concerns that the administration is attempting to direct policy at the the central bank. This is causing unease given that central bank’s independence is seen as crucial for sound monetary policy making.
Novo Nordisk, which had grown fat on the spoils of its weight loss drugs, has been feeling the effects of rivals marching into the space. It’s now drastically slimming down, by cutting 9,000 jobs globally to save around $1.26 billion and be in a fitter state to deal with the competition. The Danish pharmaceutical giant produces the anti-obesity and diabetes jabs Wegovy and Ozempic, but it’s already twice warned on profits for this year, and the restructuring will incur a one off charge of around $1.5bn in the current quarter. In the United States, Novo’s been losing market share in this class of drugs and there have also been some research and development disappointments. With so much depending on these products, there’s little hiding place when market dynamics move in the wrong direction. Uncertainty over American tariffs has also been a risk that continues to cast a shadow over the industry. By becoming a leaner machine, Novo hopes to redirect more funding to R&D to bolster its pipeline of products.
Oil prices are on the move upwards again amid heightened geopolitical risk. Israel’s bombing of targets in Qatar has drawn fresh international criticism and marks an escalation of its campaign in the region. President Trump is also reportedly putting pressure on the European Union to impose 100% tariffs on China and India, big buyers of Russian oil, to force Putin back to the negotiating table and strike a ceasefire deal over Ukraine. But although there’s a pile-on of supply concerns, a lid is being kept on prices given ongoing concerns about global demand, and only modest increases planned from OPEC+ member countries.
UK retailers may be hopeful that a further spending boost could come from an expected relaxation of contactless card payment limits. The Financial Conduct Authority is proposing to scrap the £100 cap for potentially unlimited transactions, although these would still be set by banks and other providers. This is part of a red tape bonfire to try and reduce financial regulation and speed up growth. The idea is that it will be more efficient for retailers and customers alike and will make it easier for consumers to spend more, more quickly. This would bring the process more into line with mobile wallets like Apple pay, which can used already for higher-value transactions. There is the potential for increased fraud, but consumers will still have their money protected in the same way, when flagged to a bank. It’s the merchants who ultimately pay the price for fraudulent transactions, via the Chargeback process. So, investment in more advanced detection and prevention methods will be even more crucial, including real time monitoring and behavioural analytics to mitigate risks. These are investments larger retailers will be better placed to make, but small retailers are likely to be more reluctant to wave through big payments, without extra checks.’’