Tensions flare in Middle East, AI sell off continues while Greggs serves up appetising numbers
Susannah Streeter, chief investment strategist, Wealth Club: ‘Tensions have flared again in the Iran conflict, just as hopes had been mounting that fresh negotiations would lead to a resolution. But instead of steps forward there’s been a series of setbacks raising fresh concerns about the flow of energy supplies from the Middle East. Brent crude, a gauge of worry, has crept up again as traders digest the latest twists in the fractious saga. However, the FTSE 100 has largely shrugged off events, with energy giants gaining ground on higher oil prices offering support.
Washington claims to have intercepted an attempted surprise attack on US bases in the region by Tehran, with Iranian missiles launched intercepted. Working with Saudi forces, the American military struck sites in Iraq, where Iranian backed militia are believed to have been operating from, with drones attacking Saudi’s oil facilities, East of the country. High hopes that Oman’s attempt to broker a deal over transit through the Strait of Hormuz have been dashed, with Tehran insisting it must keep control of key routes.
The conflict has opened up a hornets’ nest of hostilities, and each retaliatory sting threatens to draw yet more regional players into an increasingly difficult conflict to control. There still remains some optimism that an agreement will be eventually brokered, but it looks set to be a long drawn-out process.
AI jitters are still causing volatility on indices as investors question lofty tech valuations, increased competition and future demand. Futures markets indicate a downbeat start for the Nasdaq while it’s been another turbulent ride for South Korea’s Kospi. The index is down 40% from recent highs as heavyweight chipmaker SK Hynix and tech giant Samsung Electronics have lost considerable heft after a spectacular runup. The advances made by Chinese companies keep causing jolts of worry about how long the dominance of the current chip-making incumbents can continue for.
Federal reserve policymakers are meeting against this complex backdrop of geopolitical tensions and tech volatility. They are still largely expected to keep interest rates on hold this month to get a better reading on where inflationary pressures will land, but there’s increased doubts coming into play, given sticky inflation and a surprise hike can’t be ruled out. With services inflation still too hot for comfort, wage growth elevated and higher energy prices feeding back into the mix, more of a hawkish tone is expected to emerge from this meeting. So even if rates are held all ears will be tuned into any hints from Fed chair Kevin Warsh about a possible hike in September.
Finally, Greggs, the baker, has put its batch of flaky sales behind it and baked up a strong set of results. New store openings, brisk grocery sales and careful cost control have helped lift profits by 20% in the first-half, showing there’s still healthy appetite for affordable treats even while many consumers have turned super-cautious. Greggs has continued to take a bigger slice of the food-to-go market, proving its value proposition is resonating as households look for cheaper lunch and breakfast options. It’s also proving nimble at keeping pace with the latest food trends, showing it can compete with far more premium cafés. The iced matcha latte has emerged as one of the hits of its latest menu revamp, demonstrating that the bakery chain can blend social media-inspired tastes with its trademark value offering.
There is a slight soggy bottom to the outlook, though. The company is warning that investment in expanding its supply chain will weigh on second-half profits unless consumer confidence improves. It’s a reminder that while Greggs is continuing to grow its store footprint and invest for the future, it’s doing so against a backdrop where shoppers are still feeling the pinch. Even so, with costs well controlled, expansion continuing and its loyal customer base returning for everything from sausage rolls to pizzas and iced drinks, the long-term recipe for growth still looks firmly in place.”