Interest rate cuts eyed, Trump Convention triumph and UK retail in focus
Susannah Streeter, head of money and markets, Hargreaves Lansdown:”The FTSE 100 has struggled to gain ground, opening lower in early trade as investors assess the struggles in the retail sector. The British luxury goods sector is finding it hard to attract the aspirational shoppers it relies on. Shares in Burberry dropped another 2% after a day of big losses yesterday. The wash-out weather and its effect on buyer behaviour has been highlighted in Kantar’s update, showing that sales of cold and flu products rose 35% and fake tan jumped 16% as the sun has remained hidden for much of the July. There is some relief for cash-strapped shoppers, with grocery price inflation continuing to fall. Prices are still rising overall but only by 1.6%, down from 2.1% in June, the lowest level in almost three years. The Euros provided plenty of cheer for the big grocers with trips to supermarkets to stock up on drinks and snacks to watch the games helping boost footfall by 2% and sending beer sales soaring. Shares in Ocado have roared ahead jumping 17% in early trade. Finally, the partnership with M&S appears to be hitting the sweet spot. Sales are up more than 10% in the 12 weeks to July and investors have also cheered progress in its Ocado Solutions arm.
There is some relief for B&M European Value retail investors. Although like-for-like sales at its UK stores have struggled, dipping by 5.1%, the company has highlighted the different timing of Easter and poor weather as behind the fall. However, operations at its French arm are much more resilient, rising 7.5%. Its store opening strategy appears to be paying off, with volumes rising and revenues up 2.4% across the group as a whole. A well-timed stock of gardening products has been selling well with no reductions expected to be needed, as people take the time away from watching screens to get stuck into sprucing up outdoor spaces.
Shares in United Utilities and Severn Trent have fallen as it was revealed they are facing enforcement cases brought by the regulator Ofwat. The action stems from analysis by Ofwat of their environmental performance in particular how regularly sewage is discharged via storm overflows. Ofwat is showing more teeth following the huge public outcry about the amount of pollution in the UK’s waterways. Bringing an enforcement case means that Ofwat is concerned that the companies have failed to meet their obligations. A detailed investigation will follow to determine if contraventions have occurred and what measures they may have to take to clean up their act. If there are serious breaches fines could follow.
US indices look set to hang onto a wave of positivity that has washed over the market. With hopes for multiple interest rate cuts in the US rising, and a triumphant Trump at the Republican Convention easing immediate volatility concerns, Wall Street stocks have been making further gains.
There are sprinkles of more optimism about the timing of interest rate cuts from the Federal Reserve with two to three reductions this year now being priced in by financial markets. It comes after an interview with Fed Reserve chair Jerome Powell at the Economic Club of Washington. He said the Bank had moved closer to cutting interest rates, given the economy was in much better balance and crucially that the 2% target did not have to be reached before borrowing costs could come down.
Rapturous applause greeted Donald Trump at the Republican Convention, as he selected JD Vance to on the ticket as his vice-presidential pick for the elections. Vance has morphed from fierce critic of Trump to frenemy and now running mate. He’ll be popular among grass roots Republicans, particularly given his back story, detailed in his memoir ‘Hillbilly Elegy” about his family’s struggles with poverty and addiction. But questions remain over how successful he’ll be in winning over wavering voters, particularly given his anti-abortion stance. Nevertheless, Trump’s triumphant return to the stage, appears to have lifted further lifted expectations that he will win in November. His company Trump Media and Technology Group Corp jumped 31%. Oil majors like Exxon Mobil also gained ground, despite the dip in crude prices, given the expectation another Trump Presidency is likely to place emphasis on energy independence and continue the increased pace of drilling permits, which has taken place under the Biden administration. Trump has vowed to accelerate the production of fossil fuels and roll back some of Biden’s greener policies in the inflation reduction act. Private prison operators Geo Group and CoreCivic have also made big strides, given the expansion the sector underwent during his first administration.”
