Market optimism resurfaces and Sainsbury’s reports strong sales amid supermarket bun fight
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown: “Asian equity markets have responded positively to recent gains on Wall Street. Investors seem to be pricing in an expectation that inflation is set to loosen further. At the same time, Federal Reserve chief, Jerome Powell failed to make any comments on forthcoming monetary policy in a recent speech. While that won’t have directly given the markets something to digest, there is an element of no news is good news. Reports of global supply chain bottlenecks easing, and the reopening of China mean that ultimately, markets are baking in some renewed optimism. There is a ceiling to this good mood, though. Stock markets remain highly sensitive and have been prone to some misdirection in recent trading days.
Sainsbury’s has reported that sales rose 7.1% over the important Christmas season. Increased grocery prices are one reason behind this, but the group also benefitted from improved value-for-money offerings. This includes Sainsbury’s ability to increase prices after its competitors which helps it appear better value, as well as the sweeping Aldi Price Match offer. The group also owns Argos which snapped up customers as people fretted about deliveries in the face of Royal Mail strikes. Promotional activity was still necessary to get tills ringing, but overall, there’s been a real shift for the group. The supermarkets are facing a serious bun fight as the cost-of-living crisis continues, with millions of customers switching to the German discounters. Those in the middle of the market, like Sainsbury’s, are most exposed in these tough times. Sainsbury’s decision to try to position itself on a lower rung of the value chain seems to be paying dividends for now. With that said, the reality is that the supermarket is still more expensive than other offerings, so we’re unlikely to have seen the last of customers swapping their grocery allegiance to cheaper options.
Microsoft inhabits one corner of the market that isn’t holding back in the face of global recession. The tech giant’s eyeing up a $10bn backing of a chatbot business, in what would be the second investment in the developer behind the advanced ChatGPT chatbot. From Microsoft’s perspective, this development doesn’t move the dial and the group’s shares are unmoved in after-hours trading. What this backing would suggest is the potential importance of chatbot technology. ChatGPT is said to have impressed with its ability to offer detailed answers to questions, which is a step ahead of the basic conversations many of us are used to. The upwards march of artificial intelligence is something the major tech names simply can’t ignore, and investors should expect to see further proportions of corporate cash flow funnelled to these technologies.
Bad news for fans of the burger chain Byron, which is planning to close ten of its 21 remaining sites, as part of a pre-pack administration engineered by owner Calveton. Byron last collapsed at the height of the pandemic as town centre footfall plummeted. The ongoing drop in physical shopping, coupled with the harsh pressures on real incomes, means many middle-of-the-road eateries are struggling. These types of venues aren’t high-end enough to attract more resilient consumers at the top end of income brackets, but they also don’t offer enough value to attract those who are struggling. While the question of demand rumbles on, restaurants have been facing enormous energy bills, and it’s difficult to pass all of this onto customers, especially in the current climate. Wage costs are also soaring, which when combined with the other elements, makes for a cocktail of nightmares for the hospitality industry.
Brent crude has dropped below $80 a barrel, which is still elevated compared to last week. The short-term slump reflects data from the American Petroleum Institute showed, which showed that US crude inventories jumped by 14.9m barrels last week. That was a stark difference to expectations of a 2.4m barrel drop. As well as increased supply, there are also concerns about demand given global recession fears. These have been compounded by JPMorgan Chase CEO Jamie Dimon, who said US rates might move above 5%. While this is in-line with the tone from Federal Reserve chiefs, who have discussed the need for further increases, the detail from Dimon appears to have knocked economic demand forecasts.”
