Market report: FTSE 100 rises, oil hangs around lows, B&M store expansion plans
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The wheel of speculation over when interest rate cuts will come in the US has stopped in a more positive position, buoying sentiment and helping push up the FTSE 100 in early trade. Weaker JOLTS jobs data indicates that the negotiating stance of American employees for higher wages is more fragile, adding to hopes that stubborn price pressures will ease. With interest rate cuts spied again on the horizon, Wall Street ended in more upbeat territory, and more optimism is washing through into trading in Europe. The globally focused blue-chip index has also been buoyed by indications that China’s recovery also appears more on track. Data from a closely watched purchasing managers’ survey showed the services sector notched up the fastest growth in ten months in May. The Caixin/S&P Global Services PMI rose to 54, from 52.5, with anything over 50 indicating expansion.
Oil prices remain at four-month lows as expectations of lower demand and higher supplies later this year collide. Brent Crude is hovering near $77.5 a barrel, where it’s not been since early February. The weakness comes after data showed that US crude stockpiles rose by more than 4 million barrels last week, reversing a 6 million barrel fall. Even though OPEC+ member countries have agreed to extend production cuts into next year, there is scope for voluntary reductions to be unwound from October. This appears to have prompted the price drop, given that more oil is being pumped in the US and demand for energy is uncertain as it’s still unclear how long high interest rates will linger.
In the UK, the wash-up continues after the first televised debate of the General Election campaign with tax raising claims levied by Rishi Sunak against Labour being unpicked. Labour leader Keir Starmer, says the charge that families will face a tax hike of 2,000 a year is garbage. Rachel Reeves the shadow chancellor has previously stated there will be no rises in income tax, National Insurance or VAT if they win the election. Without the detail of a manifesto, the claims and counter claims are hard to break down. But the Conservatives seem to have crunched the numbers on the basis of spending pledges and partly over Labour’s stated desire for the state to run more services instead of private companies, forecasting this would be less efficient. However, the record of the water sector casts in this regard casts doubt over way advisers have made their calculations. Research for Hargreaves Lansdown by Opinium shows that among voters the second most popular tax change overall would actually be to raise taxes specifically to spend on the NHS (25%). Although a tax policy most likely to win a vote would be cutting council tax (27%).
Mr Sunak’s claims that Labour would tax pensioners ‘for the first time’ have also been criticised given that due to frozen tax thresholds, some retirees are already being landed with tax bills.
Whoever wins the election, will face a very tight funding environment, given the fiscal rules they vow to keep, the sluggish economy, record levels of taxes and strained public services.
Discount retailer B&M European Value Retail is benefitting from this era of a more cautious consumer, given the ongoing economic headwinds. The bargain hunting trend is alive and well, and has pushed up full year profit by 9.7% as shoppers kept tills at its new stores busy. Underlying profits came in at £629m at the top end of guidance.
The onerous effects of the jump in prices over the past two years are clearly weighing on households and with borrowing costs still high, many shoppers are on tight budgets and want to trim costs wherever they can. The chain has opened 78 new stores across the group, and 45 in the UK – selling everything from groceries to garden furniture, and it’s this expansion which is driving the uplift in sales. Reaching more shoppers in new locations means B&M can flog more cut-price wares and its position in popular retail parks is particularly beneficial. It’s stepping on the pedal with this strategy, and now aims to expand its network to at least 1200 UK stores from its current base of 741.
WH Smith’s travel pivot is continuing but it’s still being held back by the performance of its much weaker high street operations. The company is shapeshifting and refocusing on the captive market of the travelling public. While the aim of being ‘one-stop for travel essentials’’ is reaping rewards, with travel revenue up 9% in the 13 weeks to the start of June, its high street business is struggling and is acting as a drag. Revenue is down 4% which is not surprising given the higher price points compared to its cheaper discount rivals in busy town and city locations. The US market offers opportunity and the winning of a contract in Detroit airport for four new stores is encouraging. Although the company says it’s positioned well for the busy holiday period coming up, investors will want to see an acceleration of its travel focused strategy.’’
