Market report: FTSE slips as investors turn cautious but Currys keeps the tills ringing
Susannah Streeter, chief investment strategist, Wealth Club: “The Footsie has edged lower as a more cautious mood has infused financial markets ahead of the key US jobs report and amid worries that borrowing costs will stay higher for longer. Although oil prices have slipped back to hover around $71 a barrel amid signs of progress in Middle East peace talks in Doha, there are still concerns that the battle to bring price pressures under control is not over. While lower energy prices should ultimately help ease inflationary pressures, the relief has been overshadowed, for now, by concerns that interest rates could remain elevated well into next year.
With Fed chair Kevin Warsh making it clear that he considers inflation to be too high during his appearance at the central bankers’ forum in Sintra, Portugal, it’s reinforced expectations that further rate hikes could still be on the way in the US. Although he stopped short of signalling what the Fed might do at its next meeting, it’s clear policymakers aren’t yet ready to declare victory over inflation.
Higher interest rates reduce the appeal of growth stocks, which have soared to heady heights because they chip away at the value of future earnings. That set off a fresh bout of selling, with investors banking some profits while fearing further falls, and the Nasdaq leading declines. Polar Capital Technology Trust and Scottish Mortgage Investment Trust, listed in London, are among the biggest fallers in early trade as sentiment towards the big technology names has deteriorated.
The caution has been most evident across Asia, where the technology sector has come under deep pressure. Shares in Samsung Electronics and SK Hynix have fallen sharply after US memory chip giant Micron slid more than 10%, despite delivering results ahead of expectations only last week. After this year’s powerful AI-fuelled rally, expectations have become exceptionally high and any niggle of concern is amplified into sharp downward moves. Even though the longer-term outlook for AI infrastructure spending remains robust and mega earnings are still rolling in, valuations have become so stretched that they’re starting to snap back as more tempered forecasts for demand replace some of the feverish speculation.
Attention is now firmly focused on today’s US non-farm payrolls report, which could prove pivotal for market sentiment. After a string of resilient economic data, another strong jobs reading or firmer wage growth would reinforce concerns that the US economy risks overheating. Hopes that a Goldilocks scenario might emerge -not too hot, not too cold – are increasingly looking like a fairy tale, particularly with spending on AI infrastructure still running at such an intense pace. Investors remain wary, markets volatile, and today’s jobs snapshot could determine whether the latest wobble develops into a broader pullback.
Currys has kept the tills ringing despite geopolitical tensions and energy worries threatening to dent consumer confidence. While many other retailers are finding shoppers tightening their purse strings, Currys has demonstrated that much of the technology it sells has become less of a luxury and more of a household essential. Consumers may delay upgrading a television, but when a washing machine or laptop packs up, or a mobile contract comes up for renewal, those purchases are much harder to put on hold.
That resilience is reflected in today’s numbers, with group revenues climbing 6% to £9.25 billion and adjusted pre-tax profits surging 18% to £191 million. Strong cash generation has given management the confidence to double the full-year dividend to 3p a share and launch another £50 million share buyback.
Currys is also steadily building more engines of earnings through higher-margin recurring services, credit products and its fast-growing iD Mobile business. Services revenues rose 7%, credit sales increased 10% to £1.2bn and iD Mobile subscribers jumped 18% to 2.6 million. Those recurring revenue streams act as valuable shock absorbers, helping smooth out the bumps in demand for other product lines.
There is also some welcome relief finally emerging for consumers. After months of watching every penny amid the energy price shock triggered by the Iran conflict, oil prices have retreated to around their pre-conflict levels and drivers are already seeing respite at the pumps. Diesel prices have recorded their biggest monthly fall in more than a quarter of a century as easing tensions in the Middle East have taken the heat out of oil markets. That should leave motorists with a little more money in their pockets and could also provide a boost for hard-hit sectors such as hospitality, which has struggled as household budgets have been squeezed.
Despite the strong results, the shares have eased back, with investors perhaps disappointed guidance wasn’t upgraded and maybe taking the opportunity to bank profits after the recent recovery in the share price. The planned handover from CEO Alex Baldock to Fredrik Tønnesen, who has successfully run the fast-growing Nordics business, is also more of a baton pass than a change of direction, and with continuity expected, its unlikely to be a trigger for a share price fall.
Holidaymakers heading across the Channel are also getting a helping hand from the foreign exchange markets. Sterling has strengthened to around €1.17, helped by expectations that UK interest rates could remain relatively higher than those in the eurozone for longer, while lower energy prices have also improved the outlook for the UK economy. It means British tourists should find their pounds stretch further for everything from restaurant meals to sightseeing and souvenirs this summer. They may be small wins, but after the prolonged squeeze on household finances they could gradually help rebuild consumer confidence.”