Market report: Rally takes a breath, energy costs stay elevated
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The surge of optimism, fuelled by hopes the Fed will go easier with its interest rate policies and buoyed by expectations of fresh stimulus in China, appears to have plateaued. A little more caution is returning, as investors look ahead to tomorrow’s snapshot of inflation in the United States. The surge in equities was fuelled by comments from Fed decision makers indicating a careful policy approach given sharp rise in borrowing costs. But the rally appears to be taking a breather for now, with the FTSE 100 lower in early trade. With 10-year and 30-year Treasury yields having dipped back, it has been giving more support to stock markets. If interest paid on investments in the debt markets falls, investors look for the potential of greater returns elsewhere. However, investors are highly sensitive to data and if US inflation shows any signs of tripping up in its downwards path, it is set to be unsettling and could upset expectations of a more dovish stance from the Fed.
Energy price concerns
There are concerns creeping back in about higher energy prices, causing fresh inflationary pressures by pushing up fuel bills and potentially causing havoc with central bank forecasts. UK and European gas prices shot up over supply concerns, edging down only a little and still hovering around six-month highs. The jitters came after Chevron was told to shut down production at the Tamar natural gas field in Northern Israel due to the violence. There are also worries about potentially deliberate damage to the Baltic connector gas pipeline between Finland and Estonia. Oil prices are settling, but a barrel of the benchmark Brent Crude is trading at just under $88 dollars a barrel, up sharply from the price before the attacks in Israel. Although initial supplies aren’t affected, there are still worries about potential knock-on effects if there is contagion across the wider Middle East region.
Birkenstock buckles up
Timing is everything for an IPO and Birkenstock wants to capitalise on being in the film and fashion spotlight. As the stylish set have put sales on the front foot, and the Barbie effect has boosted the brand further, it’s helped the company achieve this heady valuation. The company has been super-savvy over the past few decades and has turned sandals with hippy connections into ‘It’ shoes, helped by collaborations with fashion designers and endorsements by celebrities.
However, it’s clear there is some caution among investors about the path ahead for the brand, as the price set of $46 a share was at the middle, not top end of the initial range. Although the IPO roadshow has started to get into gear again after almost grinding to a halt, and there is clearly intense interest in new offerings, other footwear companies like Allbirds and Dr Martens have had disappointing trajectories since their IPOs in 2021. DOC shares have fallen by almost 70% since its launch, which was partly a function of a frothy valuation, but also raises questions about the long-term growth prospects for the famous shoe brand, which has been beset by distribution problems. While Birkenstock may be basking in the sales sunshine right now, it’s going to have to run fast to keep up in the stylish stakes. Counterfeit goods could also cause the company to lose its footing in the fast-moving fashion environment. The company has flagged competition from knock offs as a risk in its prospectus. The worry is that if too many fake products flood the market, not only could that affect sales, it could also affect the prestige tag of the brand, and push it out of fashion. Investors who want to buy may have to buckle up for a potentially volatile ride ahead, given a spurt of uncertainty often follows high profile listings.”
