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Market report: Investors wait for interest rate decision as Sainsbury’s warns of tricky times ahead

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Market report: Investors wait for interest rate decision as Sainsbury’s warns of tricky times ahead

Susannah Streeter

Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown

‘’Given there were no big surprises from the Federal Reserve, with the gentle unwinding of the stimulus programme widely expected, the financial markets are largely treading water this morning, with the FTSE 100 ticking up slightly while waiting for the next central bank move.

While most bets are on the Bank of England’s monetary policy committee lifting the interest rates a notch later, from the ultra-low level of 0.1%, there is likely to be dissent at the table. Central bank policymakers still appear split about just how long this large spike in inflation will hang around for. The Federal Reserve indicated yesterday that it believed rising prices were largely transitory because they were a temporary shock linked to the huge rebound from the pandemic. But amid worsening labour shortages and the growth in wages ticking up at the fastest pace since the 1980s, there is still a feeling among other economists that this could just be wishful thinking and that instead we’re in an inflation fight for a longer haul.

Some of those fears appear set to play out at Sainsbury’s with the supermarket chain warning today that the industry faces labour and supply chain challenges and that the company still needed more drivers in a challenging recruitment environment. The cheerful message that the group was well placed for Christmas, was tempered with warnings that there would be less stock of electronic goods on the shelves, and that food price pressures are likely to build in the second half of the year. The 23% rise in underlying profit before tax for the first half wasn’t enough to stop a substantial share slide of more than 3%, with clearly a challenging few months ahead.

BT was top of the FTSE 100 leader board in early trade, after the company reported a 1% rise in underlying profits for the first six months despite a 3% fall in revenue. Growth at the Openreach broadband network offset weakness elsewhere in the business and investors appear buoyed by the bullish longer term outlook, with expectations of an increase in cash flow once most of its full fibre network has been rolled out.

The decision by the Competition and Markets Authority forcing JD Sports to sell Foot Asylum is a blow for the company, with management saying the decision defied logic. However, investors appear to have shrugged off this development with shares rising 2%. The acquisition was part of the company’s quest for dominance in the sportswear market. But the decision by the CMA on the grounds that keeping Foot Asylum within the group would lead to a lack of choice for customers, indicates just how formidable JD Sports now is as an online powerhouse.

Enthusiasm continues for cardboard box maker Smurfit Kappa after it revealed a bumper investment yesterday into new projects to keep up in an insatiable demand for sustainable packaging. It appears to be boxing clever despite the supply chain disruptions with pipelines to customers largely holding up. With the spotlight on sustainable resources intensifying as COP 26 rumbles on, the company appears well placed to keep up with the trend.

Another tranche of Kingfisher’s £300 million share buy-back programme has been completed and shares lifted 2% in early trade. The company has been on a winning streak during the pandemic, and although there had been fears DIY demand would wane, the race for more space has been continuing in the property market and home improvements appear to be keeping pace.’’

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