- China’s economic snapshot disappoints with manufacturing contracting and services slowing.
- US debt ceiling deal passes first congressional hurdle and heads for a tempestuous vote.
- Oil prices hang near monthly lows adding to expectations that OPEC+ will consider a production cut.
- B&M European Value Retail benefits from a focus on frugality among inflation-hit shoppers.
- Fresh round of rail strikes set to hit the UK economy during half-term holidays.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Growth slowdown fears have accelerated as the latest data from China shows a faltering recovery, knocking back sentiment on markets. Investors have been unnerved by the snapshot showing the Chinese manufacturing sector contracted again in May, while activity across services also slowed for the fourth month in a row. Far from being the powerhouse which will offset America’s slowdown, China’s economic recovery from the pandemic is looking more precarious. A cloudy geo-political landscape is also causing concern, amid ongoing chip wars and sanctions, after it emerged that China turned down a US request for their defence chiefs to meet on the sidelines of a summit in Singapore.
Worries are also lingering about the obstacles still in the path of the US budget legislation aimed at raising the debt ceiling, with harder line Republicans still strident in their opposition. By passing the House rules committee, it’s cleared the first hurdle, but it has plenty of other congressional jumps to navigate, before the new deadline on June 5, as lawmakers opposing increased spending limits turn more vocal. Today it’ll be debated in the House of Representatives with a vote expected later, before it heads to the Senate and it’ll be under intense scrutiny every step of the way.
Oil prices remain near lows they have not seen for almost a month, amid uncertainty about the debt ceiling progress in the US and the disappointing economic reading for China, the largest crude importer in the world. OPEC+ talks get underway on June 4 and there is growing speculation that the cartel could bring in fresh production cuts to boost prices. While higher energy costs are the last thing economies grappling with high inflation need right now, oil producing nations, so reliant on crude exports, want oil prices to be higher to break even and help bolster their own government coffers. It’s only a month after the last production cuts, but with so many high expenditure capital projects underway in Gulf nations, there may well be a push to curtail output further to boost prices, even temporarily.
With inflation still biting hard, shoppers are desperately searching for ways to save money wherever they can and B&M is benefitting from this focus on frugality. Underlying annual cash profits for the year landed towards the upper end of earlier guidance, coming in at £573 million. It’s reputation as a discounter has served it well as consumers have scouted around for cheaper prices on food, homewares and garden furniture. Its large footprint in easy-to-access retail parks where parking is usually free has also been a bonus. But it’s had to deal with its own inflationary headwinds, with higher costs pushing down profits by 7.4% from last year. However, it’s managing to tread the tricky tightrope of keeping prices competitive while still leaving a sturdy slice of revenues for the bottom line. Sales in the UK, in stores open for more than a year, have surged in the first nine weeks of the new financial year by 8.3% and it’s forecasting higher earnings for the year ahead.
Cost-of-living pressures are behind the walk outs of rail workers, with strikes up until Saturday part of long running industrial dispute. Train drivers represented by Aslef are taking action throughout today and Saturday, while members of the RMT union will walk out on Friday. Already widespread strikes affecting transport, health and other public sector organisations have knocked back the UK’s growth and these latest walkouts are likely to cause further disruption, particularly for entertainment and hospitality sectors, given that they are taking place during the half term holidays.’’
