Market report: FTSE 100 gains ground, Toyota’s production glitch and Wilko’s circling suitors
- Relief for consumers as data from Neilsen IQ for the British Retail Consortium shows shop price rises eased to 6.9% in August.
- Evidence inflation is going in the right direction in the UK and China’s new stimulus measures help lift FTSE 100 in early trade.
- Airlines fly higher despite the air traffic control chaos.
- Production has ground to a halt at Toyota in Japan, with the auto giant blaming a glitch.
- Wholesale gas prices have dipped after workers in Australia voted to strike but remain at around 4 month lows.
- Hopes Wilko can be salvaged from administration as another potential buyer puts down a bid.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Every one of Toyota’s production lines has now ground to a halt in Japan, putting a big spanner in the works of the mammoth automobile machine. Just when supply chains were becoming less tangled, and Toyota’s production had revved up to record levels, the Japanese giant is battling this mystery glitch which is set to dent output. These plants in total are believed to account for a third of the company’s global production and the firm’s usually hyper-efficient just-in-time inventory management system makes it more vulnerable to outages of this kind. Toyota’s increased capacity had propelled it back to the top of the auto giants, producing a record 10.7 million cars as a group in the year to the end of March. It’s unclear what the root cause of this stall in production is, although it would not be the first time the corporation has been hit by a cyber-attack.
The punishing rate of price rises that shoppers have been enduring is easing off in the UK, which will provide some much needed relief after many months of double digit hikes in the cost of groceries. It comes amid intensifying competition between the supermarkets, and price match challenges and rival loyalty card schemes vying to lure in customers. As the scale of promotional activity has ramped up, price inflation of essentials like potatoes, oil and meat has cooled. The changeable weather has helped bring down demand, with barbecues likely to have fallen out of favour in the rain. Although grocery prices still rose 11.5% on the month, that was a marked improvement on the 13.4% in July and the slowest rate since last September.
With grocery price inflation showing signs of finally easing off more markedly, it will be food for thought for Bank of England policymakers who will decide where interest rates will go. This data alone is unlikely to move the dial much, as they are still concerned about high wage growth potentially encouraging big spending further down the line, but it’s fresh evidence to show demand is dropping on the retail landscape. At the moment the markets are still pricing in another two interest rates hikes to 5.75% but we’re in a fluid situation and forecasts keep being reassessed. The pound has slipped back a little against the dollar, but not dramatically, trading around $1.26. Fresh evidence that inflation is going in the right direction and fresh stimulus for industries in China have given the FTSE 100 a big spring in its step in early trade. Commodity giants have jumped higher as metals prices have risen after Beijing introduced support for transport, property and infrastructure projects. For now this extra help has boosted sentiment but underlying questions still remain over the fragility of China’s economy.
Airlines are also riding higher, with IAG, easyJet and Wizz all climbing , shrugging off the air traffic control chaos. Instead hopes that signs inflation is easing may help provide further support for discretionary spend on holidays appear to have set them off on another climb. Airline passengers have had to buckle in and accept some hefty price hikes while stuck in their seats. These in-flight add-ons are highly lucrative for airlines, adding a big cushion to the bottom line. Airlines also need to recognise that there is a tipping point. Passengers will start to resent super-strict rules on boarding, like being forced to pay huge sums for a forgotten print out ticket, or slammed for a bag which is millimetres too large, if airlines don’t also adhere to the rules and offer the right help when flights are cancelled or delayed. So how they deal with this current disruption is likely to be watched closely.
Hawkish sentiment over potential fresh interest rate hikes from the Federal Reserve, following a speech by chair Jerome Powell, boosted the dollar, so there will be a close eye trained on data coming out later, providing a snapshot of the US jobs market, to assess if resilient wage growth will hold up. A raft of retail results are also out later, which will be picked through for any signs that enthusiasm to spend could be weakening, which may also have an impact on US interest rate expectations.
Energy costs are still a worry for households and businesses, and the prospect of further hikes in gas prices after Australian workers at two LNG plants run by Chevron, voted to go on strike will be a cause for concern, However, although gas futures traded in Europe have lifted slightly, erasing last week’s losses, they are still hovering around 4 month lows.
There are hopes that the strength of the Wilko brand and its strong hold over value shoppers’ hearts will help secure its future on the high street. News that another bid is on the table from Private equity firm M2 Capital will be hugely welcomed by staff so worried about their futures, given the offer apparently might secure their jobs for two years. But it’s not the only bid on the table and administrators will have to dig deep into the detail to make a decision. An improved bid from The Canadian businessman, Doug Putman, who rescued HMV, is also believed to have tabled offers for a large chunk of the portfolio and the brand. Wilko’s sprawling store estate in expensive high street locations has added to its pile of problems of supply chain snarl ups and inflationary pressures, so whatever its future, there is a huge challenge to turn the chain around, particularly given the fierce competition from rivals.’’
