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Home Markets Market report – record IAG profits, US economy runs hotter than expected

Market report – record IAG profits, US economy runs hotter than expected

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Market report – record IAG profits, US economy runs hotter than expected

  • British Airways owner, IAG has reported record third quarter profits on the back of strong leisure demand
  • FTSE 100 opens up broadly flat as tricky week comes to an end
  • US economy rose 4.9% in the third quarter, raising questions about interest rate directions
  • Wider conflict concerns in the Middle East ease, sees oil price head for weekly loss

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

“The British Airways owner is seeing profits climb up, up and away. Record levels of profitability were seen in the third quarter, helped by better-than-expected leisure demand, as consumers continue to prioritise spending on experiences. The optimism hasn’t reached the end of the runway yet either, with continued recovery expected next year. A pivot has taken place in the travel sector since the pandemic, in terms of its importance to consumers, but that doesn’t mean we aren’t going to see knocks to performance – especially for the long-haul carriers like IAG. Further information on how next year’s summer bookings are shaping up will be the most important barometer in understanding how far the current round of consumer confidence can carry this aviation giant.”

The FTSE 100 has opened up broadly flat as heavyweight news from IAG and NatWest weigh. The moves don’t offset the broader sell off seen in recent days, as concerns mount around a US inflation read. The better-than-expected results from Amazon last night are also brightening the mood, especially considering the strong retail performance has a positive read across for the discretionary sector on this side of the pond.

US GDP rose 4.9% in the third quarter, above expectations of 4.3%. Nestled within that, there was a 4% increase in consumer spending, which is a helpful support beam for advertising-reliant and consumer leaning stocks. However, the overall concern is what this too-hot-to-touch economic read will mean for the next interest rate decision. A strong consumer and growing economy don’t lend themselves to disinflationary movement. The higher-for-longer interest rate narrative will become louder and more apparent following this development.

Brent crude is set to lose 4% this week, as concerns about a wider conflict in the Middle East ease. There are also indications of weakening demand in the US, which also help sap price growth. The better-than-expected GDP print in the US also increases the risk of higher interest rates, which creates questions about future economic activity.”

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