Market Report – FTSE 100 stalls after Fed comments, Diageo profit warning
- FTSE struggles at the open after Fed Chair, Jerome Powell signals the US isn’t done tightening
- UK economy fares better than expected but stagnation fears increase
- Drinks giant Diageo issues profit warning on weak Latin America demand
- Oil price set for third weekly decline
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“The FTSE 100 has rocks in its shoes after markets around the world digest Jerome Powell’s speech yesterday, which suggested the US would hike interest rates again if needed. The battle to vanquish inflation could still need an extra pair of hands, and that’s upset an investor base that had grown increasingly optimistic that policymakers would stick to the hands-off approach. While the comments weren’t a warning of imminent increases, they do keep monetary tightening on the table. Early signs from the US and Europe show that markets are taking this news with pouted mouths. Treasury yields have also increased slightly and that’s another way to burst equity market bubbles as the risk-reward profile for investing in riskier assets becomes less palatable.
The UK economy was unchanged in the third quarter, which was mildly better than forecasts for a small contraction. It’s not exactly a time for cheer though. There are growing concerns about entrenched stagnation, triggered by higher interest rates. It’s a tough problem to solve, especially for the Prime Minister as he gears up for a political fight. At the same time, some would argue that the lack of 2023 recession is no victory at all because a cool, rather than ice-cold economy is still able to breed inflation.
The maker of Johnnie Walker and Smirnoff, Diageo, has warned that revenue and profit will be lower than expected this year. Very tough economic conditions in Latin America means consumers are cutting back and trading down to less premium options. The region only makes up a relatively small portion of Diageo’s whole, but the extent of declines means expectations have materially changed at the group level. Diageo has long been a favoured steady-Eddie thanks to its seemingly impenetrable brand power and dividend paying ability, and there will now be concerns that the change in appetites could translate to other, larger markets.
A barrel of Brent crude will now set you back $80, as the price declines for a third straight week. There are easing concerns over potential supply disruptions in the Middle East, and demand uncertainties in the US and China are also weighing heavy. US inventories are also at healthy levels, which alleviates upwards pressure on the price.”
