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Home Banking Market report: US inflation, TUI’s losses narrow and the return of the meme stock frenzy

Market report: US inflation, TUI’s losses narrow and the return of the meme stock frenzy

by admin
Susannah Streeter
  • FTSE 100 opens higher shrugging off concerns that interest rates may have to stay higher for longer.
  • US inflation reading is in focus, amid fresh skirmishes in the US China trade wars.
  • TUI flies into calmer skies, thanks to stronger-than-expected winter bookings.
  • Hold onto your hats – the meme stock frenzy has returned, with GameStop on a rollercoaster ride.
  • Taylor Swift tour set to help boost the UK economy by £1 billion.
  • Burberry’s shares fall 3% in early trade amid weaker demand from aspirational shoppers.

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

‘’The feel-good factor is still washing through London markets as investors spy interest rate cuts on the horizon, despite signs prices are proving sticky. Although wage growth is staying stubborn in the UK and producer prices came in hotter than expected in the US, investors are staying pretty sanguine. Markets still expecting painful borrowing costs to ease this year, even though cuts are now expected to come later than hoped. The key CPI reading in the United States later will be crucial as far as sentiment is concerned, as it looks set to indicate that patience will be needed, before the Fed will feel comfortable about lowering rates. The risk is that if interest rates linger for a lot longer, it will push the economy into a much tougher position, with weaker growth prospects, which could erase some of the recent gains on markets. Brent Crude has edged up slightly, trading around $83 a barrel, but it remains considerably weaker, compared to the highs reached last month, as questions pop up about the demand for energy in the world’s largest economy.

The People’s Bank of China has held off from injecting the faltering economy with more stimulus, opting to keep a key one-year lending rate on hold. Concern has also crept back in about the ongoing trade war between the US and China, after the Biden administration imposed new tariffs on Chinese imports.  Duties are being ratcheted up across a range of key goods, from electric cars to solar cells, semiconductors, and steel. It’s not a coincidence that this fresh skirmish in the industrial battle between the two nations is showing up ahead of the US Presidential election, with Biden’s team wanting to demonstrate to voters that they are putting American companies first, but these tit for tat moves risk disrupting global trade and weakening overall economic conditions, which is proving unsettling for investors, particularly on Asian markets.

TUI has flown into calmer skies as holiday makers showed enthusiasm for getaways as spring approached. The winter booking season ended strongly, helping reduce losses at the group more quickly than expected. The dismally wet weather in key markets may well have helped boost demand for breaks in the sun, with revenue soaring 16% in the second quarter. There is also promising momentum for the upcoming season with demand buoyant for the summer – bookings are up 5% and average prices up 4%, with 60% of available holidays sold. The hike in prices isn’t putting off holidaymakers, with families ringfencing budgets for a spot on the sun lounger.  The signs are that bookings are set to remain robust. Recent data from Barclaycard for April showed that although overall retail spending dipped, transactions at travel agents soared 14.4% while spend jumped by more than 7%.

Hold onto your hats as the meme stock frenzy has returned. Shares in GameStop have been on a fresh rollercoaster ride, as speculators have piled in hoping to make a fast buck. Interest surged after a key US influencer, Roaring Kitty, aka Keith Gill, reappeared on social media, sparking big talk in chat rooms about what he may have up his sleeve. There has been no specific corporate news to reignite interest in the stock and others, which were central to the craze which emerged in 2021, but a fresh frenzy has erupted, nonetheless. This is a trend driven by entertainment rather than company fundamentals, and so any investors considering hitching a ride should exercise extreme caution. Stocks which rocket up on pure speculation, tend to drop back down to earth very quickly.

The frenzy among Swifties is expected to bring a boost to the UK economy, with a new report suggesting that the US singing sensation’s Eras tour could increase spending by around £1 billion, according to Barclays. It’s not surprising, given the fight for tickets to see Taylor Swift, that fans look set to spend big around their stadium visits. For many this a ‘once in a lifetime’ occasion. Spend in hotels, restaurants and bars around big venues is set to surge and it’s likely that clothing retailers will see an upswing in business, as fans find the perfect outfit to wear to see their icon. Beyonce has been there, done that, with the Beyonce bounce, blamed for pushing up inflation in Sweden during her tour. But it’s highly unlikely Bank of England policymakers will delay an interest rate cut on Swift inflationary pressures alone.

Fashion fans can be highly fickle, particularly aspirational shoppers. Weaker demand for the latest luxury styles is showing up in Burberry’s results, pushing its share price down by more than 3% in early trade. With more here’s my colleague Sophie Lund-Yates:

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

“Burberry’s latest figures leave a lot to be desired, amid slowing demand for luxury. Issues were especially pronounced in mainland China in the fourth quarter, while the Americas saw broad-based declines throughout the year. Not only does this highlight the extent of consumer caution across the globe, but it also puts a spotlight on some Burberry-specific issues. Refreshing the store estate is all well and good, but only if those costs and charges can be recouped by selling the clothes they hold. While Burberry’s brand repositioning has come a long way, it’s not yet sharp enough to slice through to the core of the even more resilient end of the luxury market. That said, there will be relief that these results weren’t any worse than expected following recent downgrades in expectations.

Slowing trends are being seen across the board in the sector, so these weaker results aren’t a total bolt from the blue. The question now will be how quickly demand picks up, and that of course is in the hands of the economy. The relative lack of brand diversification, compared to other names, makes Burberry more exposed to these cycles too. There’s also uncertainty heading into the new financial year, with cost savings being deployed to prop up the bottom line, which isn’t something that can go on forever. Overall, the extra risks have brought about an especially harsh re-valuing of the shares over the last year, to the point that it may be deemed overdone, and therefore signal opportunity. Burberry faces challenges, but it remains a strong heritage brand, with a lot of the right strategic ideas.’’

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