- FTSE 100 opens lower as inflation doesn’t fall by as much as hoped.
- Oil prices dip and falls in some metals prices affect mining stocks.
- RS Group disappoints with a 25% slide in annual profits
- Marks and Spencer offers fresh delights with full year revenue rising sharply.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Disappointment that inflation in the UK has not hit the sweet spot has tripped up the FTSE 100 in early trade, while falls in some commodity prices have hit energy and mining stocks. The pound gained further ground above $1.27 as the inflation reading came through, which affects the earnings of listed multinationals. The blue-chip index may have been blown off its winning course, but it’s still registered an 8.4% gain year to date.
The rate of inflation hasn’t been this low for almost three years, but sticky services inflation will remain a worry, and policymakers at the Bank of England will also want to see more evidence that stubborn wage rises show signs of easing. Interest rate probabilities indicate the markets expect a rate cut to be delayed until at least August. All eyes will now be on the Fed minutes out later today for indications about when borrowing costs will come down in the US, but it’s looking likely that the Bank of England and the European Central Bank will be faster out of the traps in terms of interest rate cuts.
Concerns about the Fed taking longer to bring down borrowing costs are weighing on the oil price. If interest rates stay high, it adds to costs for companies and consumers which may mean they will restrict activities and consume less energy. With fresh disruptions to oil operations in the Middle East not materialising, supply concerns have also dissipated, helping bring down Brent Crude to below $82 dollars a barrel.
A slump in RS Group’s annual profits by 25% dragged down shares sharply, with the company the biggest faller on the FTSE 100 in early trade. It’s been a difficult year for the industrial and electronics products distributor, as it deals with cyclical weakness in the sector combined with customers de-stocking, after unusually buoyant trading in the post-pandemic period. It’s also blaming the more challenging geopolitical environment and broader weakness in global industrial production. The months ahead still look murky and the lack of clarity about when there will be an upswing in activity has added to negative sentiment.
Marks and Spencer’s update has added fresh shine to the retailer with the share price rising by 7.5% in early trade. Investors are enthused about its robust performance with full-year revenue up 9.3%. With more here’s my colleague Guy Lawson-Johns.
Guy Lawson-Johns, equity analyst, Hargreaves Lansdown:
“M&S has given shareholders plenty to be happy about this year, growing market share and margins while implementing a significant cost-cutting programme. The group has achieved £180mn in cost savings this year and identified an additional £100mn in potential cuts, surpassing its previous five-year guidance.
In the last quarter, M&S emerged as Britain’s fastest-growing grocer, alongside Lidl and the retail arm of Ocado, in which it holds a 50% stake. Despite the challenging retail environment, marked by wage inflation and business rates, M&S exceeded analyst expectations with operating profit growth of 33.8%.
Operational and strategic improvements mean the business is healthier than it has been in some time. Enhanced cash generation and a robust balance sheet have enabled a continued reduction in net debt. This financial stability has allowed M&S to restore its full-year dividend to 3p per share. While the prospective yield of 2.3% may seem modest, the anticipated increase in dividends could appeal to income-focused investors.”
