- FTSE 100 opens on the front foot as US indices continue to trade near record highs.
- Eyes turn to US inflation report after Fed chair’s comments that Labour market conditions remain strong.
- Defence in focus as world leaders gather for crucial NATO summit.
- Investors assess the UK plans for a National Wealth Fund to support infrastructure projects.
- Brent Crude shifts lower, to $84.1 a barrel, following a larger drawdown than expected of US crude stockpiles.
- JD Wetherspoon has poured out a glass half-full showing sales growth continues to outpace pre-pandemic levels.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The FTSE 100 has opened on the front foot, taking cues from unruffled markets in the US despite a continued lack of clarity about when interest rate cuts will come. Fed Chair Jerome Powell offered few clues about when monetary policy will be eased during his congressional testimony. Policymakers are keeping a close eye on whether restrictive rates are squeezing enough demand out of the economy and, while the one hand, he said the Labour market had cooled, it was still ‘robust.’ There is still an expectation that a rate cut could come in September, but beyond that there is still much uncertainty. Nevertheless, US indices are still hanging close to record highs, with enthusiasm over AI possibilities and hopes for a soft landing for the economy still buoying sentiment. Eyes will now be drawn to tomorrow’s Consumer Price Inflation report for indications about the future direction of travel. Another shift lower in headline inflation is expected, which should help maintain the largely optimistic outlook. A reading of 3.1% year-on-year is expected in June, down from 3.3% in May.
Defence contracts are likely to be in focus today as leaders gather for a crucial NATO summit at a time of intensifying attacks in Ukraine, and devastating scenes in Gaza continuing. There will be fresh calls for nations to increase military spending allocations in budgets. Although short-term commitments are expected, the longer-term outlook particularly from the US side looks unclear, given the outcome of the Presidential elections is so uncertain. UK Prime Minister Keir Starmer has not yet committed to increasing defence spending to 2.5% of GDP this parliament, although he says the longer-term pledge is cast-iron. He’s now facing calls from former military chiefs to go much further than that, given the current size of the armed forces, and the need for better equipment and capabilities given the geopolitical climate.
Investors are continuing to assess the implications of the new Labour government’s National Wealth Fund, which is set to start channelling funds to companies supporting UK infrastructure projects imminently. The new fund is set to support the production of electric vehicles, clean steal, improved ports and carbon capture. It would work alongside the recently formed Great British Energy, another publicly owned company, which is set to focus on the production of clean, low carbon energy. Both bodies look set to play a crucial role in delivering investment needed for the green transition and help the UK hit targets. But how they efficiently work together and with existing organisation may be critical to their success.
Oil prices have dipped back as US crude stockpiles reduced by more than forecast in the week ending 5 July. The American Petroleum Institute reports inventory levels weekly, and they show a fall of 1.923 million barrels, a larger drop than the 0.25-million-barrel decline expected. Nevertheless, a floor is being kept on prices, as hopes for an interest rate cut are still filtering through, with easing borrowing costs expected to help the economy going forward, and an ensuing lower dollar expected to lift demand for the commodity. Supply risks are also still present, given the ongoing Israeli military operations in Gaza, which continue to dash hopes of a ceasefire and increase concerns about an escalation of the conflict.
JD Wetherspoon has poured out a glass half-full showing sales growth continues to outpace pre-pandemic levels. The dismal weather at the start of the summer hasn’t led to soggy sales but they are weaker than the same period last year.
With more here’s my colleague Derren Nathan, head of equity research:
“JD Wetherspoon has shrugged off the poor summer weather. While last month’s retail sales suffered in the UK, the rain hasn’t deterred visitors to the Group’s 801 pubs. Like for like growth has accelerated from the 5.2% in the third quarter to 5.8% so far in the final three months. An England semi-final and, fingers crossed, final at the Euros this week could provide a final flurry before the year closes out.
These numbers don’t just happen by themselves. Wetherspoon consistently outperforms its peers and continues to invest in measures to improve serving times and the customer experience. That’s helped it to mitigate an inflationary led assault on its cost base.
The estate has continued to shrink as it surrenders underperforming units, but the opening of watering holes at travel hubs like Waterloo shows a focus on the three Ls: location, location, and location.
At the last check, guidance was looking to meet the top end of expectations, which equated to pre-tax profit of around £75mn. That language has softened to “in-line”. The range has narrowed a little with the mid-point at £71.9mn and the top end at £72.9mn but it’s unlikely the market will see this as a downgrade. The Group looks in good shape, and with inflation less of an issue than it has been, there’s an improving outlook for the bottom line.”
