- FTSE 100 opens on the back foot after Trump assassination attempt and disappointing corporate news.
- HL Consumer Confidence survey shows extent of political uncertainty on sentiment.
- House prices dip in early July, according to Rightmove.
- A potential Taylor Swift inflation bounce in focus this week but wage pressure more likely to concern the Bank of England.
- Burberry warns of looming loss and ousts its chief executive.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The FTSE 100 appears to be nursing a hangover, with a lacklustre start to the session. It may appear to be reflecting the disappointed mood of the UK, after the defeat in the Euros final. Sentiment is swayed far more by international events with investors assessing the fallout from the attempted assassination of Donald Trump and how it will reverberate through the US Presidential election campaign. More US banking results are in focus which could indicate the economic headwinds descending on the US, and ears will be on alert for further clues from the chair of the Federal Reserve, Jerome Powell who is being interviewed later at the Economic Club of Washington DC.
The extent to which political uncertainty can rattle financial markets has been laid bare in the latest HL investor survey. Confidence in the European sector in the first week of July fell 21%, which is unsurprising given the rise of extreme parties in France. Optimism also dipped for the UK market by 4% as the General Election approached, while uncertainty about what may lie ahead for the US Presidential elections might partly account for the 2% drop in confidence there. In contrast, investors appear more optimistic about the Asia Pacific, Global Emerging and Japanese sectors. There may be some hopes that uncertainty will settle down now some election results are in, but while the UK looks set to enjoy a period of financial stability, political turmoil in France and the United States looks set to be bedding in.
The onerous effect of high interest rates continues combined with political uncertainty has been piling pressure on the housing market. The average price of a home fell by more than the typical fall in July according to Rightmove. Prices were down by around 0.4% compared to June, when usually a fall of 02% would be expected. There may have been some distraction caused by the Euros, with potential house movers keener to watch games rather than house hunt at weekends. There are hopes that with a new government in place, providing more certainty, it’ll kick start sales again but with affordability still so stretched for many people, prices may more gradually.
Given the ongoing pressure of high borrowing costs UK inflation will be in focus this week. There is speculation about whether Taylor Swift induced spending sprees could push up the CPI headline rate and cause fresh nervousness around the table at the Bank of England. Barclays data indicated that her Eras tour could have brought a £1 billion boost to the British economy. The ‘Beyonce bounce’ from gigs in Sweden was also much talked about. However, it is hot wage growth and not Taylor’s tour which will keep policymakers hot under the collar. The tight jobs market has meant wage inflation has stayed steamy. Although unemployment has edged up to 4.4%, average wages (excluding bonuses) were still rising at 6% in the February to April period. Elevated inactivity rates, partly due to high numbers of long-term illness are partly to blame. The concern is that if this pay pressure continues employers will pass on the cost of higher wage bills and push up the price of goods and services. Huw Pill, the Bank of England’s chief economist is the latest to warn about the persistence of inflation. Financial markets are now estimating there’s only a 50% chance an interest rate cut will come in August. Although don’t blame Swifties if borrowing costs stay elevated for longer.
Another chief executive is paying the price of the difficulties facing the luxury goods sector. Johnathan Akeroyd is leaving Burberry after two years at the helm. His exit comes swiftly after British brand Mulberry also announced the departure of Thierry Andretta. It’s super tough for luxury brands reliant on aspirational shoppers. They aren’t as insulated as the super-rich from the pressures whipped up in an era of high interest rates and an uncertain economic climate. While Burberry’s brand repositioning has come a long way, it’s not yet sharp enough to reach the heart of the more resilient end of the luxury market. It appears the focus for the new chief executive will be on returning to its core image, the classic coats and camel red and black Burberry check the firm became famous for. Chopping and changing collections to attract the eye of hard to please fashion editors can confuse customers and there is set to be a return to the brand’s core principles and the traditional focus on dressing the elite.
With more here’s my colleague Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Burberry announced a change at the top by appointing Joshua Shulman as Chief Executive Officer, who has experience at Kors, Coach and Jimmy Choo. Former boss Jonathan Akeroyd has stepped down with immediate effect. The change comes alongside a first-quarter trading update which makes tough reading for investors. Weaknesses that were already highlighted by the group coming into the financial year have worsened, with first-quarter revenue falling by an eye-watering 20%, ignoring the impact of exchange rates. If current trends continue, operating profits look set to fall short of market expectations and the group expects to make a loss over the first half.
All of this led Burberry to suspend dividend payments, which is a desperate measure to preserve cash and fortify the balance sheet, indicating that fortunes aren’t expected to pick up in the near term. Brand weakness extends beyond China, with Europe and the Americas also seeing double-digit revenue declines. There’s a lot of work to be done to make up for years of underinvestment in the brand. Unsurprisingly, the shares have taken a big hit in early trading. The new boss has a lot of work to do to steady the ship and prove to investors that calmer seas lie ahead.”
