- Trump’s hardline tariff stance stokes trade war fears
- European markets open lower
- US dollar rises, 10-year treasuries hold onto gains
- Brent oil finds some support at the $73 level
- Compass hits its twice-upgraded guidance
- Halfords struggles through the cycle
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“European equity markets braced for a sharp drop on Tuesday as Trump’s tariff threats against China, Mexico, and Canada sent shockwaves through global sentiment. The President-elect’s scorched-earth approach has stoked fears of a trade war, with investors increasingly wary that Europe could be next in his crosshairs. The FTSE 100 is feeling the effects and, after a run of three sessions on the rise and posting its highest level in a month yesterday, opened 0.3% lower this morning.
Demand for the US dollar jumped on the news that Trump is planning a day-one move to apply a 10% tariff on all Chinese goods and a 25% tariff on imports from Mexico and Canada, heightening trade tensions. While this injects some fresh uncertainty, bond markets have managed to hold onto gains seen off the back of Monday’s nomination of hedge fund manager Scott Bessent as Treasury Secretary, with the US 10-year dipping to around 4.3% on hopes that Bessent can inject some calmer thinking on spending and tariffs. Focus now shifts to Fed minutes, PCE inflation data, and other key indicators this week, which could clarify the Fed’s monetary stance.
Brent crude oil futures are moving higher in early trading but still sit around the $73.2 per barrel mark, steadying after a 3% drop yesterday as hopes for a Lebanon-Israel truce eased Middle East supply fears. While uncertainty remains over Hezbollah’s response, escalating Russia-Ukraine tensions and Iran’s nuclear ambitions are keeping a floor under prices. Traders now look to the OPEC meeting on 1 December for further direction as geopolitical risks continue to influence the market.”
Derren Nathan, head of equity research, Hargreaves Lansdown:
“Contract caterer Compass Group has dished out results in line with twice upgraded guidance. Organic growth of 10.6% came from the existing customer base and a 4.3% uplift in new business, which encouragingly picked up over the second half. Compass feeds hungry mouths in global venues, from offices to student digs and football stadiums, and across these demand for outsourcing is growing, as customers seek to manage cost inflation and a labyrinth of red tape and regulation. That’s creating the growth opportunity, and Compass isn’t wasting it, translating the top line uplift into additional free cash flow which was up 18.7% to $2.6bn and improved operating margins. That’s providing the ingredients to snap up acquisition opportunities where it trebled expenditure to $1.3bn and a step up in dividend payments.
It looks like there’s more to come this year, with recent acquisitions set to make a full contribution and organic revenue growth guidance set at above 7.5%. Economies of scale and stabilising food inflation should help it achieve its goal of further margin progression. Compass has put together a recipe for dependable growth in an attractive market. That’s seen a gradual re-rating in the valuation, which, on a multiple of 24.4x forward earnings, seems broadly up to speed with the impressive progress that’s been made.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“Halfords continues to fight an uphill battle as weak consumer demand has put the brakes on growth over the first half. Marginal growth in Autocentres was offset by weakness in the Retail division, where cycling remains challenged. Price-conscious customers continued to trade down to budget ranges, and a lack of big-ticket discretionary sales has weighed on performance. Halfords is leaning into cost cuts to help soften the impact on the profit line, with the group halfway towards its £30mn savings target.
The group’s confident that it can meet the market’s full-year forecasts, which are looking for underlying pre-tax profits of around £29mn. With £21mn already secured in the first half, this target now looks well within reach, especially as freight costs are expected to be at the lower end of previous guidance.
Halfords tries to stand out from its competition by delivering expert advice and assistance to customers, face-to-face, with more than 12,000 staff on the books. That means the government’s recent decision to hike employers National Insurance contribution is set to really bite, adding around £23mn of direct labour costs next year, so the group will have to pedal even harder to try and offset these additional costs.
