17 May 2023 – Market Report: US spending wanes, JD Sports races ahead, British Land takes a hit and EV production at risk.
- US consumer spending wanes with Home Depot and Retail sales disappointing
- Brent crude falls back to $74 as prospects for global economy are assessed.
- Japan bounces back with the economy growing by 1.6% on annualised rate in first quarter
- UBS counts Credit Suisse cost and estimates the takeover will prove at $17 billion hit.
- JD Sports races ahead, eyeing a £1 billion profit prize
- British Land takes at 12.3% hit on the value of its property portfolio.
- EV production at risk in the United Kingdom due to post-Brexit rules.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’US recession worries are back to being front and centre after Americans showed signs of becoming more edgy about spending. The weaker oil price is reflecting nervousness about what’s ahead for the US and, as a knock-on effect, prospects for the world economy.
A trio of unwelcome developments helped push down stocks on Wall Street, with April’s US retail sales coming in lower than expected, Home Depot results showed homeowners are putting off projects and Elon Musk saying Tesla would not be immune to the global environment. Investors will be waiting to see if Target and Walmart can turn in a more resilient performance as shoppers search out value amid rising bills. Investors are staying cautious as talks aimed at averting a US default continue, with US Treasury Secretary warning that deep cracks in the financial system would appear if budget agreement is not reached. However, there is a small sliver of more optimism with the Republican Speaker of the House of Representatives, Kevin McCarthy, saying that progress can be made by the end of the week.
The Nikkei wasn’t blown off course by American worries, with investors gaining a big spring in their step and pushing the index to the highest level in 33 years. The economy has bounced back from pandemic woes, growing at an annualised 1.6% in the first quarter, as consumers freed from restrictions splashed the cash and tourists returned. But this may be a short-lived bounce, as there are concerns lingering about weaker exports, amid a slowdown in demand around the world.
The extent to which UBS was a reluctant partner in the deal to buy Credit Suisse has become clear. The Swiss bank has had to absorb a painful loss after being rushed into taking over its beleaguered rival, estimating it’s taken a $17 billion hit from the takeover. While this is slightly smaller than some industry estimates, it’s a heavy cost to bear, and has been partly put down to the lack of time it was able to complete due diligence and assess the web of problems at Credit Suisse.
JD Sports has raced ahead as the demand for the latest shoes and athleisure-wear shows little sign of abating. It’s expecting profit to exceed £1 billion for the first time this year. Brand power is showing little sign of losing its prowess on the retail track with a pair of the new must-have trainers still proving a huge draw, despite pressures on budgets. As JD Sports has hurdled the cost-of-living crisis, pre-tax profit for the year to January came in at £991.4 million, ahead of guidance. It’s now ramping up new store openings, taking advantage of the renewed enthusiasm to browse in bricks and mortar shops once more.
British Land has taken a big hit from the ratcheting up of interest rates, and risk adverse attitude to commercial property. The value of its portfolio has declined by 12.3% which is clearly a significant disappointment, but the company is stressing it’s playing a long-game and investing in campus style developments and retail parks where it sees sustainable growth. Underlying profit was up 7% on the year, with occupancy rates at 96.7% reflecting the resilient demand. The company has been taking the opportunity of weaker real estate prices to snap up more properties in areas it sees as high future potential for the urban logistics life science sectors. Strict requirements in the post-Brexit trade deal have come back to bite Britain. Stellantis is warning it may up sticks and take its electric vehicle production to other more competitive regions in the world, with the Ellesmere Port factory in Cheshire particularly at risk.
The manufacturer of brands like Vauxhall, Peugeot, Citroen, and Fiat had said planned to make EVs in the UK, but the ‘rules of origin’ demands means that commitment is unravelling as faces being slapped with 10% tariffs.
45% of the vehicle’s parts need to be made in the UK or the EU, to qualify for trade without tariffs but this is making production unsustainable and uncompetitive. It’s because raw material costs have rocketed, while plans for an electric battery plant in the UK collapsed, meaning it is having to source major parts from elsewhere in the world.
This piles on further pressure on Rishi Sunak’s administration, which is desperately looking at ways of firing up growth. Instead, it seems to be taking one step forward and two steps back, partly hamstrung by post Brexit legislation, while at a disadvantage as the US has poured billions of dollars into green investments.’’
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