Interest rates keep going up, more commotion around Elon Musk selling Tesla shares and Currys warns on profit

“The interest rate hikes keep on coming and this trend is almost certainly going to remain intact in early 2023. The Federal Reserve has lifted US rates to the highest level since 2007 at 4.25%-4.5%, and while the pace of the rate hikes has slowed, the headline rate is unlikely to have peaked for now,” says Russ Mould, Investment Director at AJ Bell.

“The Bank of England is following a similar playbook – keep raising interest rates to combat inflation. We’ll find out later today how much it is prepared to lift the cost of borrowing, most likely a 50 basis-point increase to 3.5%.

“Even though there are signs of inflation easing, it remains significantly higher than both the Fed and Bank of England’s 2% target. The jobs market is also too strong to suggest that the central banks will halt further rate rises.

“Raising rates makes it more expensive for consumers and businesses to borrow money and theoretically causes a reduction in spending and investment which should help to ease the economy and bring down prices. This takes time to work its way through the system and so central banks will continue their rate hiking path until there is adequate evidence to support a shift in policy.

“Investors have been eagerly awaiting this so-called pivot and comments from the Fed yesterday poured cold water over any idea of it happening soon. Markets reacted as you might have expected, with a 0.6% decline in the S&P 500 and a 0.8% drop in the Nasdaq.

“The FTSE 100 got off to a bad start on Thursday with a 0.8% decline to 7,439. Defensive sectors like tobacco and pharmaceuticals tried their very best to prop up the market but the headwinds were too strong elsewhere, with banking, energy and mining acting like an anchor on stocks.”

Tesla

“Surely it must be time for Tesla to hire a new chief executive and let Elon Musk do his extra-curricular activities without further compromising the electric car business.

“It would be an understatement to say that he’s been distracted this year, given all the hullabaloo around buying Twitter.

“The fact he is once again selling stock in Tesla means his actions are hurting the hundreds of thousands of shareholders who are primarily interested in the electric vehicle’s business, not the wild, unpredictable nature of its boss.

“Musk selling another $3.6 billion worth of stock only served to pull down the price, thus penalising other investors who probably couldn’t give a hoot what happens with Twitter. They signed up to back an electric vehicle and power business and would naturally expect the company’s boss to be focused and have his mind always on the job. That certainly hasn’t been the case this year.”

Currys

“A recent solid run for Currys’ shares had suggested the electronics retailer was moving towards a better place, supported by a resilient balance sheet.

“That optimism is punctured by today’s first half results which are accompanied by the bad smell of a profit warning.

“Currys’ international business is taking a big hit. If people sometimes forget the company has a large overseas presence, they got an unwelcome reminder as margins in Scandinavia and southern Europe come under serious pressure.

“For now, Currys is guiding that this is a short-term issue as rivals sell off heavily discounted excess stock, however the market may remain sceptical of a recovery in this part of the business until it has seen evidence of improvement.

“The difficulties abroad detract from what is a solid showing for its UK and Ireland operation. Though sales have continued to decline, Currys has been able to take some costs out of the business and, in contrast to its overseas arm, protect margins.

“Currys benefited from people buying laptops and other electronic goods during the pandemic but recent pressures on consumer spending and the fact that much of this earlier spend is unlikely to be repeated in the near term have clouded the outlook for the company.

“Management now have the challenge of steering the business through a consumer recession in the hope they can come out the other side as a leaner, more efficient operation with an improved market share as less robust rivals fall by the wayside.”

These articles are for information purposes only and are not a personal recommendation or advice.