FTSE jumps 2% despite IMF recession warning, Tesla deliveries miss expectations and Cineworld denies break-up talk

“UK shares kicked off the New Year with a bang despite gloomy predictions from the head of the IMF that one third of the global economy will be hit by recession this year,” says Russ Mould, Investment Director at AJ Bell.

“Kristalina Georgieva told CBS that the US, EU and China are all slowing simultaneously. This is unpleasant to hear but isn’t a shock to markets given the multitude of headwinds that gathered pace last year, namely high inflation and rising interest rates and the negative impact they have on business and consumer spending.

“The FTSE 100 moved 2% higher to 7,604, led by Shell and BP which were lifted by ongoing strength in the oil price. Brent Crude has risen by 14% since 9 December as markets started to expect higher demand from China as it moves to drop strict Covid rules and reopen its economy as well as a move by the US to replenish its emergency stockpile of oil.

“Mining and banks were also in demand on the UK stock market, suggesting that investors were split into two camps – one happy to take on additional risks and buy commodity producers in the belief that any global economic downturn will only be short lived, and the other opting for a more cautious approach. Banks have perked up on the stock market in recent months as investors bet that they will benefit from interest rates staying higher for longer.”

Tesla

“For much of 2022 Tesla’s share price was more befitting of a clapped-out old banger than a shiny, sleek machine and it doesn’t look like there’s going to be an immediate change of speed for the company in 2023 given quarterly deliveries have fallen short of management expectations.

“Tesla’s previous gains have been based on delivering super-charged growth, without that it looks a different proposition.

“With waiting lists for new vehicles shortening fast, there is genuine concern about demand, at least in the short term.

“Add in the competitive threat from the established car manufacturers and new challengers in Asia and you can understand why sentiment towards Tesla has undergone such a gear shift.

“These under the bonnet issues have been compounded by the perception that the man at the wheel, Elon Musk, is too distracted by his controversial takeover of Twitter to give his main business the attention it deserves.

“After suggesting he will stand down from his role at the social media platform after making the decision by the rather eccentric medium of a Twitter poll, there may be increasing question marks over whether he is the right man to drive Tesla forward too.

“Perhaps a back seat role, allowing him to focus on the big picture stuff, which he tends to excel at, would be a better fit for Musk.”

Cineworld

“Cineworld fell 9% after saying it wouldn’t break up its business and sell bits piecemeal to raise cash to help pay down its sky-high debts.

“There had been speculation that Odeon’s parent company AMC wanted to buy some of its cinema sites and that Vue was also waiting in the wings, ready to do a deal and cherry pick theatres to bolster its own estate. However, Cineworld says it is focused on trying to sell the whole business.

“Cineworld has been in a perilous state financially after undertaking an aggressive expansion plan that saw it move into the US, quickly followed by an aborted deal in Canada. Covid then struck, leaving the business gathering dust while its debts still needed to be paid. The reopening of the cinema industry post-pandemic has not gone smoothly and Cineworld has found itself on borrowed time.

“Shareholders have been told on numerous occasions that their investment could be significantly diluted upon any restructuring or sale of the business, so the situation is more about getting back pennies in the pound rather than waiting for a big payday.”

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