“Having shown signs of nervousness at the start of the week, investors have got more into the groove as we approach the publication of US inflation figures. European equities pushed ahead on Wednesday, building on a robust showing on Wall Street last night,” says Russ Mould, Investment Director at AJ Bell.
“The inflation figures could still knock markets off course, particularly if they come in higher than expected. Market forecasts already predict further gains in the annual rate of inflation, although the core inflation figure which excludes food and energy prices is expected to slip back slightly.
“It’s important to keep an eye on energy prices nonetheless as oil continues to maintain its recent price strength.
“Brent Crude nudged up 0.4% to trade just below $90 per barrel and that provided support to the big oil companies on the UK stock market, namely Shell and BP.
“The FTSE 100 increased by 0.6% to 7,985, putting it back within a whisker of the 8,000 level. Exceeding that figure would be positive for investors, albeit mainly from a psychological perspective.”
Tesco
“Tesco is reaping the benefits of putting the customer first. For some time, it has been lowering prices on core lines in recognition that consumers are under financial pressure. That’s helped it to maintain appeal to a large number of shoppers and retain their loyalty while also helping it better compete against Aldi and Lidl. The results are clear to see – profit is going up; the business is in great shape; and it is growing market share.
“A lot of companies have reported a rise in revenue in recent years that’s simply been down to raising prices. What’s more important is looking at sales volumes as any growth indicates the customer is buying more products rather than simply shelling out more for the same items. Volume growth indicates a healthy business. On this basis, Tesco is fit as a whistle.
“It’s helped that Tesco has benefitted from people trading down from higher end retailers. Accepting that a high interest rate environment means more careful monitoring of how money is spent, even wealthier individuals have taken steps to shift their spending habits. Whereas once they might have been happy to spend big at Waitrose or Ocado, some of these consumers have shifted to Tesco and found that its Finest range still offers the higher quality products they desire, but at a cheaper price point.
“A good company will always take the spoils of a fruitful period and reinvest the winnings back into the business. That’s precisely what Tesco is doing now. It is using AI to drive productivity, putting automation technology at the heart of a new distribution centre, and making the supply chain more efficient among other activities.
“It is keeping both customers and staff happy, the latter receiving a big pay rise and new perks like access to virtual doctor appointments.
“Overall, this is a business that has come leaps and bounds from the days when it tried and failed to crack the US and achieved poor returns on the money invested across the group.
“The next big test will be the period when interest rates are cut. Consumers feeling more confident about their finances might feel they want to treat themselves – Tesco needs to ensure that situation results in shoppers buying more products at its stores rather than trading up to higher end rivals. It doesn’t have to worry about this situation just yet, but it needs to be on management’s radar.”
These articles are for information purposes only and are not a personal recommendation or advice.