Daily market update: central banks, gold, Next, Inspecs

While the rate cut machine has whirred back into action for the US, it’s expected to remain idle in the UK for a bit longer, says Russ Mould, Investment Director at AJ Bell.

Central banks have a key focus on two things: inflation and the jobs market. They raise interest rates if inflation or the economy are looking too hot and cut if the economy needs a pick-me-up or if inflationary pressures are easing and they need to rebalance to more normal rate levels.

The Fed has been watching inflation like a hawk amid a sharp rise in tariffs. So far, inflation hasn’t been too problematic, and its attention has shifted to the jobs market which is looking weaker.

Financial markets had widely expected a quarter point rate cut, and investors got what they wanted. That’s lifted spirits and led to a decent showing across European equity markets, and futures prices imply the US will follow suit later today. Wall Street initially wobbled when the rate cut news was announced yesterday but quickly found its feet.

Gold pulled back as investors removed some of their ‘just in case’ positions from portfolios and dialled up the risk. Oil prices also dipped slightly.

The focus now shifts to what the Bank of England will do with UK rates, and the consensus is that it will do nothing at today’s meeting. Sticky inflation at elevated levels is a problem, meaning the Bank might feel it is prudent to continue that fight via keeping rates at relatively high levels, rather than loosening monetary policy like the Fed.

Next

Retailer Next has a reputation for straight talking, so its stark take of the prospects for the UK economy will carry weight.

A gloomy assessment allows for some expectation management about Next’s future sales, with growth forecast to slow significantly in the second half of its financial year. It is worth remembering that the company has got under-promising and over-delivering down to a fine art – a key component of being a successful public company.

As a case in point, Next easily beat its first-half sales guidance with its latest results, helped by one-off factors like the sunny weather and picking up business as rival Marks & Spencer struggled with a cyber-attack.

The company’s overseas operations are still in their infancy but are growing rapidly, and this could be important if Next’s domestic market becomes more difficult. Most of its foreign sales are in Europe and the Middle East, which are relatively easy to service from the UK, so Next should be able to pull this growth lever without the requirement for significant additional capital expenditure.

While its share price fell on the latest update, Next may not mind a little heat coming out of the stock too much given it had been trading close to recent all-time highs. The group is clearly looking to give itself an easier bar to clear in the coming months by leaving full-year guidance unchanged despite the first-half beat.

Inspecs

Investors had blurred vision after reading Inspecs’ half-year results. Revenue, profits and margins have dipped, and current trading is behind expectations.

The eyewear company is keeping forward guidance unchanged, yet the negative share price reaction would suggest that investors are not sharing management’s confidence. Tariffs are biting its flow of manufacturing exports from China to the US, and lower government spending in the US is hurting its optics arm.

In theory, Inspecs should have a clear path ahead as it operates in an industry with major tailwinds. People are staring at screens all day long and strained eyesight is leading to higher demand for glasses. People living for longer also bodes well for more eye products sales. Unfortunately, there are obstructions in the path ahead and that’s giving Inspecs a migraine.