Daily market update: China growth lifts miners, Tesco, EasyJet, Dunelm

For the most part, markets are still clinging to hopes of a resolution to the Middle East conflict, with a decent advance in the US and Asia followed up by more modest gains in Europe.

Miners did some heavy lifting for the FTSE 100 after Chinese GDP growth hit its 5% target in the first quarter despite the disruption from the Iran war. This is good news for London’s resources contingent given China is a rapacious consumer of a raft of commodities. 

Though with this growth underpinned by exports, a faltering global economy could mean it is hard to sustain through the rest of 2026.

Elsewhere on the UK market, some of Tesco’s retail peers were basking in the glow of its well-received results and slightly better-than-expected UK growth figures, while more traditionally defensive names were out of favour.

With US stocks back at record levels and the FTSE 100 itself just 3% from its own all-time high, it’s like the events of the past month-and-a-half have been placed in the rearview mirror by investors. 

The market’s sanguine perspective may be tested if the rhetoric about an end to the fighting isn’t matched by reality sooner rather than later.

Tesco 

The Middle East crisis has already pushed up prices on the forecourt for petrol and diesel, and next comes the weekly shop. 

It is inevitable that the cost of food and drink will go up, meaning consumers will have to think harder about what they buy and whether they need to put less in their basket or opt for cheaper alternatives. The big unknown is for how long this situation might last and that creates uncertainty for Tesco's future earnings.

This backdrop has overshadowed a decent set of results from Tesco as the focus is on what might happen next, not what it has just achieved. 

Tesco continues to gain market share which is remarkable considering the ferocity of competition in the grocery sector. It is managing to appeal to both value seekers and people happy to pay a little more for fancy items. Sainsbury’s has similar momentum but isn’t firing on all cylinders, as its general merchandise interests remain a drag on the business. Tesco’s clothing sales look good, and even the wholesale arm Booker seems to be finding its feet after a wobbly patch. 

Tesco is clearly doing something right and it will want to keep customers on its side if there is another cost-of-living crisis. It will want to keep sales volumes high and might accept a slightly lower profit margin if it means beating competitors on price during a more challenging environment. Investors seem confident that Tesco will manage a tougher backdrop, hence the positive share price reaction to the results. 

EasyJet

EasyJet had already lost one quarter of its market value this year as investors fretted about higher costs and a summer of disruption if fuel is scarce. A lot of bad news was already priced in, meaning the latest trading update is only confirming what people expected and not catching the market off guard. 

Bookings are down for the third and fourth quarter versus last year, and 30% of its second-half fuel requirements are exposed to higher oil prices. The airline is in good financial shape to withstand another period of disruption, and it is well-versed in dealing with setbacks given past experiences with air traffic control strikes and the stop-start pandemic backdrop. 

So much depends on what happens next with the Middle East crisis. A swift resolution could remove cost pressures and trigger a flurry of bookings. A prolonged crisis could see demand dwindle further and a succession of cancellations if fuel supplies run dry or are rationed in various parts of the world. 

Dunelm

A decent quarterly showing wasn’t enough to cushion the blow for Dunelm shareholders as it guided for full-year results at the lower end of market expectations.

Consumer confidence has been rocked by the energy shock created by the conflict in Iran. While costs aren’t expected to see too big of an impact immediately, Dunelm knows inflationary pressures are coming down the track.

With demand for furniture and homewares having strong ties to the housing market, the cracks emerging in property demand are also unhelpful.

Trading in the latter part of Dunelm’s third quarter helps explain why it is so circumspect about what’s coming, with the reference to ‘broad-based softening’ in March a gentle way of saying customers are buying significantly less of its wares in every category. 

Dunelm must now balance discounts to entice shoppers to spend while not undermining its margins too much or damaging the integrity of the brand in the longer term.

Dunelm has built its success on offering decent quality products at affordable prices underpinned by a low-cost operating model. It will need to lean on these strengths to help weather the current period.

All Dunelm can do is focus on what it can control, and the company looks set to continue with a path of enhancing its digital offering while also rolling out more physical stores.