Daily market update: Costa Coffee, British American Tobacco, Bunzl

“A jump in US Treasury yields indicates that bond investors aren’t happy about how Trump continues to meddle with the Fed and threaten its independence,” says Russ Mould, Investment Director at AJ Bell.

“Equity markets were in the red across Europe and Asia, and futures prices imply Wall Street will follow suit when it opens for trading later today.

“Donald Trump is being relentless in his quest to lower interest rates. He has publicly called for the Federal Reserve to cut the cost of borrowing and has repeating criticised Fed chair Jerome Powell for not pursuing looser monetary policy.

“Even though Powell last week indicated a shift in Fed strategy with the implication that rates will be cut next month, Trump seems unsatisfied. He’s proceeded to sack Fed governor Lisa Cook which will drive speculation that the US president will push for a replacement governor more in line with his way of thinking. Cook has refused to resign, and the whole incident has caused financial markets to wobble once again.

“Importantly, the VIX volatility index has jumped 10% which suggests that investors have quickly switched from party-mode last Friday to now being cautious once again.

“If the drama in Washington wasn’t enough, a French political crisis has added to the storm. French government bond yields jumped and the blue-chip CAC 40 equity index slumped amid signs the minority government could be ousted. Banks were hit worst, with SocGen, BNP Paribas and Credit Agricole all down by more than 5%.”

Costa Coffee / JDE Peet

“Something is brewing in the coffee sector. JDE Peet’s has been sold to Keurig Dr Pepper for £13.6 billion and there is speculation that Coca-Cola is looking to offload Costa Coffee. What’s peculiar is the timing of such deals.

“Coffee prices doubled between January 2024 and March 2025 due to unfavourable weather conditions hurting supplies and costs going up for farmers and the supply chain. Big coffee brands had to put up prices and not every caffeine drinker was able to stomach the extra cost. That caused a headwind for the sector.

“Coffee sellers – be it jars in the supermarket or lattes on the high street – have found life much harder over the past few years. As such, now seems an odd time for M&A in the sector. One would normally expect deals when a market is in good health, not when it is reeling from intense cost pressures.

“Costa has gone from piping hot to lukewarm in terms of its position in the coffee-on-the-go industry. It always seemed an odd brand to sit inside Coca-Cola’s portfolio and it has struggled to fight off competition. Coca-Cola is unlikely to make a profit on selling Costa in the current market, but that might not be disastrous for a company of its size.

“We’re in an environment where companies are looking at what they do best and trimming back on non-core activities.

“Costa might benefit from being owned by someone whose principal business is hot drinks, not cold fizzy ones, and getting a cut-price deal could present an opportunity for someone to get a bargain and reinvigorate the brand.”

British American Tobacco

“The immediate exit of a finance chief at a company raises alarm bells and the reaction to this development at British American Tobacco certainly betrays some nervousness among investors.

“There is no suggestion of anything amiss in the company’s statement and, tellingly, Soraya Benchikh will be available to support the switchover until the end of the year.

“Nonetheless, her sudden exit still raises some questions and the market may be disappointed a key architect in turning around the company’s financial performance will no longer be a part of the management team – particularly as she has not been there that long.

“Her interim replacement has experience of stepping up on a temporary basis in this role but shareholders will want to see a permanent appointment sooner rather than later."

Bunzl

“Distribution and outsourcing group Bunzl is supposed to be boring and reliable, providing businesses with everyday items which are fundamental to their day-to-day operations, but it created the wrong sort of excitement in April as it endured its worst one-day sell-off in a decade.

“This followed a major profit warning, pegged on a challenging economic backdrop and cost challenges in North America, and the accompanying suspension of its buyback programme.

“Investors have now reacted with relief to a first-half results announcement which is reassuringly prosaic.

“Profits were lower as guided and the company has also resumed its buyback, suggesting the ship has been steadied thanks to divisional leadership changes, cost savings and an increased focus on higher margin own-brand products.”

Wood Group

“Wood Group suitor Sidara appears to have found more skeletons in the closet upon due diligence on the company. It may not be walking away from a takeover but it has meaningfully trimmed its offer price.

“This had been flagged as a possibility earlier this summer, after the financial regulator started a probe into the business, but it is testament to Wood Group’s weak negotiating position and, arguably its inability to continue as an independent entity, that it is recommending this lower bid.

“It marks quite the fall from grace for the company and provides yet another illustration of the harm so-called ‘transformational’ acquisitions can do.

“Before it acquired fellow energy services name Amec Foster Wheeler in 2017 it was trading close to 900p. It now looks like being put out of its misery at 30p – a spectacular destruction of value.

“Today’s news also brings into stark relief the decision to reject much higher bids from Sidara last year. Wood Group has gone from being a real UK plc success story to a cautionary tale.”