The FTSE 100 rapidly surrendered some modest early gains as global markets contend with concerns around surging oil prices and the sustainability of AI spending.
Oil is at five-month highs amid speculation there may be renewed US-Israeli strikes after next month’s US midterm elections.
Escalating tensions in Ukraine and the prospect of increased energy demand as the northern hemisphere heads into the winter months are only adding to the upwards pressure on oil and gas prices.
With the Nasdaq now 6% from its most recent all-time high it is starting to flirt with correction territory, with much now resting on next week’s earnings updates from the likes of Amazon, Microsoft and Google-owner Alphabet.
The UK market’s limited exposure to tech and healthy representation for energy stocks and more traditionally defensive names means it has been spared some of the heavier losses across the US, Europe and Asia this week and that trend continued on Friday.
Debenhams
There was a time that investors would have taken any kind of profit at online fashion retailer Debenhams Group so it’s not a surprise to see the promise of £100 million in pre-tax profit in the medium term make a splash in share price terms.
This guidance is lent credibility by the first-half results which accompany it, showing the company is back in the black for the first time since 2021.
After benefiting from exceptionally helpful conditions during the pandemic, when e-commerce surged and costly (to the company) returns dried up with people reluctant to head to the Post Office and other delivery hubs, the immediate post-Covid period was painful.
A combination of ESG concerns, linked to the sustainability of fast fashion, the running of the company and the ethics of its supply chain, plus rising costs and reduced demand led the company to chalk up heavy losses.
Under CEO Dan Finley, the company’s fortunes have been transformed. Much of this has been built around the Debenhams online marketplace, with its Boohoo and PrettyLittleThing brands only just starting to return to growth.
Finley has pursued a strategy of selling third-party products on its platform. These sales are higher margin than its traditional fast fashion activities where it handled the manufacturing and logistics itself.
The consumer backdrop remains unhelpful, but Debenhams’ improved financials and healthy balance sheet mean it is better placed to withstand any drop off in demand.
Kering
The concept that luxury stocks are supposed to be immune to ups and downs in the economy because its high-end clientele are untouched by such matters is being heavily tested of late, with Kering’s third-quarter update the latest example.
Kering has been out of fashion with investors for years and previous car industry executive Luca de Meo is the latest CEO tasked with steering the business back on course.
His efforts have hit a serious speed bump as its flagship Gucci brand saw a sizeable drop in sales thanks to weak demand from Asia.
It’s little wonder de Meo has made reviving Gucci’s fortunes a major priority. While the company reaffirmed its margin target alongside this latest update it tellingly did not mention a previous objective of returning to revenue growth in 2026.
In the second quarter the company did increase sales for the first time in three years, but today’s announcement suggests Kering’s recovery might be starting to come apart at the seams.
Danni Hewson: Head of Financial Analysis
Danni Hewson is AJ Bell's Head of Financial Analysis. She joined the company in 2021 and is responsible for producing analysis and commentary across a broad range of subjects, from financial markets to economics and...