Daily market update: FTSE retreats, Lloyds, AstraZeneca and GSK bullish, Adidas

Despite a decent showing from Asian markets, Europe was on the back foot as yesterday’s dip in oil prices reversed, reminding investors that inflation risks are still elevated.

UAE’s exit from oil producers’ cartel Opec might eventually lead to greater oil supplies from the region which could bring down oil prices, but it won’t happen overnight.

TotalEnergies joined a growing list of commodity producers benefiting from the Middle East conflict’s impact on energy prices. First quarter earnings soared, but the market had already priced in a solid trading period which explains the limited share price response to the latest figures.

Germany’s Dax index bucked the negative market trend in Europe, rising 0.1% thanks to strength in energy, consumer cyclicals and tech stocks.

Adidas shares jumped 7% after reporting first-quarter operating profit above expectations. The company was already basking in success at the London Marathon where the winners in both the men’s and women’s categories wore its shoes. Adidas is purposely trying not to overstock the market with its products given widespread discounting among retailers. Attention now turns to the World Cup where Adidas hopes a summer of sport will drive even more sales across its product range.

Lloyds

On paper, Lloyds’ first-quarter results smashed it out of the park but caution about the immediate outlook helped keep a lid on investor enthusiasm.

It saw a big jump in profit and an increase in income guidance for the full year. However, Lloyds is wary about the impact of the Iran war on the UK economy and the impact that could have on its customers. This raises the risk of more bad debts.

Provisions relating to motor finance mis-selling were unchanged. A legal challenge by Consumer Voice could delay or even alter the terms of the FCA-backed redress scheme.

Lloyds would love to put this whole episode in the rearview mirror and move on, so it will hope for a near-term resolution on motor finance.

Meanwhile, the plan pursued under CEO Charlie Nunn of boosting Lloyds’ footprint in business activities which aren’t as exposed to the interest rate cycle continues, with further expansion in areas like wealth management and insurance.

With this strategic move already advanced, investors will be looking for the next leg of Lloyds’ growth strategy, with Nunn teeing up an update alongside the company’s first half results this summer.

AstraZeneca / GSK

AstraZeneca’s treatments are flying off the shelf, helping to drive solid revenue and earnings growth. It won a host of regulatory approvals on various treatments. There is significant momentum in the business, putting AstraZeneca in fine health.

GSK also enjoyed a good quarter with existing product sales and progress in the laboratory, as well as completing a few acquisitions. It’s the ideal start for new CEO Luke Miels who can hit the ground running in the top job.

Against an uncertain economic and geopolitical backdrop, big pharma is reminding the market why its expertise can yield big bucks in any kind of market environment. What’s odd is the negative market reaction to both AstraZeneca’s and GSK’s updates.

It might be that full-year earnings guidance was only reiterated rather than upgraded in both cases, leaving investors feeling short-changed against a solid start to the year.

Halfords

It’s been a while since Halfords motored on a positive trading update. The company has been running with a flat tyre for some time, with performance lopsided thanks to sluggish cycle sales.

The nation embraced two wheels during the pandemic, and the cycle boom gave Halfords a massive earnings boost. It was unsustainable and Halfords has struggled with cycling sales ever since… until now.

Cycling is now a growth engine for the business once again, while the core motoring operations are ticking over nicely.

The big question is whether this is a fleeting moment or a sign of things to come. The Middle East crisis threatens to keep oil prices higher for longer, which could dampen consumers’ ability to spend big.

Cycling is a discretionary spend and the market is awash with second hand bikes if people were determined for a different set of wheels but were watching their pennies.

Investors are simply pleased that Halfords is looking more balanced in terms of the different business units’ contribution. Right now, they’re not worrying about what’s around the corner. The here and now is good enough for them.

Starbucks

A weak consumer backdrop doesn’t feel like the ideal circumstances for Starbucks to pursue its turnaround plan, which makes the latest quarterly numbers even more of a triumph.

The ‘Back to Starbucks’ plan has been like a shot of espresso for the business as store refits, simpler menus and improved service have resonated with consumers.

This has enabled the business to beat expectations and boost its full-year guidance. Overall sales will be flat after the sale of a 60% stake in its Chinese operations to private equity.

Starbucks will hope its positioning as an affordable treat, with lots of people attached to their daily dose of caffeine, protects it from any squeeze on customers’ budgets from the Iran war.

However, the coming period looks set to be a key test for Starbucks’ revived fortunes and the pricing power and overall pull of the brand.

Aston Martin

Just when the Aston Martin stock market story looks like it is running out of road, something comes along to refuel the business – if only for the short term. 

Some modest positives in its latest trading update may have applied spark plugs to a spluttering share price but today’s move higher is a speck of green in a sea of red since the 2018 listing. Aston Martin’s time as a public company has been more Johnny English than James Bond.

The company has chalked up yet another quarterly loss, albeit a narrower one than the market was expecting, and has signed a new £50 million funding deal with top shareholder and chair Lawrence Stroll’s consortium.

While this buys Aston Martin some badly needed breathing space, it doesn’t feel sustainable in the long term. Aston Martin’s bonds have been heavily sold off in recent weeks amid concerns it is running out of cash. Stroll’s latest intervention just kicks the can down the road. Unchanged full-year guidance feels heavily caveated by references to the uncertain backdrop.

Aston Martin needs to prove it can generate sustainable cash flow, but the path looks like a journey dogged by roadworks than a clear motorway on a sunny day.