“A lacklustre GDP figure is more relevant to the FTSE 250 than the FTSE 100 index given the former has a greater proportion of domestic-focused companies,” says Russ Mould, Investment Director at AJ Bell.
“It’s never a good look for a country to be stuck in the mud, and the GDP data will put even more pressure on chancellor Rachel Reeves to find a way to plug the gap in public finances without derailing the economy.
“News the economy flatlined in July wasn’t a shock to investors as most economists hadn’t expected any growth. That’s why the news didn’t cause a wobble on the UK stock market, with the FTSE 250 holding firm in early trading. However, the GDP result will do nothing to improve business sentiment, and ongoing uncertainty could lead more companies to take a cautious approach and that doesn’t bode well for UK domestic earnings – and therefore share price – growth.
“While the headline FTSE 250 index stood its ground, there were notable areas of weakness among companies that need a robust UK economy to thrive. Retailer ASOS, drinks group C&C, and footwear specialist Dr Martens were among the fallers on the UK market, and they all depend on the consumer feeling happy to splash the cash.
“The FTSE 100 pushed higher as investors loaded up on mining shares amid a rise in copper prices. The broad-based rise in miners also suggests certain investors are in a risk-on mood ahead of the US interest rate decision next week. The Fed is widely expected to cut rates by a quarter percentage point. Such a move could please the market as it makes it cheaper for companies and consumers to borrow money that can then be spent and help accelerate economic growth.”
Ocado
“Shares in warehouse automation group Ocado crashed after key customer Kroger said it would undertake a site-by-site analysis of its automated fulfilment network. Kroger also said it was using stores ‘very heavily’ to fulfil e-commerce orders and implied that was its key focus from now on.
“These comments imply that Ocado might find it harder to sell more automated solutions to Kroger, and that existing agreements might come under review. It’s the worst kind of news imaginable for Ocado investors as they’ve bought into a company which has positioned itself as the technology solution to grocery providers’ needs. While Ocado has continued to win new contracts, the pace has been erratic. The prospect of existing relationships starting to deteriorate adds another level of risk. Then there is the big question of when Ocado will ever make a sustainable profit.”
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
