Daily market update: Gilt yields jump ahead of Starmer speech, Compass, M&S

Gilt yields jumped after a weekend of speculation around Keir Starmer’s position as prime minister says.

The 30-year gilt yield edged up to 5.649%, indicating that bond investors are uneasy about the political backdrop. Starmer’s big speech could be make or break for his position at the top, and the bond market’s negative reaction implies a sense of unease.

Bond investors are selling gilts as they now consider the UK government to be a riskier proposition. Note that gilt yields rise when prices fall.

The potential for a leadership challenge is growing by the minute following Labour’s washout showing in last week’s local elections.

Bond investors have already been worried by the prospect of higher inflation linked to the Middle East conflict, and now they’re starting to squirm in their seat at the idea we might get a different prime minister and chancellor driving an agenda of increased borrowing and spending.

If that wasn’t enough to keep investors on their toes, there was another setback to the Middle East peace talks as the two sides failed to see eye to eye. Oil jumped 3.5% to $104.80 a barrel after Donald Trump said Iran’s response to a US proposal was ‘unacceptable’.

Oil remaining higher for longer is a problem for businesses and consumers, and it will keep central banks on their toes as they make monetary policy decisions to ensure the economy is neither too hot nor too cold.

More election-related comment on gilt yields and bond markets

Compass

In the current uncertain environment, the steadiness and resilience demonstrated by Compass had plenty of investors with their knives and forks at the ready, hungry to gobble up the shares.

The company is benefiting from a long-term shift from businesses and other large organisations doing their catering in-house to having third parties do the job. This is reflected in a strong set of first-half results which are accompanied by increased guidance for the full year.

Equally as important as winning new business is holding on to existing clients and Compass got this part right too – with retention rates remaining healthy.

While acquisitions have been a part of the growth story, organic growth in the first half was solid. As the leading operator in this market, Compass’ scale allows it to achieve significant operational efficiencies and strike attractive deals with suppliers, and this is reflected in profit growing faster than revenue. This lends encouragement to the view that Compass can deal with any inflationary pressures associated with the Iran war and resulting energy price shock.

A strong balance sheet and robust cash generation enabled a generous increase in the dividend which speaks to the company’s confidence in the outlook.

Nintendo

Nintendo’s share price showing in Tokyo on Monday was less ‘let’s-a-go’ and more ‘oh no’ – to borrow from the phrasebook of the gaming company’s ubiquitous Italian plumber

The company launched the Switch 2 last year, but its latest results missed the mark in terms of profit and forward guidance amid disappointing sales of the console.

Unhelpful to Nintendo is the soaring cost of memory chips as AI data centres hoover up an increasing chunk of global supply. This has forced Nintendo to increase prices on the Switch 2 which won’t do anything to help demand at a time when many consumers are feeling the pinch.

Nintendo is known for its conservative outlook but this time the pessimism may be justified rather than being a case of managing market expectations.

A perceived lack of blockbuster titles and the fact that Nintendo typically targets younger gamers who are likely to be more sensitive to price hikes only adds to the misery around the stock which has more than halved since last August.

Marks & Spencer / Asos

Dan Coatsworth, Head of Markets at AJ Bell, comments:

Marks & Spencer has bold plans to double its online sales and is building out infrastructure to support a bigger digital operation.

It has snapped up ASOS’s logistics warehouse in Lichfield to have capacity to fulfil more orders and deliver them faster.

It’s a win-win situation for both Marks & Spencer and ASOS, even though they both compete in the same space.

ASOS is in turnaround mode, and its recovery efforts are pedestrian at best, so it doesn’t need as much fulfilment capacity as it previously thought.

The cash injection from selling the leasehold and automation machinery will come in handy as it helps to shore up the balance sheet and ASOS will save £6 million a year in rent and associated occupancy costs.

Marks & Spencer has snapped up a pre-built fashion logistics operation, which should be much quicker to mould into shape than fitting out a warehouse from scratch. Marks & Spencer will have the site up and running by next year, giving it greater capability to capitalise on online sales demand.

Marks & Spencer is fighting hard to reclaim its crown as the affordable but high-quality fashion king. Its recent cyber-attack knocked the business for six and arch-rival Next took advantage of the situation and hoovered up a lot of M&S’s customers. Marks & Spencer is now trying to win these people back and get other customers to do more. Sizing, availability and speed of delivery matter to people, and this is where Marks & Spencer should be able to excel.