Daily market update: gold and defence stocks, oil, Aldi, Auction Technology

The FTSE 100 hovered just under the 10,000 level as investors loaded up on shares in gold miners and defence contractors off the back of US strikes on Venezuela.

Heightened geopolitical tensions like the ones we’ve seen over the weekend would normally spook investors, but global markets have avoided a sell-off. Investors appear to be taking the view that events in Venezuela will not lead to full-blown war. This situation is still fluid, which means that investor sentiment could quickly change.

Defence stocks often move higher when there are heightened tensions between two countries as investors believe events could spur governments to spend more on military protection. It was only natural to see the sector in demand after Venezuela’s leader was captured. BAE Systems jumped 4.4% while on the German stock market, Rheinmetall moved 6.1% higher.

Shares in defence companies briefly pulled back before Christmas on progress with peace talks between Russia and Ukraine, yet the US/Venezuela situation has provided a new reason for investors to stay bullish. Furthermore, investors are watching China even closer amid speculation it is slowly laying the groundwork for an invasion of Taiwan.

Last year’s stock market superstars Fresnillo and Endeavour Mining continued their ascent as the gold price jumped 2.2% to $4,426 per ounce. Investors often reach for gold when the news headlines are bleak or worrying as the metal has a reputation for acting as a store of value during uncertain times. While equity markets have pushed higher in the face of the US/Venezuela situation, investors are hedging their bets by increasing exposure to assets with supposed haven qualities.

Oil prices dipped as the market weighed up the implications of a potential increase in supplies from Venezuela longer term.

Trump is keen for US companies to invest in Venezuela to benefit from its rich wealth of oil reserves. Short-term, there is unlikely to be a flood of new supply due to sanctions, blockades and likely hesitation by oil majors over committing large amounts of money in a country undergoing geopolitical turbulence. The near-1% drop in Brent Crude dragged BP and Shell lower.

Aldi

The pressure on the traditional supermarkets from discount operators shows no signs of going away looking at Aldi’s strong Christmas showing. This follows up on counterpart Lidl’s own bumper festive trading announced last Friday.

Aldi and Lidl are now established names in the UK, helped by pressures on household budgets which make their value credentials highly prized.

By selling a more limited selection of mostly own-brand products Aldi manages to limit waste and secure good deals with suppliers, with its increasing size also bolstering its negotiating power.

Keeping its store designs no-frills and cross-training staff for multiple functions also helps to keep costs low and it passes on these benefits to consumers.

This has proved a winning formula and made life tough for several more established UK grocery names – bar perhaps Tesco which has the share and scale to meet the challenge head on.

Later this week we will find out how Tesco and Sainsbury’s got on with their own performance over the Christmas period and how they managed to deal with the persistent challenge posed by the German discounters.

Auction Technology

Usually being rejected a couple of times would send a sufficiently strong message that interest is unwelcome, but Auction Technology’s largest shareholder appears reluctant to give up on a buyout despite 11 proposals being rebuffed.

The online auction platform has not had a particularly happy time on the stock market, trading way below its IPO price and at just a fraction of the levels it reached in 2021.

It argues the current market valuation is disconnected from the company’s ‘fair value’. However, the wider shareholder base may be swayed by FitzWalter Capital’s eagerness unless the company can begin to demonstrate it can deliver on its potential.

A move online has increased the scope of auctions from the days when smaller auction houses were limited in the number of buyers they could accommodate due to physical space.

Auction Technology can also benefit, in theory, from a network effect by offering quality items which attract quality bidders, which in turn attract more sellers of quality items and so on.

However, poorly performing acquisitions, increased debt and uneven operating performance have created scepticism among investors, and it will be interesting to see if FitzWalter returns to test the resolve of shareholders before the early February deadline to put up or shut up.