A rebound in Asian technology names as well as a drop in bond yields and oil prices helped set the scene for a positive start to proceedings as European markets began trading on Wednesday.
Brent crude prices slumped overnight, sinking back below $100 per barrel on signs of improved flows from the Middle East, despite the ongoing conflict between the US and Iran, as well as a major release of emergency reserves in the US.
This helped to dial down some of the nervousness about inflation and saw government bond yields, which had been testing new multi-decade highs, ease back.
A test of investors’ improved sentiment will come later with the Core PCE price index data and US growth data. The Core PCE is the Federal Reserve’s preferred measure of inflation thanks to the broad picture it offers of consumer spending.
Inevitably, oil and gas names were lower in London, while consumer facing sectors gained some momentum. Utilities stocks also recovered some ground after falling yesterday on Andy Burnham’s unveiling of GB Grid – a state-backed initiative to invest in the electricity network.
Greggs
Greggs has found its groove again. Cooler weather and adding more items to its menu has helped to accelerate sales growth. The update has reassured the market that Greggs has not gone stale like a two-day-old sausage roll.
It is spinning more plates than a circus performer by opening and closing stores, launching new food and drink items, and proposing to restructure manufacturing operations. Sadly, the latter could result in hundreds of job losses.
Greggs is carrying out a multi-pronged strategy to reposition itself for long-term success. Opening new stores increases the opportunity to reach as many members of the public as possible in sites with the most potential. Closing some stores is the company either admitting some aren’t in the best locations or finding more fruitful places nearby to set up shop.
It is constantly changing the menu to ensure it taps into the latest trends, hence the big push on items like matcha and protein-led options. This also helps to create a buzz and potential word of mouth to drive more visits to a Greggs store. The risk is that Greggs is trying to do so much and its menu gets overly complicated.
The proposed manufacturing consolidation is about trying to find long-term cost savings and have food preparation units located in the right places to serve what it wants the estate to look like in the future.
Keeping a lid on costs is an important consideration for the business, particularly considering a warning about signs of greater cost inflationary pressures next year.
The current high oil price environment is pushing up the cost of energy and is likely to do the same for food prices soon, meaning that Greggs is braced for tough decisions. It will either have to stomach a hit to profit margins or, more likely, pass that extra cost to the end customer.
Shoppers may love a Greggs savoury snack or hot drink, but many people will be watching their pennies in an environment where inflation is accelerating and that could mean scaling back on discretionary purchases.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...