Daily market update: Japanese markets, Aston Martin, Mondi, Shawbrook IPO

The FTSE 100 briefly touched new highs on Monday but soon became sluggish as investors continue to weigh the risks posed by shutdown in Washington.

Japanese stocks were much livelier as it emerged the ruling Liberal Democratic Party had selected Sanae Takaichi to be its new leader, meaning she looks set to become the country’s first female prime minister.

Her commitment to free market economics and a preference for lower rates and higher government spending are seen as being market friendly, in the same way as her mentor Shinzo Abe’s ‘Abenomics’ policies.

Investors reacted accordingly, with the Nikkei 225 surging to new record highs. On the flipside, the yen fell sharply thanks to the implications for Japanese debt and the potential for interest rate cuts.

Futures prices pointed to modest gains in the US when Wall Street opens for trading later, despite the political gridlock in the nation’s capital. For now, the markets have largely shrugged off the shutdown but there is a sense that everyone, including the US Federal Reserve, is flying blind given the impact on key data releases, including Friday’s delayed jobs report.

Updates from non-government sources are likely to be closely scrutinised in this environment with the University of Michigan’s consumer sentiment reading a case in point on Friday.

In France, stocks were lower after French prime minister Sebastien Lecornu resigned after less than a month in the job.

Aston Martin Lagonda

Tariffs are undoubtedly a massive headache for the car industry given its reliance on components from across the globe being pieced together in a single vehicle. Anything which disrupts the flow or adds to the cost of these goods is damaging.

However, Aston Martin Lagonda’s problems go back way before President Trump’s announcement of Liberation Day levies this April and therefore sympathy for the company will be thin on the ground as it warns on profit.

The roots of Aston Martin’s profit warning lie not just in supply chain issues but also weak demand. This in turn raises questions about the brand’s appeal in a difficult economic environment.

Aston Martin seems to lurch from one wrong turn to another, making a mockery of comparisons with Italian super car brand Ferrari at the time of its October 2018 IPO.

While Ferrari has raced ahead in the last seven years – quadrupling in value – Aston Martin has been firmly stuck in reverse gear and is now down more than 98% from its early highs. More Johnny English than James Bond.

Perhaps the biggest warning light on the dashboard is the fact that Aston Martin no longer expects to achieve positive free cash flow in the second half of its financial year.

While the sale of its stake in the eponymous Formula One team has bought it some breathing space, achieving sustainable cash flow is essential if Aston Martin wants to generate any level of credibility with investors.

Management’s suggestion that profitability and cash generation will increase materially next year as Aston Martin launches its Valhalla hybrid supercar will be received with considerable scepticism given the track record to date.

Shawbrook

Shawbrook intends to return to the stock market, proving an exit route for its private equity backers, and putting it in the right place to tap a broader pool of investors for growth funding.

The lender was valued at £725 million when it originally floated in 2015. It was subsequently taken over for £868 million in 2017 by BC Partners and Pollen Street Capital. Shawbrook could be worth as much as £2 billion upon its stock market return as it is now a much bigger player. That could see it secure a place in the upper end of the FTSE 250 index.

The UK stock market has a wealth of opportunities in the financial services sector and it’s a vote of confidence that Shawbrook has chosen to return to this exchange. It has ambitious growth plans to nearly double the size of its loan book by the end of 2030.

The banking sector has been a rich source of stock market returns over the past year, suggesting that Shawbrook’s IPO could attract a lot of interest.

Housebuilders / UK property market

Plans to reform the house buying system have failed to convince investors that housebuilders are suddenly a brighter prospect. Shares in all the main builders slipped as the news doesn’t seem radical enough to suggest a boom in house sales.

The reforms could save first-time buyers an average of £710 and slash up to four weeks off the typical property transaction timeline. That’s minor in the grand scheme of things and won’t suddenly result in more people being able to get on the housing ladder.

Mondi

Packaging companies are economic bellwethers. A strong economy normally implies a steady flow of goods around the world; a weakening economy often leads to reduced demand for goods and therefore for the packaging that holds them.

Mondi has issued a shocker of a trading update, causing its share price to slump and hit a 12-year low. It says trading conditions remain challenging thanks to subdued demand and a decline in paper selling prices.

Mondi is well versed to operating in a cyclical market and there are a few levers it can pull, such as extending maintenance shutdowns. However, investors are clearly worried about the bigger picture and whether we’re in for a sustained period of weakness.