Daily market update: Japanese stocks, Domino's, Vistry, Grainger

“The FTSE 100 ticked higher on Monday as investors shrugged off the weak US jobs numbers which affected sentiment at the end of last week,” says AJ Bell Investment Director Russ Mould.

“Investors were hoping for a Goldilocks number – which was not hot enough to prevent the Federal Reserve from cutting rates when it meets next week but not so tepid that it reignited fears of recession in the world’s largest economy.

“In the end, the reading came in significantly below expectations and led to concern about a downturn in the US.

“Asia was front of mind for investors at the start of the new week. If Japanese Prime Minister Shigeru Ishiba was looking for a pick-me-up after announcing his resignation, he won’t have got one from looking at the market reaction to the news.

“The Nikkei 225 moved higher with investors excited both by the resolution to an issue which had been bubbling away since his governing party suffered election defeats and by the possible candidates to replace him.

“One candidate is significant. Sanae Takaichi is an acolyte of the late Shinzo Abe whose Abenomics helped boost Japanese growth in the 2010s and would be expected to lean towards deregulation and a loose monetary policy if chosen.

“Such a stance would be favourable for equities and potentially push down the value of the yen, which in turn would be supportive to Japan’s export-driven economy.  

“In the UK, the market reacted negatively as insurer Phoenix renamed itself Standard Life, a brand it acquired four-and-a-half years ago. The sell-off, which came as the company reported a resilient set of first-half results, comes off the back of a decent run for the shares.

“The week-long tube strike in London has been received grumpily by commuters and businesses. Several quoted companies could be in the firing line. For instance, London-focused pubs group Fuller, Smith & Turner may see fewer people dropping in for a post-work pint, and food-on-the-go outfit Greggs could see less trade as people stay at home to avoid the travel chaos and don’t need to grab a quick lunch.”

Domino’s pizza

“Having tested the water with a lunch menu that added wraps to its smorgasbord of goodies, Domino’s is now going one further with a new chicken brand.

“The launch of Chick ‘N’ Dip isn’t as radical as it might first seem. Domino’s already offered chicken as a side dish and pots of dipping sauce with its pizzas. Chick ‘N’ Dip effectively takes those core items as the backbone of a new brand to drive earnings.

“It’s a clever and low-cost way to capitalise on what’s already in the store and in its existing supply chain. Expanding the range of dips is straightforward, and operating from pizza shops means limited capital expenditure. The big risk is that Domino’s is trying to tap into a market that’s already Chock ‘A’ Block.

“Wingstop, Popeyes and Slim Chickens are some of the newer names popping up across the country, on top of an existing estate that is densely populated by the likes of KFC, Nando’s and a host of local brands. Yes, fried chicken is very popular, but it feels like Domino’s is 10 years too late to exploit the opportunity.

“A fried chicken meal is much cheaper than buying a pizza, meaning that Domino’s risks its customers spending less by choosing a poultry dish over 10 slices of Pepperoni Passion.”

Vistry

“A key foundation stone of the strategy pursued by Vistry in recent years has been a focus on regeneration and affordable housing. The £150 million housing joint venture now agreed with Homes England is a good fit with this approach.

“News of the tie-up is a genuine boost for Vistry’s credibility after a difficult period for the company.

“The government should have done a fair amount of due diligence on its new partner. If there were lingering issues associated with the understating of costs in Vistry’s South Division, something which hit the share price like a tonne of bricks last year, this tie-up probably would not have got the green light.

“Shareholders will hope today’s agreement can help revive the strengths which saw the company marked out from the rest of the peer group before the cost issues came to light, and that its expertise in regenerating brownfield sites and building affordable homes comes to the fore once more.”

Grainger

“Residential landlord Grainger has converted into a REIT (real estate investment trust), a move that could give it some new life on the stock market.

“Property companies pursue REIT status principally for tax reasons to make their shares more attractive to investors.

“Historically, some investors had to stomach an effective double level of taxation when investing in a property company. Corporate profits would be taxed and then shareholders would face tax on dividends unless held in an ISA or SIPP (self-invested personal pension).

“Under REIT status, the property company becomes exempt from UK corporation tax on UK property investment income, gains on UK property and gains on UK property-rich entities. That benefit has become even more valuable since the main UK corporation tax rate moved from 19% to 25%.

“To qualify for REIT status, the company must pay out 90% of underlying tax-exempt property income to shareholders as a dividend within 12 months. Such dividends would still be subject to withholding tax at 20%, except for certain types of shareholders such as UK charities and pension funds.”