Daily market update: Kingfisher

After the return of risk appetite which saw the Nasdaq advance to a new record last night, there was a more measured feel to proceedings in Asia and Europe on Tuesday.

Bitcoin – a key measure for investors’ craving for riskier assets – took a step back from its recent rally but is still up more than 10% since last Friday.

After falling for four straight sessions and briefly dipping below $100 per barrel, Brent crude oil prices ticked higher as investors wait to see if Donald Trump meets with his Iranian counterpart Masoud Pezeshkian on the sidelines of the UN General Assembly.

For oil to resume its downwards trend, signs of tangible diplomatic progress will need to come through sooner rather than later. For now, government bond yields remain steady.

While there were some gains in the retail sector and among the London market’s more defensive names, data revealing the parlous state of UK public finances put pressure on domestic-facing companies in the financial and property sectors.

Kingfisher

B&Q owner Kingfisher’s strategy of targeting trade sales continues to pay off in spades and supported an eye-catching increase in full-year guidance alongside strong first-half results.

The big driver of performance was the Screwfix chain, which derives most of its sales from trade customers.

This cohort are a more reliable and consistent sources of revenue than ordinary punters. That’s because materials and tools are not a nice-to-have for them but essential to their day job.

The trade part of the business is also benefiting from the shift from Do-It-Yourself to Do-It-For-Me, particularly among younger generations who are less confident taking on home improvement projects themselves.

Kingfisher is growing its online sales and, with a large proportion of these being fulfilled through click and collect, such transactions are helping to get customers through the doors of its physical stores.

Despite the robust performance, there were indications of weaker consumer sentiment, with big-ticket items like bathrooms seeing an 8.1% fall in the second quarter. This fed into a 1.8% decline in second quarter like-for like sales for the B&Q chain overall.

Public Sector Finances

Higher than expected government borrowing in August, alongside rising gilt yields and higher inflation, has caught Prime Minister Andy Burnham and Chancellor John Healey in a spider’s web.

They might find the only way to break free and achieve their goals is to push up taxes, or lower their ambitions. Otherwise, they could be in a sticky mess and not make any progress.

Government debt has become more expensive to service, and it seems inevitable that the government’s fiscal headroom is shrinking, leaving it with little wiggle room.

All signs point towards a potentially difficult Budget with businesses and consumers braced for major changes on taxation.

Burnham is still fresh in the job and won’t want to kick off his tenure with a barrage of bad news. He needs to show there is a plan to drive the economy and make people feel better off.

The government is unlikely to want to cut public spending, which means higher taxes are unavoidable if Burnham and Healey don’t want to add to already substantial borrowing levels.