Markets continue to ebb and flow in step with Middle East developments.
The lack of solid progress with peace talks has resulted in Brent Crude oil moving back up in price, trading 1.8% higher at $97.76 per barrel.
That’s weighed on European markets, although the FTSE 100 fared relatively better than its peers thanks to a large weighting towards oil and gas stocks. BP and Shell both traded higher as their earnings will benefit from oil’s ascent, while their trading arms should be busy thanks to ongoing volatility in the commodity price.
The OECD gave a stark reminder that a prolonged Iran war could lead to higher inflation and cause recession in some countries. Investors are fully aware of this risk but have so far taken the view that the conflict will be resolved soon – hence why markets haven’t crashed.
Zara-owner Inditex jumped 5% after turning in a strong early summer performance. That helped to calm investor nerves around a potential pullback in consumer spending as inflation pressures build.
Shares in Marvell Technology gave an electric performance yesterday after Nvidia boss Jensen Huang said it could be the next trillion-dollar company. Investors hang on Huang’s every word and piled in quickly in the hope of making big money.
Currys
Alex Baldock is seen as one of the retail sector’s greats, a top-class leader who has navigated tough conditions and emerged triumphant on the other side. There was always going to be big shoes to fill when he left Currys.
The muted market reaction to his successor’s appointment isn’t necessarily a bad thing. The share price might have fallen if investors didn’t like the new person. Instead, we’ve got a situation where the market is taking a ‘wait and see’ approach for the new CEO to prove their worth.
Fredrik Tønnesen is an internal hire and isn’t a known entity among UK investors. He ran the Nordics arm, helping to steer it back onto a solid path after a rocky journey. That success, together with more than 20 years’ experience at Currys, means he should be able to hit the ground running when he takes over in August.
Tønnesen will take charge of a business already in tip-top shape, but he won’t be putting his feet up on the desk. New CEOs always want to put their mark on the business so it will be interesting to see if that leads to a big acquisition or expanding into new areas.
Debenhams (Boohoo)
It has been a long hard slog for Boohoo’s owner Debenhams Group as it has sought to recover from its post-pandemic malaise, but the latest update suggests recovery efforts are beginning to bear fruit.
That progress has been achieved against a difficult consumer backdrop is a feather in the cap for management. A return to meaningful sales growth gave investors plenty of cause for optimism.
The Debenhams and PrettyLittleThing websites demonstrated strength and there were operational improvements across Boohoo, BoohooMan and Karen Millen.
A drop in customer return rates helped to boost margins alongside a significant slashing of costs. This has put Debenhams on the path to sustainable free cash flow.
The turnaround has also been supported by a shift from purely being a traditional fast fashion manufacturer to a model of carrying third-party products on which Debenhams earns a commission but leaves the logistics and costs of delivery to the supplier.
Chief executive Dan Finley struck a confident tone as he stuck with full-year guidance and flagged an expected improvement in the group’s balance sheet supported by the planned sale of facilities in Burnley and the US.
B&M
Expectations were so low for B&M after a string of profit warnings that they may as well have been underground. A set of results with a hint of encouragement was enough to fire the share price higher.
Profit and earnings plunged as costs soared, but there was nothing new in the numbers to spook investors.
The company’s ‘Back to B&M Basics’ plan acknowledged the need for improved operational execution, allowing local managers to make decisions on promotions and cutting prices on key items while simplifying its product range and making sure stores are well stocked.
Launched in October last year under Tjeerd Jegen there are signs this strategy is helping to stabilise the business.
While the consumer environment is unhelpful in some respects, B&M’s value credentials should be prized at a time when household finances are under pressure.
Novo Nordisk
Danish weight-loss drug specialist Novo Nordisk's launch of its Wegovy pill in the UAE is an important milestone as it takes its first step outside the US with an oral version of its obesity treatment.
A pill version is expected to broaden the market for Wegovy given the logistical advantages – it does not require cold-chain refrigeration like liquid injection pens – and the fact that some people would be more comfortable with a pill than a jab.
This is already in evidence in the US where a pill was launched at the start of this year and has already seen healthy demand. Novo’s main rival Eli Lilly announced the launch of its own pill in the UAE in April.
Having been overtaken by Eli Lilly, there are signs Novo is now regaining some lost ground.
Football sponsorship / FCA warning
Dan Coatsworth, Head of Markets at AJ Bell, comments:
Football clubs have form in chasing the money when it comes to sponsorship deals. Whether they care about the business activity of the sponsor is a moot point.
Football fans regularly exposed to a sponsor’s brand might be tempted to dabble in their services, thinking if it is good enough for their team it’s good enough for them.
Crypto and financial product trading companies have become omnipresent with football sponsorship in recent years, and that’s triggered alarm bells with the financial regulator.
The Financial Conduct Authority (FCA) has warned that action will be taken if clubs take sponsorship money from financial-related companies that are not permitted to offer services in the UK.
It’s easy to see why the regulator is concerned. Football sponsors are increasingly associated with complex products. For example, crypto is high-risk, often incurring large swings in price. That can cause anxiety and there is a risk that people sell, potentially for a loss, if they have a knee-jerk reaction to a sharp downward movement in a cryptocurrency.
The situation is also worrying if the financial trading providers aren’t authorised to do business in the UK. If a firm fails, a UK customer won’t be protected by the Financial Services Compensation Scheme. A UK individual would also not be able to complain to the Financial Ombudsman Service if something goes wrong. There might also be a higher risk of fraud and scams with an unauthorised company.
It's imperative to check the FCA’s ‘Firm Checker’ register on its website before using a financial service company to see if they are authorised to do business in the UK.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
