After the Federal Reserve took centre stage last night it’s the turn of the Bank of England today as investors await the latest decision on UK interest rates.
The measured market reaction to the Fed’s decision to hike rates for the first time since 2023 reflects how widely expected the move was and a degree of comfort among investors with the idea that further increases are likely.
The Bank of England is widely expected to keep rates on hold, with an 82% chance according to LSEG data, but this is unlikely to persist indefinitely with Governor Andrew Bailey primed to guide for future increases given the inflationary pressures unleashed by the Middle East crisis.
News that Saudi Arabia expects to bring a key pipeline back online within days after last week’s drone attack damage, and familiar comments from President Trump suggesting the Iran war could soon be over helped push oil back below $104 per barrel, with more crude also managing to make its way through the Strait of Hormuz. This supported a slight easing of government bond yields from their multi-year and, in some cases, multi-decade highs.
This saw BP and Shell extend yesterday’s pullback in London while aviation-linked names were able to gain some modest altitude.
Next
If Next has any more rabbits left to pull out of its hat it must be a hat made to fit Goliath. The company’s ability to manage expectations is unrivalled and once again it has delivered results materially ahead of previous expectations.
With a slight upgrade to future guidance accompanying the first-half numbers, investors felt able to reward the company with a healthy share price increase despite the stock being within touching distance of all-time highs.
For the shares to be in this lofty position in an environment where consumer sentiment is so weak is remarkable. Next’s intervention to warn the government against further tax increases in its latest Budget suggests it recognises how strapped for cash many households are right now.
Rather than surrendering to this tough backdrop, Next has done an excellent job of ensuring that the money people do have to spend on clothing and its other core categories is being spent with them, whether on its own branded items or on third-party products sold through its website.
Next gets the right products in front of the right customers at the right time and at the right price points to get them through the tills or clicking the buy button. While its next-day delivery and use of stores as locations for click and collect dial up the convenience factor for shoppers. This all sounds simple but it is beyond a lot of its peer group.
International and online sales were the biggest drivers of growth and the company’s relatively modest increase in its full-year projections provides it with some room to clear the bar once again.
Debenhams (Boohoo)
Investors were relatively unmoved despite Debenhams Group (formerly Boohoo) announcing first-half trading which offered further confirmation that its turnaround is gaining traction.
After some decent gains in recent months, the market will be keen to see further evidence it is delivering on the recovery plan.
Several key brands returned to growth and the core Debenhams brand is also performing robustly despite a backdrop which is about as gloomy as a wet day in late November.
Critically the company has made real progress with its balance sheet, partly thanks to disposals and as it focuses more heavily on cash generation. This will inspire greater confidence in the group’s ability to see its way through what looks set to be a testing period.
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...