Daily market update: Shell, house prices, Tesla and B&M

The FTSE 100 held firm at the market open on Tuesday as strength in energy stocks was offset by weakness in miners and banks, says Russ Mould, investment director at AJ Bell.

The broader Stoxx Europe 600 index was also flat despite the best efforts of construction group Skanska which stood tall after a bullish broker note.

Futures prices imply a similar trend when the US opens later, perhaps indicating some nervousness from investors ahead of the imminent start of the US reporting season.

Tesla

All eyes are on Tesla ahead of an expected product launch. Rumours suggest it could be a more affordable version of its Model Y electric vehicle.

Tesla has struggled with intense competition and has promised to offer more affordable cars, meaning such a product launch could be a pivotal event.

A lot is riding on price and availability – Tesla needs to go as low as possible to lure customers, and ensure that production can keep up with demand, should enough people want to take the plunge.

Shell

Shell’s big bet on natural gas – which is more than a decade in the making – continues to yield positive results.

In its teaser ahead of third-quarter results, Shell delivered a steady-as-she-goes assessment of trading. While this would not ordinarily be cause for too much excitement, to achieve an outcome broadly in-line with the second quarter despite a material decline in oil prices is a decent outcome.

It has been driven by a strong showing from its integrated gas business, which encompasses its LNG business where volumes are notably higher quarter-on-quarter.

Improving margins in its refining business are another bright spot and the renewables arm is expected to break into profit – although not a particularly meaningful one in the context of the wider group.

Speculation about a potential merger with BP seems to have quietened for now, leaving CEO Wael Sawan to focus on improving the business and looking for ways to improve its valuation to be in line with US counterparts.

The fear in London is this might eventually involve a shift in its primary stock listing to New York which would be a devastating blow for the UK market.

Housing market

The housing market seems to be stalling ahead of the upcoming Budget based on the latest figures from Halifax.

An unexpected month-on-month fall and slower anticipated annual growth – the weakest in nearly 18 months – are signs it is becoming a buyer’s market as we wait to see what Chancellor Rachel Reeves has in store at the end of next month.

This tallies with commentary from the housebuilding industry, suggesting the timing of Budget, so late in the year, is having a negative impact.

Housebuilders were lower on the latest data as investors weighed the impact on margins of softer asking prices.

The strong dynamics behind UK property, with limited supply and robust demand, mean prices are unlikely to go into freefall and today’s data is hardly disastrous.

However, it is ultimately negative news for a sector which has been trying to rebuild from a difficult period coming out of the Covid pandemic.

B&M

Dan Coatsworth, Head of Markets at AJ Bell, comments:

The new boss of B&M has unveiled measures to put the business back on top. Prices have been slashed on certain key products to make B&M more competitive. It says pricing adjustments have been made elsewhere to limit the impact on margins, implying that prices have gone up on certain goods.

Store managers have been given the freedom to run store promotions from a menu of best lines. Chief executive Tjeerd Jegen implies that stores have become too samey, meaning it’s up to each branch manager to be creative and do something to inject a sense of energy.

It’s clear that B&M was trying to have something for everyone, and that’s led to a jumble sale approach. Store experiences have been overwhelming for many customers, either struggling to find what they want, or faced with piles of unsold items clogging up space. B&M will now offer fewer product lines and clear the shelves of unsold goods which are gathering dust.

B&M will also work harder to ensure its shelves are stocked with the most popular products, not a smorgasbord of whatever’s in stock.

These sound like wise decisions and beg the question why they weren’t made last year as soon as it was apparent that B&M’s problems weren’t a one-off. It’s good to have a plan; unfortunately, the retailer still needs to contend with the present, and trading has got even worse.

The pace of UK revenue growth has halved from the first to the second quarter. Heron Foods has gone into reverse, although B&M’s French arm is doing better. Layer on top cost pressures and it’s clear the company has a lot to do before it can reap any benefits of a turnaround strategy.

The market is royally disappointed, with the shares hitting a new all-time low on the update. The journey to recovery starts now and it could be a long one.”