Daily market update: Tesco, FirstGroup, Drax, Whitbread

Politics and economics are front and centre for markets in the UK and beyond.

The US and Iran have signed an initial deal to end the war, causing oil prices to fall further. Oil has now fallen by 30% in just over four weeks, wiping out much of the increases seen since the start of the war in late February.

Brent crude now trades at $77.79 per barrel, ever closer to the pre-conflict $70 level. That has huge significance for inflation and interest rates, as well as business, consumer and investor sentiment. It takes the pressure off industries and households and is hugely positive for global economic growth.

In isolation, the end of the Iran war would be a major catalyst for financial markets. However, there are other factors at play which have dampened the parade. 

Even though the Federal Reserve wasn’t expected to raise US interest rates at its meeting last night, nine of the 18 committee members predicted an interest rate hike this year, while just one said they expected a cut. That took the market by surprise and caused a wobble on Wall Street.

The US economy has shown remarkable resilience and with inflationary pressures expected to ease following the US-Iran peace deal, investors might have thought there was no need for rates to stay as high as they currently are. Financial markets like cuts, and looser monetary policy was on the cards at the start of 2026. Now they’re having to recalibrate expectations and contend with new Fed chair Kevin Warsh’s style of communicating, which is blunt and to the point.

The Bank of England isn’t expected to raise UK interest rates when its committee makes their policy decision at midday. While inflation isn’t racing away, the jobs market remains weak, and the economy is stuck in the mud. The market continues to price in one rate hike at the end of the year but that could easily shift to no rate hikes if the labour market gets any worse.

Meanwhile, voting has begun on one of the most important by-elections in decades, potentially leading to a change of prime minister. Gilt yields remain steady ahead of the result.

The FTSE 100 was weighed down by BP and Shell tracking the oil price lower, while Persimmon, Land Securities, 3i and British Land all fell as they traded without the rights to their next dividend.

Tesco 

The market leading position enjoyed by Tesco in UK groceries looks unassailable but there was still enough in its latest update to cause the market some concern. 

Sales growth slowed markedly, to come in slightly below expectations. Wholesaler Booker remains something of a problem child thanks to a tougher catering market.

Chief executive Ken Murphy delivered a dose of caution in his commentary on the outlook, and an expansion of its Aldi Price Match scheme could squeeze margins.   

Tesco will be among the droves of people waving the flag for the home nations in the World Cup, given the football tournament could provide a meaningful boost to trading.  

People will likely splash out on booze and food as they congregate to watch the games and the better England and Scotland do, the greater the potential benefit to Tesco’s sales. The Tesco boardroom will be as cheered as anyone by the winning start both teams have made to the tournament.

While the share price may have endured a slight wobble today, Tesco is still a very well-oiled machine which should remain resilient even in a difficult economic environment. A weekly shop is a must for households and more of them are opting to do it at Tesco.

FirstGroup 

Reduced government funding and increased costs might have been expected to cause engine trouble for FirstGroup, but the business managed to keep chugging along thanks to a strong operational performance. 

The driver behind FirstGroup’s impressive showing is its bus operations which were supported by an increased number of London routes, following the acquisition of Ensignbus and expansion in its higher margin private contract division.   

In rail, despite an increase in revenue, profit fell as margins were pressured by higher outlays on day-to-day items and infrastructure. The recent award of the contract for London Overground is expected to transform this part of the business. 

Robust cash generation was a striking feature of its full-year results, with more to come based on the guidance. This enabled the company to unveil generous capital returns to shareholders. 

Drax 

Dark clouds have cleared for Drax after regulators concluded a probe into its reporting around the sourcing of pellets for biomass plants without taking further action. 

The market reaction suggests investors were unsurprised by the news and an initial relief rally fizzled out swiftly. Question marks over Drax’s sustainability credentials – particularly in relation to its biomass operations – have loomed over the business for some time. 

The acquisition of Bluefield Solar will diversify Drax’s energy mix by moving into solar and wind, and with the FCA investigation behind it, the company will hope to push on as a leading participant in the UK’s green energy push.

Whitbread

Whitbread is still struggling to win over the market despite an upbeat trading statement. Bookings have improved in the UK and Germany, although earnings visibility remains limited.

The leisure group is undergoing a strategic shift whereby some of its food and drink spaces situated alongside accommodation are being converted to more hotel rooms, while a plan is in place to exit standalone branded restaurants.

The end goal is a pureplay hotels business, but the journey will take time and that means the cash flow benefits are a story for another day.