The FTSE 100 held firm as investors absorbed the latest news from the Middle East.
Brent crude oil prices were steady at $82 per barrel, with a full retreat closer to pre-war levels unlikely to come until a concrete deal is in place and there is clear evidence shipping is flowing through the Strait of Hormuz. The reaction in government bond yields to the breakthrough between Washington and Tehran has been more muted than for equities.
It’s a busy week for central bank announcements. Japan has hiked interest rates to their highest levels in more than three decades amid fears of higher inflation. A key test for market confidence will come with tomorrow’s Federal Reserve meeting.
It will be the first under new Fed chair Kevin Warsh and the widespread expectation is that rates will be kept on hold. What remains to be seen is whether Warsh and his colleagues give any clear guidance on the future direction of travel.
Wednesday also sees the release of UK CPI figures which may reveal the extent to which the Iran war has already unleashed inflationary pressures, even with an apparent resolution to the conflict. Getting existing inflation under control could still be a major challenge.
Thames Water
The ongoing saga with Thames Water looks set to continue as the government reportedly objects to a proposed rescue deal.
This raises the likelihood of nationalisation of the business and could be a signpost to the wider direction of travel. There is speculation Andy Burnham might put water and energy businesses under stronger public control if he wins the Makerfield by-election on Thursday and launches a successful bid to get into Number 10.
The latest developments are unwelcome for an industry which has been making progress in cleaning up its act.
International Worspace Group (IWG)
News that IWG founder and CEO Mark Dixon is stepping down from the top job has not created too many tremors in the market.
Dixon built the flexible office space business into a global leader from an observation about businesspeople in Brussels conducting meetings in local coffee shops.
Dixon is remaining with the business as executive chair and his appointed successor – Christian Schmitz – is an experienced hand. He has already served as chief transformation officer and global head of all regions, so any handover should be relatively smooth.
Operating from more than 6,000 locations around the world under brands including Regus and Signature, IWG had a great run until the pandemic hit. Since then, the share price has struggled to regain its former glories.
Shareholders may hope Schmitz can inject some fresh impetus, although the strategy is unlikely to shift dramatically from the franchise-driven and capital-light approach taken in recent years.
Debenhams (Boohoo)
Boohoo’s owner Debenhams is finally back in fashion as its turnaround story sustains momentum. The company says every brand in its portfolio is now profitable, albeit that is only after making oodles of adjustments.
At a clean level with no adjustments, Debenhams is still losing money. That might explain why the shares haven’t moved higher on the results. The turnaround efforts and finding ways to cut costs is old news. Investors now want profits and that’s still a waiting game.
With the business now in a stronger position after years in the doldrums, the next phase is to accelerate revenue growth and do so without resorting to widespread discounting. A marketplace model gives customers lots of choice and Debenhams will be hoping that improves the chances of converting a hopper’s browsing session into sales.
The only issue is that plenty of other retailers are embracing the marketplace model including Next and Marks & Spencer. Debenhams must also contend with the rise of Vinted where consumers are busy looking for a bargain from a selection of pre-loved clothes. Vinted customers are exactly the type of people who may have historically bought from Boohoo and other fast fashion brands.
All this means Debenhams will have to work hard to reach the next level in its turnaround story. Stabilising the business is a massive achievement, but reigniting profitable growth won’t come easily.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
