The FTSE 100 picked itself up off the canvas on Friday, after being knocked for six by Thursday’s aggressive selling in government bonds.
Other European markets also managed to claw back some ground even as Asian stocks played catch up with losses to match the trend seen in parts of Europe and the US on Thursday.
Bond yields have stabilised for now, though are still elevated and within sight of multi-decade highs. This highlights concerns about inflationary pressures, the direction of interest rates, and the state of public finances, and threatens to diminish the appeal of equities.
Brent crude oil prices are teetering around the $100 per barrel mark. Fears of renewed escalation between the US and Iran overshadowed evidence that an increasing flow of oil is getting out of the Middle East.
US jobs numbers on Friday may offer some clues into the likely next move from the Federal Reserve on interest rates. This is the earliest release based on hard data to offer a barometer of the health of the world’s largest economy.
A stronger-than-expected number might necessitate further rate hikes in the near-term to limit the risk of said economy overheating.
AI Financing: Nvidia, Amazon, Broadcom
The enormous sums involved in funding the AI arms race are pushing companies to look beyond the usual menu of financing options to strengthen balance sheets.
This is in evidence in Amazon reportedly setting up a special purpose vehicle through which it can offload $8 billion of advanced Nvidia chips to investors and then lease them back.
Nvidia itself in August offered to underwrite debt through a financing platform with major Wall Street institutions, all with the aim of providing lower-cost borrowing options for its customer base.
In a separate arrangement, Broadcom has reportedly agreed to lend Anthropic up to $42 billion for AI infrastructure. Debt which Broadcom will be able to translate into Anthropic shares.
The increasingly close and complex arrangements between AI players have uncomfortable echoes for more experienced investors of the sort of circular financing seen during the dotcom boom. This phenomenon subsequently exacerbated the bust which followed.
Wetherspoons
Falling profits and no growth in the dividend are as appetising for shareholders as a pub meal constituting a microwaved burger and soggy chips. However, all is not lost for Wetherspoons as its dour full-year numbers were given a welcome boost with news of a pick-up in trading over the past nine weeks.
Wetherspoons was a summer heatwave beneficiary as its plethora of beer gardens acted as a magnet to drinkers basking in the glorious sunshine. Even though the market had already priced this sales catalyst into the shares, as reflected by a strong run over the summer, confirmation of decent trading provided another boost.
That’s all well and good, but a summer trading gain is now in the rearview mirror. The focus returns to Wetherspoons’ strategy of prioritising sales volumes over margins. Cost pressures are a key area to watch as Wetherspoons is typically reluctant to pass on extra costs to customers unless necessary. That’s reflected in the margin decline in the latest results, and those margin pressures could be sustained well into 2027.
It’s not simply food and drink costs to watch as Wetherspoons said costs to repair and maintain its pubs went up by a third to £132 million over the past financial year.
It’s important to keep pubs looking nice, otherwise people won’t want to visit them. Therefore, one could argue that repair, maintenance and improvement is not a discretionary spend. Wetherspoons could temporarily delay some of this work, but such a decision could backfire down the line if punters vote with their feet and go elsewhere.
EG Group / Cumberland Farms IPO
Reports suggest that petrol station operator EG Group may postpone plans to list its Cumberland Farms retail operation on the US stock market.
EG Group is owned by the Issa brothers alongside private equity group TDR Capital. Mohsin and Zuber Issa were the driving force behind the takeover of Asda in 2020, also in partnership with TDR. Zuber Issa has subsequently sold his stake in the supermarket group to TDR, but Mohsin Issa still holds a 22.5% stake.
Cumberland Farms is a major US convenience store and fuel retailer chain. While the US economy has been remarkably resilient, the surge in fuel costs is likely to have created a headwind for Cumberland Farms, particularly as US diesel prices have skyrocketed this year.
A bond market rout amid fears over inflation and interest rate hikes has also stalled momentum in the US stock market. That’s the wrong kind of environment in which to pursue a stock listing. It’s possible that EG Group might now pursue a sale of the business.
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...