- FTSE 100 set for quiet start to trading, with most sectors down this week
- JD Wetherspoon recommences dividend payments
- Sterling down from recent highs after doveish comments by Andrew Bailey
- Mid-east tensions see US Markets pull back again
- Non-farm payrolls out today. Consensus: 148,000 additions, unemployment 4.2%
- Brent crude at $77.5, on for biggest weekly gain since Jan 2023
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The FTSE 100 looks set for a flat start, having traded in a very tight range throughout the week, despite the rising fear of the middle east conflict dragging in a wider group of nations. But beneath the seemingly calm surface it’s been a challenging week for investors in UK stocks, which have been supported by gains in the oil & gas and aerospace & defence sectors. Every other sector has been in the red. Tourism generally suffers at times of escalating tensions and that’s been reflected by a dip in travel & leisure valuations.
But the sector also includes hospitality companies including pub chain JD Wetherspoon whose full year results saw pre-tax profits rise by 73.5% to £73.9mn, ahead of forecasts of £72mn. The results were helped by healthy like-for-like sales growth of 7.6%. An improved gross margin suggests that much of that growth was price led. When combined with stringent cost controls that’s allowed an impressive rebound in profitability, giving management the confidence to return to the dividend list for the first time since the pandemic, with a proposed payout of 12p per share. JD Wetherspoon also spent £39.5mn on share buybacks in the period. Like-for-like growth for the first nine weeks of this financial year was 4.9%. A slower pace, but still pretty robust, in a lower inflation environment. The Group’s now trading from a leaner, meaner estate of 800 pubs but has re-iterated the potential to expand towards 1,000 units, with recent openings including high footfall venues such as London’s Euston and Waterloo stations and Heathrow Airport. Overall, the company is well placed to continue its growth trajectory and soak up market share as independent watering holes continue to fall by the wayside.
The UK currency has weakened, with Sterling now trading at around US$1.31, down from recent two-year highs of $1.34. Most of this week’s decline occurred yesterday, following comments by Bank of England Governor Andrew Bailey that the monetary policy committee could be ‘a bit more aggressive’ on rate cuts if inflation continues to ease.
US Stocks retreated further from record levels seen earlier in the week. President Biden’s revelation over discussions with Israel regarding potential strikes on Iranian oil facilities did nothing to help sentiment. US futures are pointing to a quiet open today, as investors brace for this afternoon’s non-farm payrolls report. Forecasts expect to see that 148,000 jobs were added in September and for unemployment to hold flat at 4.2%. Any significant undershoot of these expectations, could spark fresh concerns that the US may not be able to pull off a soft landing.
If the numbers land close to these projections, it would back up Fed Chief Jerome Powell’s suggestions earlier in the week that any further rate cuts are likely to be shallower than this September’s half-point drop. However, in the context of a worsening global geopolitical outlook investors will be seeking reassurance from economic stability at home. Any unexpected signs of a weakening labour market could trigger a further dash for safe havens.
Brent Crude is slightly down today at around $77.5 after gaining over 4% yesterday, and is on track to post its biggest weekly gain in nearly two years. The potential for disruption to Iranian production has been the key driver. Despite US sanctions, Iranian exports have increased to 1.7mn barrels per day this year.
But to put that in context, OPEC+ nations have treble that amount in spare capacity, so unless other producing nations suffer disruption, they should be able to take up that slack. However, a more worrying scenario would be the closure of the Straight of Hormuz, a vital shipping channel between Iran and Oman which has recently carried as much as 15mn barrels per day of crude, leaving potential for a significant oil price shock if marine traffic is blocked.”
