Market movers: inflation, Ted Baker, sterling, retail sales

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

MARKETS

European equities have opened lower, with technology underperforming as the market gives back some of yesterday’s gains with the glow from Friday’s US jobs report fading. The FTSE 100 is outperforming wider Europe but is still in the red with Rio Tinto (LSE:RIO) at the top of the basket. The ASX 200 underperformed overnight in Asia after the Reserve Bank of Australia hiked rates by the most in 22 years, lifting its cash rate by 50 basis points, surprising investors who were anticipating a smaller increase. Softer risk appetite has driven flows towards the US dollar and dampened demand for cryptocurrencies which are under pressure. Oil prices are extending gains this morning as China’s Covid restrictions ease.

TED BAKER

Shares in Ted Baker (LSE:TED) are trading sharply lower by more than 20% after the retailer said its preferred acquirer is not proceeding with an offer for the company. However it reiterated that the board received a number of other proposals and will now determine whether to push forward with any of them.

Although Ted Baker did not disclose who the preferred bidder was, Sky News reported at the end of May that US-based Authentic Brands Group which owns Juicy Couture and Reebok was working on a bid worth more than 150p-a-share.

It is no secret that UK high street retailers have been struggling in recent years amid the rise of e-commerce low price point competitors like Pretty Little Thing and Boohoo Group (LSE:BOO), leading to the collapse of once fashion giant TopShop. Ted Baker already had a difficult time with another potential acquirer after US private equity firm Sycamore Partners issued three takeover proposals but eventually walked away, leading to a plunge in its share price. With record low UK consumer confidence, the cost-of-living crisis, the possibility of a recession and shaky equity markets, it is understandable that Ted Baker is desperate for a buyer and explains why investors are shunning the stock this morning.

THE POUND 

The pound is under pressure as traders digest Boris Johnson’s unconvincing confidence vote victory and as the US dollar marches higher. The currency is suffering amid a lack of international investor confidence in the UK both economically and politically, with criticism of Johnson’s leadership expected to continue and the potential for government legislation to be blocked by members of his own party.

Given that markets hate uncertainty more than anything, the fact that sterling rallied on Monday morning after the no confidence vote was triggered speaks to Johnson’s lack of popularity among investors. However it is worth noting that some of the gains for GBPUSD were driven by a softer US dollar and although there was an initial spike, cable pared gains during the session as markets began to realise that firstly Johnson may win the vote and secondly the alternative may not be much better.   

Since May 2021, the GBPUSD has largely come under pressure, partly driven by strength in the greenback but also by softening UK growth prospects and narrowing interest rate differentials as central banks around the world catch up with the Bank of England in their shifts towards tighter monetary policy amid rising inflation levels around the world.

UK BRC RETAIL SALES MONITOR

• Retail sales across the UK dropped 1.5% in May as the cost-of-living crunch hampered demand, according to the British Retail Consortium.
• Online sales decreased by 8.5% during May, compared with a decline of 8.1% in May 2021.
• Total UK footfall increased by 6.9% over the Jubilee weekend, compared with the average for May 2022. 

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Runaway inflation continues to dampen consumer demand and hamper retail sales. For many workers, rising prices have decimated any uplift in wages - which has in turn compromised their spending power.

“Shoppers face hard choices over how to spend their money amid the cost-of-living crisis. More and more consumers are having to stretch their budgets to keep on top of rising prices, with little to spare for nice-to-have quality of life boosting purchases. Many feel that now is not the best time to make big purchases, illustrated by a fall in spending on furniture, home appliances and computing items last month.

“However, sales of fashion and beauty products were strong in May, with the summer holiday and social season rapidly approaching. The Platinum Jubilee celebrations, supported by sunny and warm weather over the bumper four-day Bank Holiday weekend, gave UK high streets a much-needed lift as shopper footfall surged.