Market movers: pound at record low, Unilever, Aldi UK

It's all about sterling and the crash to a record low against the dollar, but our head of investment also looks at other big news attracting interest today.

GLOBAL MARKETS 

The FTSE 100 is trading flat following a mixed European open after sterling’s weakness overnight buoyed international exporters listed in London such as GSK (LSE:GSK) and Diageo (LSE:DGE).

The pound slumped to a record low against the US dollar after the UK Chancellor’s mini-budget on Friday sparked chaos, but the pound has since pared some of its earlier losses. US dollar strength is putting pressure on commodity markets with Brent crude trading down by more than 1% and gold hitting a more than two-year low.

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Meanwhile, focus on the continent is on Italy’s election with Giorgia Meloni declaring victory as Italy’s first female prime minister and head of a right-wing government.

POUND STERLING  

The pound tumbled to a record low overnight against the US dollar following the Chancellor Kwasi Kwarteng’s mini-budget on Friday in which he announced a series of tax cuts and spending plans. Sterling was trading close to parity against the greenback and is also weakening against the euro but has rallied off session lows. 

On first glance, one might expect that the Chancellor would get support from the markets for his pro-growth, anti-red tape plans to slash taxes and stimulate the economy. However, there are major investor concerns about his lack of focus on fiscal prudence and sound money given that his strategy depends on alarming levels of government debt at a time when the cost of borrowing is sharply on the rise.

On top of that, the Chancellor has failed to focus on the inflationary implications of his agenda when price levels are already flirting with double digits. Until Friday, GBP:USD pressure was mostly being driven by demand for the greenback underpinned by favourable US interest rate differentials and safe-haven flows.

However, on top of being bullish towards the dollar, the international investor community is now also very bearish towards the pound amid fears about the UK’s economic outlook and investment case.

UNILEVER  

Shares in Unilever (LSE:ULVR) are trading higher after CEO Alan Jope announced plans to retire at the end of next year. Unilever said the board is now proceeding with its formal search for a successor and will consider both internal and external candidates. 

Alan Jope has been at the consumer goods giant for more than 35 years and CEO since January 2019. Under his tenure as chief executive, shares enjoyed a strong start, surging to the peak in August 2019 but are now down more than 20% from the highs, with shares largely unchanged since he took on the top job. He was tasked with the unenviable role of steering the consumer goods giant through the challenges of the pandemic.

This year, Jope’s leadership came under fire after his failed plans to pursue an expensive acquisition of GSK’s consumer health business damaged his credibility, raising questions about whether there should be a C-suite shake up at Unilever. In light of this and his underwhelming record in terms of Unilever’s share price performance, it is not a major surprise that shares are popping today and Jope is handing over the reins.

ALDI 

Aldi UK reported full-year 2021 operating profit of £60.2 million sharply falling from £287.7 million last year, down 79% on flat sales of £13.65 billion. However the German discounted supermarket said it plans to create over 6,000 jobs this year with 16 new stores opening over the next 12 weeks as part of its £1.3 billion expansion plan. 

Although Aldi’s full-year profits have suffered a sharp year-on-year slump, the supermarket is investing heavily to hire staff and to guarantee that prices remain low, its vital selling point, despite pressures from rising cost inflation. The company is prioritising its low price point over profitability in the short-term as it looks to increase its market share in the UK, having already overtaken Morrisons to become Britain’s fourth largest supermarket with ambitious plans to ultimately compete with the likes of Tesco (LSE:TSCO). 

With the cost-of-living crisis and a looming UK recession, price sensitivity among supermarket shoppers is growing, which could provide a tailwind for the German discounters like Aldi which continues to put its highly competitive price point at the heart of its strategy.