Market movers: Wall Street, oil, Greggs, Vodafone, Chinese data

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

EUROPEAN MARKETS

European markets have opened in the red, with travel & leisure and chemicals underperforming, while telcos have emerged on top thanks to a near 10% stake purchase of Vodafone Group (LSE:VOD) by a UAE rival. The FTSE 100 has broken below 7,400 with Aviva (LSE:AV.A)leading the declines ahead of its trading update on Wednesday.

OIL

Oil prices are trading lower by more than 1%, giving back some of Friday’s sharp gains after US gas prices hit a record high, US equities posted strong gains amid risk-on sentiment and China looked set to ease some of its Covid restrictions. However, with global equities struggling to hold onto that positive momentum post weekend, with China reporting softer economic data and with some profit taking among traders, Brent crude is within a whisper of breaking below support at $110 a barrel.

GREGGS

Greggs (LSE:GRG) reported total like-for-like sales in the 19 weeks to 14 May up 27.4% year-on-year, with the figure boosted by a softer reading last year when Covid restrictions limited trading. Total sales hit £495 million, rising from £378 million in the same period last year as the company kept its full-year guidance unchanged. However the bakery warned that cost pressures are increasing, something Greggs says it is working to mitigate.

While Greggs has enjoyed a post-Covid bounce back in sales after all government restrictions were lifted, like many companies the bakery is battling against cost inflation with rising prices of food, energy and staff as well as tax changes, prompting price rises to offset squeezed margins. But whether Greggs, as a company that is known for its attractively priced offering, will be able to continue to increase its prices with little to no impact on demand as cost inflation worsens is yet to be a seen and could present a problem in the second half of the year.

While fewer commutes and more working from home have created headwinds for its larger city and office locations, its transport locations have enjoyed a boost and Greggs is ramping up its travel-based units with recent shop openings at Birmingham and Liverpool airports.

Shares in Greggs have shed more than a third of their value since the peak in December with shares at more than one-year lows with the stock arguably yet to find a bottom.

VODAFONE

UAE telecoms company e& has bought a 9.8% stake in Vodafone for $4.4 billion in order to gain ‘exposure to a world leader in connectivity and digital services.’ However e& was clear that it was not planning to eventually takeover the company.

Volatile financial markets, rising net debt, competition and regulation have created a perfect storm for Vodafone lately and punished its share price. Looking longer term, since CEO Nick Read took to the helm in October 2018, Vodafone shares are down by nearly a third as he has struggled to ignite investor confidence. However, the latest investment by e& has provided a welcomed boost for its shares this morning, lifting the telecoms giant to the top of the FTSE 100.

CHINA DATA

China’s economic data pointed to a notable slowdown in April. Retail sales fell by 11% year-on-year, missing analysts’ estimates and marking the biggest drop since March 2020. Industrial production also disappointed, falling for the first time in over two years, slumping by 2.9% versus expectations for 0.4% growth and down from a 5% gain in March. The urban unemployment rate worsened to 6.1% in April from 5.8% in March, marking the highest reading since February 2020 at the height of the pandemic. China’s National Bureau of Statistics blamed the ‘increasingly grim and complex international environment and greater shock of the pandemic at home.’

China’s draconian approach to its latest Covid outbreak has really started to weigh heavily on its economy, a critical engine of growth around the world as seen by today’s figures. It is raising concerns that the world’s largest economy could shrink in the second quarter, potentially paving the way for a recession by the end of Q3 which would have a notable impact on the outlook for global growth.