Interactive Investor

Must read: bonds, yen, oil, petrol prices, Superdry

Our head of investment rounds up the morning's big news.

4th October 2023 08:48

by Victoria Scholar from interactive investor

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    GLOBAL MARKETS

    Both equities and bonds are under pressure in Europe, taking their cues from weakness overnight in Asia and declines on Wall Street, with the major averages all shedding over 1% on Tuesday. Tesco (LSE:TSCO) is outperforming on the FTSE 100, lifting shares in Sainsbury (J) (LSE:SBRY) too after the UK’s largest supermarket raised its full-year profit outlook. This is helping the UK blue-chip index to outperform in Europe this morning.

    The US 10-year Treasury yield rose above 4.86%, hitting fresh 2007 highs. Long-term US yields reached 16-year highs while Germany’s 10-year yield surged above 3% for the first time since June 2011. The moves have been driven by forecasts for higher for longer interest rates and strong US economic data that could embolden the Federal Reserve to carry out further tightening. All eyes are on Friday’s labour market figures, with a strong US jobs report likely to exacerbate the market’s nervousness.

    After the Japanese yen dropped below the psychological 150 per dollar support handle yesterday, there was an unexpected surge in the currency, sparking speculation that the authorities intervened to support the currency. But the yen has since stabilised, with no official confirmation on whether the authorities stepped in.

    Brent crude is trading above $90 a barrel ahead of today’s OPEC+ meeting. The Joint Ministerial Monitoring Committee is expected to keep its current oil output unchanged. Oil has been staging gains lately, hitting 2023 highs in September, driven by constrained supply as a result of OPEC+ members’ voluntary cuts which are outweighing weaker global demand.

    All eyes are on Prime Minister Rishi Sunak today as he prepares to address the Conservative party conference in Manchester, with reporters waiting to find out if he will scrap the HS2’s northern leg between the West Midlands and Manchester.

    SUPERDRY

    Superdry (LSE:SDRY) has announced plans to sell its intellectual property assets in South Asia to India’s largest retailer, Reliance Retail, for £40 million. This is part of a new joint venture between Superdry and Reliance Brands in a 24-76% split respectively. Reliance will continue to be supplied with finished goods by Superdry, helping to accelerate the UK brand’s growth in India. The deal will also generate cash proceeds for Superdry of £30.4 million.

    Shares in Superdry are soaring by over 25% this morning, reflecting the cash proceeds of the deal that will help support its struggling balance sheet as well as the potential for brand growth in India.

    The boost is a welcome development and comes after a rocky period for Superdry which reported a full-year adjusted loss before tax of £21.7 million last month and has been suffering with a sliding share price.

    Superdry has been dealing with the backdrop of weak consumer spending amid rising interest rates and inflationary pressures, as well as a rainy summer which dampened demand for its spring/summer collection. Once a highly successful streetwear brand loved by celebrities and fashionistas alike, Superdry has been struggling to maintain its allure even with the return of Julian Dunkerton as CEO.

    PETROL PRICES

    According to the RAC, petrol prices have risen for four consecutive months, rising an average of 4.5p a litre in September. Diesel rose 8%. The cost of filling up a family car has jumped to over £86.

    This has partly been driven by rising underlying oil prices which have been underpinned by a supply deficit in the global market, offsetting the weaker demand backdrop. Petrol retailers say they have also been dealing with other cost pressures like higher wages and energy costs as well as softer sales amid the macroeconomic headwinds.

    Rising oil and petrol prices could derail inflation’s path back down towards the Bank of England’s 2% target. Last month, official CPI inflation dropped to 6.7% in August, falling more than expected, partly due to slowing food price increases. But a meaningful jump in underlying energy prices could see the headline figure pick up once again. Nonetheless, most economists are still forecasting that inflation will drop to around 5% by the end of the year.

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