European markets are under pressure, with Burberry Group (LSE:BRBY) towards the bottom of the FTSE 100, hitting an 11-month low after UBS cut the luxury stock from 'neutral' to 'sell' and reduced its price target.
Declines in commodities are hurting the blue-chip index, with miners like Anglo American (LSE:AAL) and Fresnillo (LSE:FRES) near the bottom of the basket. Utilities are also under pressure on the back of rising bond yields, with United Utilities Group Class A (LSE:UU.) and Severn Trent (LSE:SVT) in the red, while the Stoxx Europe 600 Utilities index slumps to a fresh 10-month low.
Oil has retreated further after hitting a three-week low on Monday. Brent crude has pulled back towards $90 a barrel as a stronger US dollar and rising yields dent demand. However, the market remains supported by a supply shortfall that has stemmed an even steeper decline. The secretary general of Opec+ Haitham Al Ghais told the BBC that oil prices will continue to stay elevated.
Gold suffered its longest losing streak since August 2022 and copper hit a more than four-month low, both partly driven by a stronger US dollar. The greenback has reached fresh 11-month highs today, pressurising the euro, sterling, and yen against it. The Australian dollar has also fallen to an 11-month low. The Federal Reserve is expected to keep interest rates higher for longer, supporting demand for the dollar.
UK BRC SHOP PRICE INDEX
The British Retail Consortium’s annual shop price inflation hit 6.2% in September, cooling from 6.9% in the previous month. Food price inflation has dropped for five consecutive months, with prices rising at their slowest pace in a year. Month-on-month the figure dropped by 0.1%, the first decline in over two years. The chief executive of the BRC Helen Dickinson said, ‘we expect shop price inflation to continue to fall over the rest of the year.’
The BRC figures align with the ONS’ official inflation figures to suggest that price pressures in shops, and more broadly across the UK economy, are easing as the Bank of England’s aggressive stream of 14 consecutive rate hikes take effect, and as last year’s energy crisis and the post-Covid supply chain bottlenecks shift to the rear-view mirror. Supermarkets have also been cutting prices in an attempt to attract customers through their doors amid intense competition as customers become increasingly price sensitive as budgets get squeezed.
However, there are still risks to the disinflationary path back down towards more normal price levels such as the recent rally for oil prices, strong wage growth, geopolitical uncertainty, and food shortages.
Greggs (LSE:GRG) reported total sales up 20.8% in the 13 weeks to 30 September and company managed like-for-like sales up 14.2%. It has kept its full-year outlook unchanged for 2023. Analysts anticipate 2023 pre-tax profit to reach £165 million, up from £148.3 million last year.
However, the CEO Roisin Currie told Reuters the company is not planning to increase prices pre-Christmas and there is still significant inflation in the market, such as staff wages. The comments appear to be weighing on its share price.
Greggs said it has enjoyed strong trading in the latest quarter. The bakery’s offering of drinks and snacks with speedy service have been enjoying strong sales from workers and other people on the go. Despite the cost-of-living crisis with consumers forced to make cutbacks, demand at Greggs remains robust thanks to its competitive pricing and appealing range of hot and cold items like sandwiches, sausage rolls, coffees, and sweet treats. Even faced with pressures from inflation, Greggs is still expanding with between 135 and 145 net shop openings this year and it is also investing in its supply chain.
Shares in Greggs are up over 40% over the past year. But they have been giving back some gains since the May highs and are under pressure today. Nonetheless, the analysts remain bullish on the stock with 8 buy recommendations versus 3 holds and zero sells.
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