Must read: central banks, UK house prices, Frasers, S4 Capital plunges

GLOBAL MARKETS

European markets have opened the week lower ahead of a busy week for central banks, with rate decisions due from the Federal Reserve, the Bank of England, and the Bank of Japan, among others. Shares in Societe Generale SA (EURONEXT:GLE) are under pressure in France after a disappointing sales forecast with its new CEO at the helm.

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UK HOUSING MARKET 

Rightmove said UK asking prices rose by 0.4% in September after falling by 1.9% in August. However, the rise is below the 10-year average of 0.6%, home sales are down 7% versus 2019 pre-Covid, and asking price reductions reached a 12-year high. Nonetheless, the property website expects the market to pick up in autumn as mortgage rates ease. It said the number of homes on the market rose by 12% in the first week of September already. 

The latest figures from Rightmove point to green shoots of recovery for the housing market, with a slight pick-up in asking prices in September, a typically busy back-to-school time of year for housing market transactions after the end of the summer lull and before the festive season begins. While the Bank of England’s aggressive stream of rate hikes have hit borrowing affordability and house prices, mortgage sellers have started to offer more competitive rates to respond to dwindling demand as the central bank gets closer to the end of its tightening cycle. Despite this, it is likely that house prices will cool further this year as the culmination of high inflation, rising interest rates, the cost-of-living crisis and elevated borrowing costs take their toll.

Meanwhile, a separate report from Hamptons showed that residential rents in the UK are rising at their fastest pace on record. Average monthly rental costs surpass £1,300 for the first time, jumping 12% year-on-year in August. Clearly, the knock-on effect of surging mortgage costs has prompted many would-be buyers to turn towards the lettings market instead as they wait for mortgage rates to come back down again. 

FRASERS / MISSGUIDED 

According to media reports, Frasers Group (LSE:FRAS) is in talks to sell Missguided to China’s fashion group, Shein. This would be Shein’s first acquisition in the UK and comes after Mike Ashley’s group bought the British fast-fashion brand after it fell into administration last year. 

Both Shein and Missguided have been criticised over their rock bottom price tags, raising questions about whether they are encouraging throwaway fashion rather than promoting sustainable, environmentally friendly long-term purchases. There have also been reported alleged human rights violations at Shein. 

The potential deal draws attention to Shein’s global growth ambitions, already operating in over 150 countries, as it looks to expand its UK market footprint.  Last year, the company was worth around $100 billion and was reportedly the most Googled clothing brand in 2022. It has harnessed a highly successful online strategy, using influencers on TikTok and other social media platforms to spur customer demand. 

The deal also potentially marks a change in strategy for Frasers Group which has been highly acquisitive in recent years. Perhaps it is now planning to divest some of its non-core assets when the price is right.

S4 CAPITAL 

Shares in S4 Capital (LSE:SFOR) have plunged over 20% after Sir Martin Sorrell’s company cut its revenue and earnings margin forecasts. Like-for-like net revenue is now expected to be down on the prior year and operational EBITDA margins are expected to hit 12-13.5% versus its previous estimate of 14.5-15.5%. Geographically, Asia Pacific was a particularly weak area this year, due to lower client demand amid China’s bumpier-than-expected post-Covid recovery. 

In July, the company already cut its forecasts for annual revenue growth and core profit margins due to a reduction in marketing spending from tech clients. 

Executive Chairman, Sir Martin Sorrell said it was a "very mixed first half of the year reflecting challenging global macroeconomic conditions and consequent fears of recession.” 

The sluggish global growth backdrop means there’s a hesitance among businesses to commit to long-term advertising spending, with companies focusing on keeping a lid on costs amid the high inflation, rising interest rate environment. 

There’s also a growing concern for the sector that the rise of artificial intelligence in-house may result in less demand for external ad agencies.