Must read: FTSE 100, Asda, Fuller Smith & Turner, Spotify

With many Asian markets shut for the Lunar New Year holiday, our head of investment rounds up the action Monday morning.

GLOBAL MARKETS 

After the firstly weekly loss of 2023 for the FTSE 100, the UK index has opened higher with Ocado Group (LSE:OCDO), which is a typically more volatile stock at the top of the basket. The DAX in Germany is outperforming other European bourses with technology and real estate performing best in terms of sectors in Europe, while chemicals and healthcare lag.

Most markets in Asia were closed for the Lunar New Year holiday overnight with Shanghai shut all week. After a forceful rally on Friday in which the tech-heavy Nasdaq closed up by more than 2.5%, US futures are pointing to a flat open at lunchtime stateside. 

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The euro has rallied to the highest level since April 2012 against the dollar following comments from ECB board member Klaas Knot over the weekend indicating that the central bank will raise interest rates by 50 basis points in February and March. He added that more steps will follow in May and June, suggesting the ECB remains on its hawkish trajectory until the summer at least.

ASDA 

Asda is reportedly considering merging with petrol forecourts business EG Group. According to The Times, the combined group would create a retail behemoth worth between £11 and £13 billion with over 581 supermarkets and 700 petrol forecourts in the UK. Both EG Group and Asda are owned by private equity group TDR Capital.

At the moment, Asda has 320 petrol stations across the UK with a tie-up with EG potentially adding to that number. In October, the supermarket completed the acquisition of Co-op’s petrol forecourt business for £600 million, adding to its fuel network. When TDR acquired Asda in 2020, it was the biggest leveraged buyout deal in over a decade with only a fraction paid for in cash. Similarly, the Issa brothers behind TDR used a highly leveraged deal to acquire EG Group. However, a consequence of this is that EG Group reportedly now has £7 billion of debt due in 2025. Perhaps a tie-up could help alleviate some of its debt burden by creating synergies between the two.

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FULLER, SMITH & TURNER 

Fuller Smith & Turner A (LSE:FSTA) reported four-week sales over Christmas and new year up 38% versus last year. However, sales are down 5% versus the same period in 2019 pre-pandemic. It expects full-year earnings to come in below market expectations, sending shares sharply lower this morning. 

The pub group enjoyed a pick-up in sales thanks to a boost from the FIFA World Cup, but train strikes over Christmas meant that sales have struggled to push beyond pre-pandemic levels. It estimates that industrial action reduced sales by around £4 million. Year-on-year comparisons were also flattered by a weak period in 2021 when the Omicron variant struck and Covid restrictions negatively impacted sales. While the pub group is hoping that more office workers and tourists return to the capital this year, pressures on customers from the cost-of-living crisis as well as cost pressures from inflation which are squeezing margins continue to act as key headwinds in 2023. Shares have struggled over a one-year period, shedding more than 35% including today’s slide.

SPOTIFY 

Spotify (NYSE:SPOT) is reportedly planning to cut staff this week. According to Bloomberg, over the weekend, Spotify is expected to add to the slew of recent job cuts in the sector.  Global digital spending is suffering, and ad revenues are falling with it, prompting tech companies, which not long ago were the darlings of the stock market, to reduce labour costs in preparation for the economic downturn. Cost-of-living pressures mean consumers are looking for ways to reduce their discretionary spending on expenses such as music subscriptions and other non-essential services. 

Silicon Valley’s sense of invincibility spurred a period of over-zealous expansion during the era of rock-bottom interest rates. But the tech sector was swiftly brought back down to earth in 2022 on the back of rising inflation and interest rates, the fading technological boom during the pandemic-era when most of us were glued to our devices, and a slowing global economic backdrop. The result has been a raft of disappointing share price performances and an accompanying slew of job cuts. 

Tech earnings season takes centre stage in the coming days, with Netflix (NASDAQ:NFLX) setting the bar high after its subscriber numbers soared past expectations, in part thanks to the Harry and Meghan docuseries, as well as its new cheaper ad-supported more economically resilient subscription offer. Further job cuts could provide a tailwind to shares in the sector but with the Federal Reserve sticking to its rate-hiking path, the outlook remains uncertain.

Shares in Spotify are down almost 50% over a one-year period.