Must read: FTSE 100 outperforms, UK borrowing, Shell, Cranswick, G4S, Zoom

UK shares have just hit their highest levels since mid September, but there's lots going on elsewhere, too. Our head of investment rounds up the action.

GLOBAL MARKETS 

European markets have opened mixed with the DAX trading lower while the FTSE 100 is in the green. The Stoxx 600 is trading modestly higher with oil & gas and basic resources at the top of the index. 

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The FTSE 100 is outperforming, with Shell (LSE:SHEL) and BP (LSE:BP.) near the top of the basket underpinned by higher WTI and Brent crude prices. Oil prices are up after Saudi Arabia denied a report that an oil output hike may be on the cards from OPEC+ at its next meeting, which had sent prices sharply lower on Monday.

UK PUBLIC SECTOR NET BORROWING 

UK October public sector net borrowing (PSNB) excluding banks hit £13.5 billion versus £17.7 billion last month and far below forecasts for £22 billion. However, this was £4.4 billion more than the same month last year and the fourth highest October borrowing since monthly records began in 1993. Public sector net debt excluding public sector banks was £2,459.9 billion or 97.5% of GDP rising by £148 billion year-on-year. 

While central government expenditure was £6.5 billion higher than October last year, tax receipts increased by £2.5 billion year-on-year, meaning that less borrowing was required, allowing PSNB to come in better or less than expected, despite spending pressures from government energy support measures.

In the Autumn Statement, chancellor Jeremy Hunt underscored his commitment to being part of a Treasury that relies far less than his predecessor Kwasi Kwarteng on borrowing from the gilt market. In fact. his fiscal plans mean the government will be issuing £31 billion fewer gilts after the fiscal fiasco of the mini-budget in September.

SHELL 

Shell is reportedly reconsidering £25 billion worth of investments in UK energy following last week’s windfall tax hike from the Treasury. Shell’s UK country chair David Bunch told the CBI ‘We’re going to have to evaluate each project on a case-by-case basis.”

Oil giants like Shell and BP have performed extremely well this year on the back of the war in Ukraine which sent commodity prices soaring and oil profits skyrocketing. Shell has enjoyed a share price increase of around 45% over the last year as well, allowing the company to return cash to shareholders through dividends and a share buyback programme. 

However, the outlook for oil prices is unclear and this bumper period may not endure. Although Shell can afford the increased windfall tax now, oil prices may come down significantly between now and 2028 when the end of the tax has been extended until.

Recall back in 2020, oil demand collapsed and prices plunged, putting stress on energy businesses. If another demand shock occurs, Shell’s profits could fall with it, which may be the reason the company may not want to be tied to billions of pounds of long-term investment projects, particularly at a time when the world is attempting to shift away from its dependence on fossil fuels.

CRANSWICK 

Cranswick (LSE:CWK) reported a 12.4% increase in first half revenue to £1.12 billion while statutory pre-tax profit fell by 2.7% to £61.5 million. The food company, which supplies most UK grocery retailers, increased its interim dividend by 3% and maintained its full-year outlook. However, it warned about broad-based inflationary pressures across its cost base but insists they continue to be well controlled. 

Shares in Cranswick are trading higher this morning buoyed by the upbeat revenue figure and optimistic comments towards its outlook. However, shares have had a rough ride this year, caught up in the macroeconomic pressures both in terms of supply and demand. On the supply side, the war in Ukraine has added to inflationary pressure on costs, while on the demand side, the economic slowdown and cost-of-living crisis has negatively impacted the strength of the consumer and demand in the supermarkets.

Fortunately, Cranswick operates in the consumer staples rather than consumer discretionary space, which is more resilient to an economic downturn given that it is supplying essential food items that are hard to apply cutbacks to. The stock is down 15% year-to-date but it has been attempting to regain ground over the last month, rallying by around 16% with strong gains extending in today’s trade.

G4S 

The GMB trade union said over a thousand G4S security workers are planning to strike on 4 December in a row over wages with will impact cash deliveries to a raft of major British businesses including Tesco (LSE:TSCO), Barclays (LSE:BARC), HSBC Holdings (LSE:HSBA) and Wetherspoon (J D) (LSE:JDW). It comes at a time that could cause severe disruption during the critical run up to Christmas for retail with the walkout raising concerns about cash shortages for businesses. 

Although recent years have seen a notable shift towards cashless payments, certain demographics such as pensioners and lower-income households rely far more on cash on a day-to-day basis, so this strike could disproportionately impact the more vulnerable pockets of society at a time when they are already dealing with pressures on the cost-of-living. 

This has been a summer turned winter of discontent, with workers across a whole host of different industries including nurses, barristers, baggage handlers, postal workers and now security staff all staging industrial action as wage growth fails to outpace inflation, reducing real incomes and shrinking spending power.

With inflation currently at 11.1% and the prices of essential goods like food and energy rising even faster, workers are understandably becoming increasingly discontent with their pay packets, prompting walkouts and rows with their employers. Plus, the UK’s worker shortage and near record-high job vacancies mean employees have more bargaining power in wage negotiations, emboldening staff to ask for more.

ZOOM 

Zoom Video Communications Inc (NASDAQ:ZM) has reported slightly better than expected earnings while revenue fell in line with forecasts in the third quarter. However, it issued a disappointing outlook for the final quarter of the year sending shares sharply lower by 7%.

The strength of the US dollar has negatively impacted the business this year, weighing on its international earnings when translated back into dollars, a theme we have seen come up for many US businesses with an international focus this year. 

Zoom has also been hit by the macroeconomic pressures of slowing growth and rising inflation. That’s why the company downgraded its guidance for revenue and profits, citing the difficult economic conditions. 

Shares have had a tough time this year, caught up in the broader tech sector sell-off. The stock is down over 50% year-to-date and has shed two-thirds of its value over a one-year period. 

During the pandemic, Zoom was a stand-out winner, benefitting from the stay-at-home trend, which meant many businesses were completely reliant on Zoom for communications during lockdowns. However, post pandemic, investors have struggled to see where the growth for the business could come from, which is why shares are down by around 90% from the October 2020 high, just before the first Covid vaccine was announced.