Must read: FTSE 100 under pressure, Tesla, Travis Perkins, Dunelm, Hermes

The blue-chip index is under pressure amid a slew of corporate updates and UK political instability. Our head of investment analyses latest developments.

GLOBAL MARKETS

European markets have opened lower with the FTSE 100 under pressure amid a slew of corporate updates and UK political instability. While bond market stability has been restored at least for now, political instability remains with Liz Truss hanging on by a thread after the sudden resignation of home secretary Suella Braverman.

Burberry Group (LSE:BRBY) is trading at the top of the UK index thanks to a positive read across from an upbeat earnings update from luxury rival Hermes International SA (EURONEXT:RMS). Meanwhile, UK housebuilders are underperforming after a series of price target cuts from the analyst team at Deutsche Bank.

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Asian markets were under pressure with the Hang Seng Index touching its lowest level since May 2009. The Japanese yen hit a fresh 32-year low with the Bank of Japan carrying out emergency bond-buying operations to stem its bond market slide.

US markets closed lower snapping a two-day winning streak with Treasury yields hitting fresh 14-year highs and earnings centre stage.

TESLA

Tesla Inc (NASDAQ:TSLA) reported third-quarter earnings of $1.05 ahead of expectations for 99 cents per share. However, revenue came in at $21.45 billion, falling short of forecasts for $21.96 billion. Shares fell by around 6% after-hours with investors focusing on the top line miss.

Tesla was very much a stock market darling until last year, central to many portfolios among investors wishing to take participate in the electric car revolution and the broader climate change solution. However, when the tech-heavy Nasdaq bubble burst in November last year as the era of cheap money swiftly ended, Tesla’s stock price fell sharply with shares down more than 45% since the high. Along with the pain from higher interest rates, Elon Musk’s brainchild has faced a series of headwinds from China’s extensive covid lockdowns, the distraction from Musk’s Twitter takeover mess, global chip shortages and cost inflation. Plus, competition is ramping up in the electric vehicle space with almost all traditional automakers rolling out rival cars at various price points. Despite this, Musk insists there is ‘excellent demand for Q4’ and hinted at a possible share buyback next year.

TRAVIS PERKINS

Travis Perkins (LSE:TPK) said it delivered a resilient third-quarter performance with total sales growth of 10.7%. Its Toolstation business returned to growth with total sales up 6.1%. The retailer is guiding for full-year operating profit to come in the middle of its current range of market expectations for between £304 and £340 million.

Earlier this month, patio and paving retailer Marshalls (LSE:MSLH) reported a slump in third-quarter sales sending the stock lower by nearly 30% raising concerns about the post pandemic fading DIY boom. However, despite the end of Covid prompting consumers to lose interest in home improvements, Travis Perkins has managed to score impressive double-digit sales growth at a time when it is facing pressures from cost inflation and squeezed household budgets, suggesting that its strategy to pass additional costs onto consumers through increased prices is helping to boost revenues even in the face of declining demand.

With shares down more than 50% year-to-date, the stock is trading at a valuation sharply below its long-term average. It has faced a series of price target downgraded from the analyst community in recent months amid concerns about the slowing UK economy and a softer consumer outlook.

DUNELM

Dunelm Group (LSE:DNLM) reported an 8% drop in fiscal first quarter sales to £357 million, in line with analysts’ expectations. The retailer kept its full-year 2023 guidance unchanged but warned of a challenging macroeconomic environment.

At a time when consumers are dealing with the cost-of-living crisis, with many households struggling to pay for essential items like food and heating, discretionary spending is suffering, particularly as the pandemic surge in demand for home furnishings eases off. Shares in Dunelm rallied from below 700p at the low in 2020 to a peak above 1,500p before suffering heavy losses this year. With the shift towards higher interest rates, the war in Ukraine, inflation and fears of a recession, many companies have struggled with this year’s stock market volatility which has erased much of the previous period’s gains. Shares in Dunelm are down by more than 40% this year even after the attempted reversal since the start of September.

HERMES

Hermes International SA (EURONEXT:RMS) reported third-quarter revenue of EUR 3.14 billion sharply rising versus EUR 2.37 billion last year. The Birkin bag maker said it is raising prices by 5% to 10% next year and said it is yet to see signs of a slowdown in its markets. Hermes confirmed its medium-term revenue growth goals and announced bullish plans to accelerate recruitment in the second half of the year.

Hermes appears to be shielded from the challenging macroeconomic environment, given the resilience of its ultra-wealthy customer base which is largely immune to the cost-of-living crisis. The luxury brand is able to increase its prices to offset any cost inflation with little to no impact on demand. It has benefited from a strong rebound in one of its most important markets, China with revenues in Asia ex Japan up 34% over the period. Shares in Hermes have proven to be very resilient to this year’s stock market turmoil, trading up 3% over a one-year period, outperforming the broader CAC 40 index in France, which is down by nearly 10%.