Must read: FTSE 100, US dollar, oil price, H&M, Saga

GLOBAL MARKETS

European markets have opened mixed, with the FTSE 100 trading just above the flatline. Shares in Centrica (LSE:CNA) have slumped to the bottom of the UK index after Morgan Stanley reportedly cut the stock to equal weight.

Germany’s GfK consumer confidence indicator fell to -26.5 in October, the lowest level since April, falling short of analysts’ expectations, as elevated inflation and rising interest rates take their toll on morale in Europe’s largest economy. 

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The concept of ‘higher for longer’ interest rates is providing a tailwind to the greenback which is trading at 10-month highs, sending the euro and the pound to six-month lows against it. Sterling is on track for its worst month since the fiscal fiasco around the mini-Budget last year, reflecting the increased risk of a recession in the UK as rising borrowing rates weigh on the economy. 

US futures are pointing to a stronger open at lunchtime, potentially reversing some of yesterday’s slide when the Nasdaq, S&P 500 and the Dow Jones all closed lower by over 1%. The Dow Jones broke below its 200-day moving average in a bearish technical signal for US equities. New home sales and consumer confidence data fell short of analysts’ expectations.

Focus turns to US GDP figures due on Thursday for clues into the resilience of the US economy. Plus, investors await 1st October to see whether the US manages to avoid a government shutdown.

OIL

Oil prices are staging gains with Brent crude and WTI in the green despite a stronger US dollar. Weakness in supplies driven by production cuts from Saudi Arabia and Russia have been supporting the market. Hedge funds have been getting in on the long oil trade in anticipation that there could be further upside to come. Markets are also pinning their hopes on a resilient US economy with most economic data supporting the idea of a soft landing.

These factors are helping to offset concerns about a sluggish global demand backdrop and higher interest rates. JPMorgan suggested that Brent crude could rally sharply as part of a new energy super cycle, while long-term fossil fuel investment drops off as part of the green energy transition. 

H&M

Hennes & Mauritz AB Class B (OMX:HM B) reported third quarter operating profit of 4.74 billion crowns, in line with analysts’ expectations and up from the same period last year. It announced plans to buy back up to 3 billion crowns worth of shares by the next of March 2024 and it is returning to JD.com, a leading e-commerce platform in China. However,  it warned that sales would drop by 10% this month in local currencies year-on-year. And the cost of markdowns in relation to sales was higher in the third quarter than the previous year. 

This year it is opening around 100 new stores, mostly in growth markets and is closing 200 stores mainly in established markets. H&M is expanding in Latin America with plans to open its first stores in Brazil in 2025. It is also aiming to gradually reopen most of its Ukraine shops starting in November. However, it faced a one-off cost of 2.1 billion crowns from exiting Russia. 

H&M’s profit met analysts’ expectations, it is returning cash to shareholders and it’s positioning itself towards growth markets including China with its return to JD.com. But sales look set to struggle near-term as the seasons change from summer to autumn. Hotter-than-expected weather has deterred customers from stocking up on warmer items like coats for the cooler months ahead.

It is struggling to compete with Inditex owned Zara which strongly appeals to the fashionistas as well as with Shein and Primark which offer rock bottom prices. H&M has been trying to cut costs and preserve margins, but it has found it challenging to pass on inflationary pressures to customers in terms of higher prices. 

Shares up by around 40% so far this year, outperforming the wider market. It is defying bearish pre-market indicators to trade sharply higher with investors shrugging off its anticipated decline in sales.

SAGA 

Saga (LSE:SAGA) said it expects to deliver significant double-digit growth in revenue and underlying profit that is ahead of market estimates. It reported a 15% increase in revenue for the first half thanks to growth in its Cruise and Travel businesses and it has been reducing its debt. However, its insurance business is having a more difficult time – it is grappling with the backdrop of a ‘difficult inflationary market’. Its insurance broking business reported a six-month profit of £23.8 million down from £36.7 million in the prior year. 

Reflecting the mixed report, shares in Saga opened higher but have since turned lower. The stock is down by around 12% so far in 2023. Over the past five years, Saga has shed over 90% of its stock market valuation. The over 50s business had an extremely tough time during Covid when lockdowns and travel restrictions were in place. It has since struggled to return to its pre-pandemic levels. Like many travel-related stocks, it has been caught up in the macroeconomic headwinds including the sluggish growth backdrop and elevated inflation with investors remaining cautious towards the sector this year.