Interactive Investor

Must read: Italy, UK recession warning, China, Bellway, Coca-Cola

Italy leads a European rebound. Our head of investment rounds up the morning's big news.

9th August 2023 09:01

by Victoria Scholar from interactive investor

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GLOBAL MARKETS

European markets are trading higher with the FTSE MIB in Italy outperforming. Italian banks are clawing back some of yesterday’s declines after the government watered down its windfall tax plans. UniCredit SpA (MTA:UCG), Intesa Sanpaolo (MTA:ISP) and BPER Banca SpA (MTA:BPE) are all trading higher by over 2%.

In the UK, Coca-Cola HBC AG (LSE:CCH) is near the top of the FTSE 100 after raising its revenue guidance, while Flutter Entertainment (LSE:FLTR) is towards the bottom after its half-year results. The owner of Paddy Power and Betfair is planning to list in the US possibly later this year or early next year.

A leading think-tank, the National Institute of Economic and Social Research, has warned there is a 60% chance of a UK recession at the end of 2024. It pointed to Brexit, the pandemic, and the war in Ukraine as factors contributing to five years of lost economic growth with elevated housing, energy and food costs taking their toll. Second-quarter UK GDP figures are due on Friday at 7am.

Overnight, China’s inflation rate dropped by 0.3% in July, the first deflation since February 2021 during the pandemic. Meanwhile, producer prices fell by 4.4% year-on-year, the 10th straight month of producer deflation. China’s bumpy recovery out of the pandemic, a slowdown in its property sector and weak exports and imports have hampered economic activity, prompting expectations of potential stimulus from Beijing to breathe life into its stuttering economy.

In the US, focus this week continues to be on earnings season with results from Walt Disney Co (NYSE:DIS) due today. On the economic calendar, all eyes are on key inflation figures due on Thursday, which could confirm upbeat expectations that the US is heading for a soft landing. US futures are pointing to a stronger open after a weak session on Tuesday weighed down by a warning from Moody’s about the credit worthiness of some of its banks.

BELLWAY

In its trading update, Bellway (LSE:BWY) said full-year housing revenue hit around £3.4 billion, down from £3.52 billion in 2022, while its underlying operating margin will come in at around 16% also declining from 18.5% last year. Its overall average selling price decreasing from £314,399 last year to £310,000 with prices expected to moderate further. Bellway is planning to build fewer homes in the current fiscal year, having built 10,945 homes in the year to 31 July, just shy of guidance for 11,000. Bellway said affordability is constrained by higher mortgage interest rates with trading conditions likely to remain challenging in the near term. Despite this, the housebuilder plans to maintain its total dividend of 140p per share.

Housebuilders have found themselves at the centre of the macroeconomic storm with high inflation and rising interest rates creating a cocktail of pressures. The sector been struggling with build cost inflation and a softening housing market as well as rising borrowing costs which have dented demand from potential buyers too. Yesterday, Bellway announced plans to cut jobs to combat the market downturn.

Shares in Bellway are trading are under pressure, but the stock is still up by 11% so far this year. As it draws closer, the end of the rate hiking cycle and cooling inflation could provide some support for the sector.

COCA-COLA HBC

Coca-Cola HBC reported first-half operating profit of 560.7 million euros (£482 million), up 21.2% year-on-year and ahead of expectations for 521.5 million euros. Organic net sales revenue per case grew by 19%, also topping forecasts for growth of 17.4%. It raised its full-year revenue outlook having already upped its profit guidance last month.

Resilient demand coupled with price hikes have helped the bottler to navigate macroeconomic headwinds and the cost-of-living crisis. Inflationary pressures are also easing helping to moderate Coca-Cola HBC’s costs. Credit Suisse raised its price target on the stock this morning following the update.

Shares in Coca-Cola HBC are trading sharply higher today, lifting the stock’s year-to-date gain to nearly 20%, outperforming the wider FTSE 100.

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