Must read: Persimmon, US midterms, UK retail sales, Coca-Cola HBC

There are some big movers in both directions today, with companies coping differently with current economic conditions. Out head of investment rounds up all the action. 

GLOBAL MARKETS 

European markets have opened lower with basic resources and real estate underperforming in terms of sectors. 

The FTSE 100 is lagging the broader European equity market complex after a cautious update from Persimmon (LSE:PSN) pushed a number of key UK housebuilders to the bottom of the index. Direct Line Insurance Group (LSE:DLG)’s trading update has also sent its shares alongside other insurance names like Admiral Group (LSE:ADM) lower. Meanwhile, Associated British Foods (LSE:ABF) and Coca-Cola HBC AG (LSE:CCH) are trading at the top of the FTSE 100 thanks to positive updates from both companies. 

Millions of Americans will vote in the midterm elections today, with expectations that the Republicans could win back the House, making it more difficult for President Biden to pass legislation. The dollar is strengthening across most major currencies including the pound and the euro. If the Republicans make strides in the election, that could make it harder to Biden to carry out fiscal stimulus measures, requiring less aggressive interest rate hikes from the Federal Reserve, in turn potentially dampening demand for the greenback.

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US futures are trading flat after the major averages rallied on Monday, with Meta Platforms Inc Class A (NASDAQ:META) outperforming following a Wall Street Journal report that Facebook’s parent company was planning to cut costs through mass layoffs as soon as this week. 

The Shanghai Composite and the Hang Seng in China are under pressure, while the Chinese yuan is also weakening against the dollar after an unexpected jump in Covid-19 cases in Guangzhou and other major cities. This is dampening hopes that Beijing could be planning to wind down its strict zero-tolerance to Covid approach, with the flare up potentially leading to further restrictions and lockdowns instead.”

BRC-KPMG RETAIL SALES MONITOR 

UK retail sales growth slowed in October to 1.2% year-on-year versus 1.8% in September. Inflation, which has been pushing up prices across retail, has flattered this figure, hiding the decline in sales volumes under the surface across almost every category both online and in store. 

With mortgage costs rising in the aftermath of the mini-budget and the Bank of England’s rate decisions, the cost-of-living crisis is deepening, squeezing household budgets and leaving little left over for many households to spend in the shops on non-essential items.

Consumers may also be holding off spending for now to save up for Christmas, potentially preparing to take advantage of the Black Friday and Cyber Monday discounts around the corner. No doubt there will be aggressive discounts on offer during the festive run up as businesses desperately battle it out for the diminishing pot of total consumer spending.

COCA-COLA HBC 

Coca-Cola HBC has raised its 2022 profit guidance from 740–820 million euros to 860–900 million euros. The bottler reported organic third-quarter revenue up nearly 20% and expects full-year group sales to reach double digits, lifting shares towards the top of the FTSE 100. 

This positive upbeat from the soft-drinks bottler suggests that Coca-Cola HBC is relatively well positioned to navigate headwinds from the cost-of-living crisis and rising cost inflation. Its offering continues to attract strong demand even in the face of rising costs, suggesting that HBC can uphold margins by passing on its additional cost burden through higher prices.

The onset of war in Ukraine in February sent shares sharply lower by almost 50% from the peak in January until the trough in March. Since then, shares have been attempting to regain ground, rallying by around a third off the first quarter lows and they are enjoying a solid boost in today’s session too.

PERSIMMON 

Persimmon has warned it expects fewer completions next year versus this year, sending shares to the bottom of the FTSE 100. The housebuilder said rising interest rates and economic uncertainty are impacting mortgage lending and customer behaviour. However, Persimmon says it is on track to deliver its previously guided range for full-year completions of between 14,500 and 15,000 homes. Its average net private weekly sales rate per outlet hit 0.6 between July and November falling from 0.78 year-on-year and dropping further to 0.48 in the last six weeks in a worrying indication of the company’s outlook.  

Shares in Persimmon have been trading in a downtrend all year, with losses accelerating in September in the aftermath of the mini-budget which sent mortgage rates soaring while a number of mortgage products were temporarily removed from the market altogether.

With borrowing costs spiking and the expectation that the housing market will fall into next year, potential buyers are deferring their decisions, holding off until property prices ease and mortgage rates also soften, adding to downward pressures on the housing market. We are also heading towards the seasonally slower period around Christmas when many buyers and sellers typically wait until the holidays are over in the new year to return to the market. 

Persimmon has been grappling with the pressures from cost inflation but insists it retains an ‘industry-leading margin’ thanks to its disciplined investment and cost management approach. Building safety continues to be an overhang with Persimmon increasing its provisions to £350 million for cladding removal and fire-safety work. 

Persimmon has shed more than 55% of its stock market valuation year-to-date, underperforming the FTSE 100 and its rivals like Barratt Developments and Taylor Wimpey. It is languishing at the bottom of the UK index today dragging other housebuilder stocks down with it.