Must read: UK economy, LVMH, Imperial Brands

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS 

European markets have opened higher, with the FTSE 100 holding just above the flatline after logging its fourth consecutive day of gains on Wednesday. Investors are weighing up an improving picture for US inflation, with the latest data down at a two-year low of 5% versus fears of a recession stateside. That's after minutes from the Federal Reserve’s latest meeting indicated that US central bank policymakers are concerned about the negative economic fallout from the recent turmoil in the banking sector. 

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US weekly jobless claims and producer price inflation data are in focus today as well as Wall Street earnings which kick off tomorrow with some of the biggest US banks due to report.

UK GDP 

UK GDP came in flat in February, according to the ONS, falling short of expectations for modest growth of 0.1%. Weakness in services and production offset strength in construction, which grew by 2.4% thanks to strong demand for repair work. The retail sector also enjoyed a strong month except for motor vehicles and motorcycles. However, the public sector was negatively impacted by civil servant and teacher strikes. Unseasonably mild weather in February also reduced demand for electricity and gas. 

Chancellor Jeremy Hunt painted a rosy picture by saying “we are set to avoid recession thanks to the steps we have taken.” However, shadow Chancellor Rachel Reeves said “Britain is still lagging behind on the global stage”. Earlier this week, the IMF said it expects the UK to shrink by 0.3% this year, the worst growth rate across the G20 including sanction-hit Russia.”

Although the UK looks set to avoid a technical recession and last year’s extremely pessimistic forecasts have been wound back, the economy is still expected to shrink this year as pressures from persistent inflation with the cost-of-living crisis, falling real wages and a high exposure to gas prices take their toll. Plus the recent turmoil in the banking sector is likely to add to the UK’s economic woes. 

Despite this, the FTSE 100 has been extremely resilient rallying over 3.5% year-to-date partly thanks to its leaning towards defensive stocks like healthcare and utilities. The FTSE 250 which is more closely correlated with the UK economy however is down so far in 2023 and has shed over 9% year-on-year.” 

LVMH 

Shares in LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) hit an all-time high after first quarter sales grew by 17%, sharply outpacing analysts’ expectations. The luxury conglomerate has benefited from the release of pent-up demand from China after Beijing unwound its anti-covid lockdown measures, helping to drive sales in Asia up 14%. Demand for luxury goods tends to be price inelastic meaning that LVMH’s brands can raise prices to offset rising costs without significantly denting demand, something that is hugely important during the current period of heightened inflation. China is expected to be the key growth driver for the luxury sector this year. 

Shares in LVMH have rallied 26% so far in 2023, with the stock trading higher by over 4.5% today, lifting other luxury stocks like Burberry Group (LSE:BRBY) and Kering SA (EURONEXT:KER) with it. There has also been a flurry of positive broker activity helping to boost shares, with JP Morgan, Credit Suisse, Morgan Stanley and Deutsche Bank raising their price targets on the stock.

IMPERIAL BRANDS 

Imperial Brands (LSE:IMB) said it is on track to meet full-year guidance. However, its exit from Russia will result in lower first-half group net revenue on a constant currency basis. Imperial Brands has also been hit by increased investments and lower volumes as the pandemic era boom in demand fades amid the consumer slowdown.  

Typically, cigarette companies perform outperform during tough economic conditions given the resilience of demand for cigarettes. However, shares have sharply underperformed the wider market this year, shedding over 11% year-to-date, reversing some of its impressive annual performance in 2022 boosted by the pound’s weakness and the return to international travel which provided a tailwind to duty free sales. Last October, shares rallied after Imperial Brands announced a £1 billion share buyback programme. But the outlook for the rest of 2023 looks challenging.