Our head of investment rounds up the morning's big news.
European markets have opened mixed, with the FTSE 100 under pressure in the final session of the week. After surging yesterday, Standard Chartered (LSE:STAN) is trading sharply lower, on track for its biggest daily drop in around a year after First Abu Dhabi Bank said it is in fact not evaluating an offer for the London-listed lender. Elsewhere in Europe, HelloFresh (XETRA:HFG) is trading lower after JPMorgan downgraded the stock to underweight.
In Asia, China’s inflation rate jumped to a three-month high of 2.1% in January versus 1.8% in December but shy of analysts’ expectations for 2.2%. The easing of its Covid restrictions and Lunar New Year celebrations boosted demand and provided a tailwind to prices of both food and non-food items. The Hang Seng fell by more than 2%, while the Shanghai Composite also declined as inflation concerns rattled markets.
The Bank of Japan is reportedly set to appoint former central bank policy board member, Kazuo Ueda as the central bank’s next governor, replacing Haruhiko Kuroda when his second term ends in April. The potential appointment comes as a surprise and has pushed the Japanese yen higher by more than 1% against the US dollar and the Nikkei also higher, bucking broader weakness in Asia.
UK Q4 GDP’s preliminary reading hit 0% quarter-on-quarter versus -0.2% in Q3. Year-on-year the UK economy grew by 0.4% versus the previous reading of 1.9%. Quarterly GDP is now 0.8% below its pre-pandemic level from Q4 2019. December’s monthly figure came in below zero at -0.5% swinging from modest growth of 0.1% in November. The final quarter’s flat reading means the UK has managed to avoid the technical definition of a recession, two consecutive quarters of negative growth. In 2022, the UK economy grew by 4%, nearly halving versus growth of 7.6% in 2021.
The services sector slowed, with falls in education, transport, and storage sub-sectors. Growth in construction was offset by a drop in the production sector. There was also a fall in international trade flows in the fourth quarter.
Despite the typical seasonal boost to spending around the Christmas period, December suffered a sharp economic contraction which meant that the UK economy logged zero growth during the final quarter of 2022. December’s growth was negatively impacted by industrial action across the UK with postal strikes, a hit to public services and lower school attendance. On top of that the Premier League football’s pause for the FIFA World Cup also had a negative impact on UK GDP. Lingering double-digit inflation also remains a major headwind for consumer confidence, spending and business margins.
The Bank of England recently rolled back its highly pessimistic forecasts from last year for the UK economy to face the longest recession since records began. Instead, in the final quarter of 2022, its projection was for growth of 0.1%, which the official data just fell short of.
Although the UK managed to technically stave off a recession, the growth picture remains bleak, weighed down by industrial action and sky-high inflation which is driving the cost-of-living crisis for consumers and a cost of doing business crisis too. The UK central bank is in the unenviable position of trying to raise interest rates to the extent that price pressures cool without inadvertently tipping the economy into a recession.
The pound has largely been regaining ground against the US dollar since the September trough, but year-to-date cable (GBPUSD) has been trading flat.
Sean Glithero will replace Katy Mecklenburg as interim chief financial officer of ASOS (LSE:ASC) when she departs in May. Glithero has a 28-year career in finance including 10 years as a CFO across businesses including Auto Trader (LSE:AUTO) and most recently, MatchesFashion. ASOS is continuing its focus on delivering its ‘Driving Change’ initiatives, which involved shifting its focus to profitability by implementing measures such as reducing year-end inventory levels by 5%, as well as reducing costs by cutting office space and improving marketing efficiency.
ASOS was a darling of the stock market during the pandemic when shops were shut, and e-commerce boomed. However, since the post-Covid economic reopening, the online fashion business has struggled, with sales slumping over the four-month Christmas period, weighed down by tough competition, delivery issues in the UK and a softening consumer with the cost-of-living crisis. ASOS has been lagging rivals like Next (LSE:NXT)and JD Sports Fashion (LSE:JD.) and is looking to make significant cost savings in order to play catch up.
Shares in ASOS are under pressure today, with the stock down nearly 60% over the past year.
adidas (XETRA:ADS) said it is expecting a high single-digit drop in sales this year, sharply below analysts’ expectations for sales growth of 4% in 2023. It said discontinuing the sales of its existing Yeezy stock could result in a 1.2 billion euro hit this year and a reduction in operating profit of around 500 million euros. This is the sportswear giant’s fourth profit warning since July.
In October, Adidas ended its Yeezy tie-up with controversial rapper Kanye West following his anti-Semitic comments. On top of this, Adidas has been facing headwinds from China’s lengthy lockdowns and its exit from Russia in the wake of the war in Ukraine. Beyonce’s tie up with Adidas to sell her Ivy Park clothing brand has also disappointed in terms of sales.
Shares in Adidas have sharply underperformed its rival Nike (NYSE:NKE) over a one-year period with the stock trading sharply lower today.
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