Must read: UK house prices, AstraZeneca, Morrisons, Coca-Cola 

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

GLOBAL MARKETS 

Following a weaker session overnight in Asia, European markets have followed suit, opening in the red as last week’s bullishness appears to be fading at least for now. Rolls-Royce Holdings (LSE:RR.) has opened at the top of the FTSE 100 after it announced plans to begin testing a new small gas turbine specifically developed to power hybrid-electric flight.

Concerns about weaker demand from China is weighing on oil prices this morning, while gold has dropped to a three-month low following the Fed’s hawkish pause last week. US Secretary of State Antony Blinken is in Beijing for talks with China’s top diplomat Wang Yi.

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 Today is shaping up to be a quieter than normal session for global stocks with US markets closed today for the Juneteenth federal holiday.

UK RIGHTMOVE HOUSE PRICES 

Rightmove’s UK asking prices dropped for the first time since 2017 but only by around £82. Versus last year, average house prices in June rose by 1.1% to £372,812. There are significant regional differences; the North-East saw average property prices increase by 4.9% to £188,414 whereas London prices fell by 1.6% to £685,241. 

The housing market tends to get a seasonal boost around this time of year, and UK consumer confidence has been recovery from the lows. However, the market is still grappling with rising interest rates, falling real wages, sluggish economic growth, and volatility in the mortgage market. This week the Bank of England is expected to raise interest rates again by 25 basis points, while the latest UK inflation figures published this week are forecast to ease, although CPI remains sharply above target. 

In anticipation of further monetary tightening, UK housebuilders like Persimmon (LSE:PSN) and Taylor Wimpey (LSE:TW.) have been struggling lately. Plus, the building materials retailer Travis Perkins (LSE:TPK) issued a profit warning this month amid the backdrop of elevated build cost inflation.

ASTRAZENECA 

AstraZeneca (LSE:AZN) is reportedly looking at a plan to list its China business separately in Hong Kong. According to the Financial Times, this is in response to ‘growing friction between China and the US’ and would involve China’s operations becoming a separate legal entity, still controlled by AstraZeneca. 

A spin-off could potentially allow AstraZeneca to circumvent any potential regulatory clampdown on global pharma companies from Beijing, and could also expedite its drug approvals pipeline in China where the FTSE 100 pharma giant generated 13% of its total sales last year. Astra has also signed three licensing deals with Chinese companies in recent months, highlighting the significance of the world’s second largest economy to the business. Astra’s CEO Pascal Soriot recently returned from a visit to China saying the country was ‘completely open’ to pharma investment, paving the way for Astra to continue with its focus on China, shrugging off geopolitical concerns. 

Shares in AstraZeneca, China’s largest overseas pharma company, are up just 1% so far this year, struggling since the end of April when Chinese stocks started to give back gains from the start of the year amid concerns about its bumpy recovery out of Covid.

MORRISONS 

Morrisons is cutting prices by an average of 25% on 47 products including spinach, ham, and pitta bread. The UK supermarket said this investment would cost £26 million with plans to keep prices low for at least eight weeks. It follows similar moves from supermarkets like Sainsbury (J) (LSE:SBRY), Asda and Waitrose which have also been reducing their prices. 

Morrisons has been struggling to retain customers in the UK, with just 8.7% of the total grocery market share, having been overtaken by the German discounter Aldi last year, which now has 10.1% according to Kantar. To lure shoppers back, not only has Morrisons been cutting its prices but also it has brought back its ‘More Reasons to Shop’ marketing slogan with a rework of the original jingle. 

Supermarkets have been dealing with pressures from food, energy, and wage inflation as well as softening demand amid the cost-of-living crisis and squeezed household budgets. Last week, Tesco (LSE:TSCO) said food inflation had probably peaked. However, according to the ONS, annual food price inflation is currently at 19%, sharply above the headline rate of inflation at 8.7%.

COCA-COLA HBC 

Coca-Cola HBC AG (LSE:CCH) shares are trading lower after it announced plans to acquire Brown-Forman Finland Oy, the owner of the vodka brand, Finlandia for $220 million from Brown-Forman Netherlands. The deal is expected to complete in the second half of 2023. This acquisition will allow Coca-Cola HBC to expand its presence within the alcoholic drinks market and help the bottler to diversify away from soft drinks.

Shares in Coca-Cola HBC have gained around 18% so far this year, outperforming the wider UK market. It has enjoyed a series of price target upgrades from the analyst community lately including from Morgan Stanley and Deutsche Bank. In May the bottler said it was expecting full-year profit to reach the top end of its guidance thanks to price increases and strong demand for soft drinks. This has helped Coca-Cola HBC to offset the pressures from energy and commodity price inflation. 

It has been faring better than rival Fevertree Drinks (LSE:FEVR) which has struggled a jump in glass bottling costs and glass shortages in the UK. Over the past year, Coca-Cola HBC is up around 26% versus Fever-Tree which is down around 10%.