Must read: UK house prices, Reckitt Benckiser, M&S, Aston Martin

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

GLOBAL MARKETS 

After Ocado Group (LSE:OCDO) dragged the FTSE 100 lower on Tuesday, European markets have opened higher, with PMI figures in focus. Housebuilders are trading at the bottom of the FTSE 100 following a disappointing full-year update from Persimmon (LSE:PSN), dragging other stocks in the sector lower.

China sensitive stocks are outperforming thanks to strong PMI data overnight. Aside from PMIs in the UK, mortgage lending and consumer credit figures from the Bank of England are due at 9:30am. 

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China’s Caixin manufacturing PMI rose to 51.6 in February versus 49.2 in January, surpassing the 50 boom-bust divide and sharply outpacing analysts’ expectations. The official NBS manufacturing PMI rose to 52.6, the highest level since March 2012, also topping forecasts for 50.2. Beijing reversal of its strict Covid-era lockdown measures has released a wave of pent-up demand from the world’s second largest economy.

The data overnight has lifted the London-listed miners like Anglo American (LSE:AAL), Rio Tinto Registered Shares (LSE:RIO)o, Antofagasta (LSE:ANTO), and Glencore (LSE:GLEN) as well as China-sensitive Burberry Group (LSE:BRBY) towards the top of the FTSE 100. 

The better-than-expected data from China has also lifted oil prices, with Brent crude and WTI staging gains. They are reversing some of February’s declines, pricing in the prospect of stronger demand amid China’s economic rebound. 

After a strong January, February was much tougher for markets, with the Dow Jones stateside shedding more than 4% across the month. Despite broader weakness, driven by concerns about persistent inflation and further rate hikes, the FTSE 100 logged its strongest February since 2019, rallying 1.3% partly thanks to a weaker sterling after the US dollar saw its first monthly gain since September. Cable (GBPUSD) is down 2.5% over a one-month period.

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UK NATIONWIDE HOUSE PRICE INDEX 

UK Nationwide house prices fell by 0.5% in February, slightly worse than analysts’ expectations for a drop of 0.4%. Year-on-year house prices dropped by 1.1%, swinging into negative territory versus an increase of 1.1% in January and below forecasts for a decline of 0.9%. 

British house prices fell year-on-year for the first time since June 2020, with the biggest annual drop since November 2012. The housing market is struggling under the weight of lacklustre economic growth, a softening consumer, falling real wages, and rising mortgage rates as the Bank of England continues to raise interest rates. Potential homeowners appear to be holding off in anticipation that mortgage rates and house prices will cool later this year. Stemming an even steeper slide is the chronic shortage of housing supply in the UK. 

According to Zoopla, UK home sellers have been forced to cut £14,000 on average from asking prices, with 40% of sellers having to lower their prices online in order to attract buyers. However, looking longer term, data from Halifax indicates that over three years from January 2020 to December 2022, house prices have risen by just over 20%, with particular strength for larger properties outside of busy urban areas amid the post-pandemic hunt for more space. Meanwhile, urban areas have struggled with flats in London climbing the least.

RECKITT BENCKISER 

Reckitt Benckiser Group (LSE:RKT) reported a 7.6% increase in full-year like-for-like net revenue to £13.66 billion, ahead of expectations for a gain of 7.5% and in line with its own growth target of 6%-8%. The maker of Nurofen and Durex reported full-year adjusted earnings up 16.8% to £3.44 billion. Price hikes have offset volume declines helping the consumer brands giant deliver growth on the top and bottom lines. 

However, the risk is that amid the lacklustre backdrop of slowing global growth, the softening consumer may trade down to unbranded, cheaper alternatives instead. The company already noted that sales of Biofreeze missed expectations partly due to macroeconomic conditions. Nonetheless, Reckitt is still returning cash to shareholders through a 5% dividend increase to 183.3p versus 174.6p in 2021. 

Cautious investors have been eyeing the consumer staples sector recently as a potentially resilient sector to help navigate the macro headwinds of continued inflation and slowing growth. But the stock has underperformed so far this year, trading flat versus a rally for the FTSE 100 and of almost 5% and a rally for the FTSE 250 of around 4%.

MARKS & SPENCER 

Marks & Spencer Group (LSE:MKS) is investing £60 million into raising pay for the third time in just over two years. Pay is going up for 40,000 store workers to an average wage of £10.90 per hour from £10.20. The 7% increase will kick in on 1 April, adding to its previous raise last September, taking the total wage uplift to 20% since the start of 2021. The government National Living Wage will rise to £10.42 in April. 

Workers across the UK have been struggling with the rising cost of living as inflation eats away at take-home pay as energy bills, groceries, mortgages and other essential outgoings become increasingly expensive. This has sparked widespread industrial action, with hundreds of thousands of workers staging walkouts in the UK over pay. While inflation appears to be moving beyond its peak, price levels are still stuck in double-digits, prompting the Bank of England to continue with its rate hiking agenda. Analysts appear to be divided over whether wage increases could exacerbate inflation by triggering a wage-price spiral. 

Shares in M&S have had an extremely strong start to the year, rallying by more than 25%, thanks to strong risk appetite among investors in January and as shoppers continue to enjoy the return to physical stores post-Covid rather than spending via e-commerce. This was also exemplified by Ocado’s results yesterday in which losses mushroomed and the stock shed 10% as the pandemic-era online shopping boom fades.

M&S continues to focus on its turnaround plan, cutting back on full-line stores and aiming to reinvigorate clothing and home earnings. Recent months have seen opportunistic investors jump on the chance to pick up M&S shares at depressed valuations.

ASTON MARTIN 

Aston Martin Lagonda Global Holdings Ordinary Shares (LSE:AML) reported a full-year loss of £118 million, growing from a loss of £74.3 million year-on-year but ahead of consensus expectations for £135 million. Although capital expenditure is expected to increase year-on-year, the luxury carmaker said it will deliver significant growth in profitability this year and positive free cash flow in the second half. Aston Martin also said it is on track to meet its target for around £2 billion revenue and £500 million of adjusted EBITDA by 2024/25. 

Aston Martin has been struggling with cost inflation, delivery delays and supply chain bottlenecks post pandemic. However, losses were more moderate than analysts were anticipating, and it has issued a rosy outlook for this year and next. It is focusing on quality over quantity, with volumes expected to fall. Instead, it is aiming to deliver high quality specials such as the sold-out Valkyrie Spider and ultra-luxury DBR22 in the second half of 2023.  

Although Aston Martin had a tough 2022, the stock has enjoyed a strong start to this year, rallying by more than 40% since the beginning of January including a double-digit percentage surge today. Aston Martin Lagonda is in fact the best performing stock on the FTSE 250 over a three-month period. Analysts appear to be increasingly optimistic towards the stock with a series of price target upgrades from JPMorgan, Barclays, and Citigroup this year.