Our head of investment rounds up the morning's big news.
The FTSE 100 has opened lower amid a broader sell-off across global markets driven by concerns about the looming US debt ceiling deadline after Wall Street closed in the red.
Almost every stock on the UK large-cap index is under pressure this morning, although shares in Marks & Spencer Group (LSE:MKS) is outperforming in the UK after annual profit topped expectations and the retailer announced plans to restore its dividend.
UK April CPI inflation hit 8.7%, down from 10.1% in the prior month but ahead of expectations for 8.2%. It reached the lowest level since March last year, falling below 10% for the first time since August. Core CPI, which strips out the more volatile components, rose by 6.8% year-on-year, the highest since 1992.
Monthly gas prices fell for the first time since October 2020, with both gas and electricity contributing to the headline rate’s decline. However, there are ongoing price pressures preventing an even steeper decline in inflation from the increased second-hand cars costs, cigarettes, food, transport, recreation and culture. Food and non-alcoholic beverage inflation eased from 19.2% to 19.1% but remains at the highest level since August 1977. Chancellor Jeremy Hunt said food prices are still rising too fast.
Today’s inflation rate paves the way for further monetary tightening from the Bank of England, with CPI still sharply above the central bank’s 2% target. UK gilt yields jumped across a range of maturities after the hotter-than-anticipated reading. The data also provided a boost to sterling which is trading higher against the euro and the US dollar after falling to a one-month low this week. Housebuilders are under pressure, pricing in the prospect of further increases to mortgage costs.
Kingfisher (LSE:KGF) reported first-quarter sales of £3.3 billion, up 0.8% but down 2% on a constant currency basis. The home improvement retailer reiterated its full-year guidance and said its on track with plans to reduce inventory levels this year.
The owner of B&Q has suffered from cold and rainy weather conditions in the UK and France, negatively impacting sales of items like garden furniture and barbeques, which are typically purchased in the preparation months ahead of summer. However, CEO Thierry Garnier said it anticipates ‘a release of pent-up demand’ as weather conditions pick up.
Kingfisher successfully rode the stay-at-home wave during the pandemic, enjoying a surge in demand for DIY products as consumers felt particularly house proud when they were stuck at home during lockdowns. However, the post-Covid economic reopening has seen consumers substitute away from spending on home improvements towards travel, restaurants and other activities that were largely off limits in 2020 and 2021. On top of that, the macroeconomic pressures from rising costs, squeezed household budgets, and falling real wages have added to the consumer strain, resulting in less spending in Kingfisher’s stores like Screwfix and Castorama in the UK and France respectively.
Although Kingfisher shares enjoyed a recovery off the October lows last year, shares have been under pressure since the February peak, reversing a significant percentage of its prior rally.
Netflix Inc (NASDAQ:NFLX) is clamping down on password sharing in over 100 countries. The streaming company said it will be sending out emails to members who are sharing accounts with someone outside their household, giving users the option to purchase a bolt-on membership. Its crackdown was delayed earlier this year, pushed back from the first quarter. Therefore the benefit to Netflix will now fall in the third quarter instead of the second.
Netflix has been looking for innovative ways to boost sales and subscriber numbers during this challenging macroeconomic period. It recently introduced a new cheaper ad-supported version to appeal to the more cash strapped consumer. And now it is looking to generate additional revenue but tightening up on the password sharing, a loophole that has allowed many to access Netflix’s content for free via a friend or family member’s subscription. Netflix estimates there are over 100 million households sharing accounts or 43% of its global users, representing a major growth opportunity.
With the onslaught of new players entering the arena, streaming has become a notoriously pressurised sector with extremely high production costs for quality content and stiff competition for eyeballs from Disney+, Amazon Prime, Apple TV and more.
However, shares in Netflix have benefitted from this year’s rebound in technology after the 2022 ‘tech wreck’ with the stock up over 20% so far in 2023.
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