Interactive Investor

Must read: UK jobs, Fevertree Drinks, Wilko, Apple

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

12th September 2023 09:26

by Victoria Scholar from interactive investor

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GLOBAL MARKETS

European markets have opened mixed, with the FTSE 100 outperforming while the DAX in Germany is lagging. Shares in packaging company Smurfit Kappa Group (LSE:SKG)a are trading at the bottom of the UK blue-chip index and are on track for their biggest one-day drop since October 2008. This follows its merger deal with WestRock to create a 20-billion-euro global packaging behemoth. 

Germany’s wholesale prices fell for a fifth consecutive month driven by a drop in petroleum products. Oil prices are staging gains with Brent crude trading above $90/bbl ahead of OPEC’s monthly report release today.

Arm’s hotly anticipated IPO is reportedly oversubscribed, meaning that its order book could close today, earlier than planned. It is expected to fetch a valuation of around $54.5 billion after filing its IPO at $47 to $51 a share. 

UK UNEMPLOYMENT 

The UK unemployment rate rose to 4.3% in the May-July quarter, the highest level since Q3 2021. The number of job vacancies in June to August fell to 989,000, down by 64,000 on the previous three months. 

Regular pay excluding bonuses increased to 7.8% in the three months to July, the highest since records began in 2001. With inflation coming down, this means that real pay growth is finally back in positive territory. 

Today’s labour market data is a mixed bag. On the one hand, the unemployment rate ticked up while employment and job vacancies dropped, highlighting how the strained macroeconomic backdrop, with elevated inflation and rising interest rates, is taking its toll on the jobs market. Businesses continue to express caution when it comes to their hiring plans, pushing job vacancies below a million for the first time since the pandemic. Industrial action in health and education resulted in a jump in lost working days in July. Plus, there was an increase in the number of people leaving the labour market as students pursue higher education instead and with an increased number of people suffering with long-term sickness.

On the other hand, regular pay growth of 7.8% is outstripping inflation, providing a boost to workers’ real-terms earnings which helps to make goods and services more affordable and provides a boost to living standards for many.

While increased slack in the labour market through a higher unemployment rate supports the Bank of England in its attempt to bring down inflation, ongoing wage pressures raise the risk of second round inflationary effects if businesses pass on these additional cost pressures to consumers in terms of higher prices. The central bank remains widely expected to carry out another rate hike next week with inflation cooling but still stuck more than three times higher than the 2% target.

FEVERTREE DRINKS

Fevertree Drinks (LSE:FEVR) cut its annual profit forecast – it now expects core profit to reach £30-£36 million in 2023, down from its prior guidance for £36-£42 million. Meanwhile, it reported a 54% slump in first half adjusted core profit which hit £10.2 million, versus £22 million a year ago. 

Fevertree already had a tough time last year as the war in Ukraine sent costs sharply higher, resulting in profit warnings and a sharp slide in its share price. This year, the stock has been attempting to regain ground, although today’s profit downgrade is weighing on the stock again. Inflated glass manufacturing costs coupled with a weak supply of glass bottles have prompted Fevertree to up its prices in an attempt to preserve margins. While this helped to support revenues, cost pressures have prevented this from filtering down into a stronger bottom-line performance.

WILKO 

The GMB union said 400 Wilko branches will shut by early next month, with the potential for 12,500 job losses at the retail chain. It comes after discussions with HMV’s owner Doug Putman fell through because of the high costs of running the business as well as issues with Wilko’s supply chain. 

Wilko is the latest victim of the demise of the high street. Pressures from inflation, a softening consumer, stiff competition from rivals like B&M and Poundland as well as the rise of e-commerce have created a perfect storm for the retailer. Sadly, it has become commonplace to see boarded up shops and short tenants on high streets up and down the country. 

The current pressures on retail have unforgivingly separated the winners from the losers. Some brands have managed to successfully navigate the uncertainty such as Marks & Spencer Group (LSE:MKS) and Next (LSE:NXT) which have both recently raised their earnings outlook. Others like Wilko have suffered a much more painful outcome.

APPLE 

Apple Inc (NASDAQ:AAPL)’s hotly anticipated product launch event today is expected to reveal new iPhone 15 models and Apple Watch products. New smartphones are likely to have slight improvements in terms of their chip and camera functionalities. A new USB-C charging port is also expected to be part of its fresh line up in order to comply with European regulations. 

However, the launch has been overshadowed by recent developments in China following reports that Beijing is clamping down on the use of iPhones among government officials there, as the US-Sino tensions intensify with technology becoming a key battleground. Shares in Apple were under pressure last week, weighing on its suppliers like Qualcomm too. But shares in Qualcomm rebounded on Monday following the announcement of a deal with Apple to supply 5G chips through to 2026. 

Despite the recent uncertainty, Apple remains a standout stock market winner this year, rebounding from last year’s ‘tech wreck’ which heavily punished the sector. While Apple’s services revenue has been improving, iPhone demand has suffered amid a softening consumer and a lengthening product upgrade cycle. Plus there are wider concerns about whether the first half rally could wane during the final months of the year as a cocktail of headwinds spark nervousness towards growth stocks and risk-on assets more broadly across markets.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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