- European equities start week on a positive note as EU expected to skirt recession
- FTSE skyrockets again and US trading steady ahead of key inflation data
- TUI boosts passenger numbers by one million
- Lilt brand scrapped after almost five decades
EU Expected To Avoid Recession
Strict fiscal rules are expected to come back into force for the EU, as better than expected growth rates means they are largely tipped to narrowly avoid recession this year. There have been pauses in limits set for spending and budget deficits since the pandemic, and these are now due to be reinstated.
One of the biggest developments is that gas shortage fears have faded, which together with record low unemployment means economic contraction is less likely. The other positive needle in the haystack of geopolitical turmoil, is that peak inflation is now behind the EU, according to the EU’s economic commissioner.
In response to this brighter outlook, European equities are being taken higher. This has also been buoyed by aerospace and defence stocks, which have been given a boost following comments by the Indian Prime Minister, who said India wants to raise its annual defence exports to $5bn by 2024-25 from $1.5bn.
It’s highly likely this sort of thinking is going to be echoed around the world, thanks to the heightened threat environment triggered by the war in Ukraine. An awareness of the essential nature of the defence industry as well as governments being encouraged to upgrade their fleets, are both good news for Europe’s defence stalwarts.
The FTSE 100 has also started the week on a very positive note, closing Monday at a new record peak of 7,948 points. There is a great deal of attention going on US and UK inflation data this week, with hopes that the Federal Reserve is going to stick to the hymn sheet when it comes to the expected 25 basis point increase in interest rates expected in March.
The market’s optimism brings it within a whisker of the 8,000 mark, which is widely unprecedented. It’s important not to get carried away with intra-day, or even intra-week moves though.
As we all know, the UK’s market mood can change on a dime, and although the economy’s holding up well for now, there are still question marks hanging over corporate margins and consumer spending power, which the forward-looking FTSE may not have correctly priced in.
TUI's Customers Are Roaring Back
Holiday makers are back in force, with holiday maker, TUI AG (LON:TUI) seeing 3.3m customers depart in the first quarter, a one-million-person improvement on the same time last year. Crucially, momentum doesn’t seem to be slowing down, with winter bookings at 87% of 2018/2019 levels – including double digit increases in average prices.
Not only does this allow TUI to recoup some of its own costs, it also highlights the importance of foreign travel to today’s customers. Volumes being this elevated, despite the chunkier price tags speaks well for TUI’s offer and brand. It’s more difficult to map exactly how the important summer season will play out, with only around 30% of the overall programme sold.
Customers tend to book at shorter notice for their sunny getaways which makes predictions more difficult. Consumer spending power could start to temper by the middle of the year which could dent some of TUI’s impressive momentum.
In the short-term, the group is seeing a slight slowdown in Turkey bookings because of the tragic earthquake. While the disaster is away from tourist hotspots, the concerns are still of note for the group.
It’s a sad day for Lilt lovers, with the brand being retired in and brought back under the Fanta range. On the corporate side, this shouldn’t change too much for owner Coca-Cola Co (NYSE:KO), but the level of response from fans of the brand highlights just how much of a cult following Coke’s brands have.
The cycle of modernising brands is crucial for any consumer giant, and with the tropical favourite basking on our shelves since 1975, Coca Cola has rightly deemed now is the right time for a change.
Article by Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown