- FTSE 100 opens lower as uncertainty reigns about how high interest rates will go
- US consumers show signs of bargain hunting amid cost-of-living crisis
- Furniture retailer Made.com considers equity raise as it struggles to attract new customers
- AO World reports huge annual loss, but shares rise on hopes of better times to come
The Worsening Cost-Of-Living Crisis
“The United Kingdom is on go-slow with strikes crippling the rail network over the next three days, adding yet another layer of frustration to what has been a summer of stress amid the worsening cost-of-living crisis.
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Inertia has struck the financial markets, with the FTSE 100 opening marginally lower as uncertainty reigns about just how high interest rates may have to rise before inflation shows significant signs of being brought under control. Closely watched minutes of the last Federal Reserve meeting show US central bank policymakers are set to stay firmly on the path of rate rises, but could slow the pace of hikes if there were clear signs the spiral was unwinding.
Right now the bowl of consumer prices is still far too hot, but the Fed is indicating that they will stay highly sensitive to data, to ensure that they go too far in their attempts to cool it down. This is set to be a long drawn-out process though, and hopes that rates could start to come down early next year have been dashed, pushing Wall Street lower, after an initial rally when the minutes were released.
Weaker than expected results from the US retailer Target Corporation (NYSE:TGT), have also underlined the cautiousness of consumers, amid worries of tougher times ahead. Shoppers are ring-fencing budgets for essentials and bargains, with vast stocks of electronics and clothing being heavily discounted.
Bigger ticket items like furniture are much harder to shift as many consumers who are facing squeezed budgets are tightening the purse strings. A plush new sofa may be nice to have but its far from essential expenditure, when grocery bills are rising so fast. Retailer Made.com is now considering an equity raise to strengthen its balance sheet amid volatile trading conditions. It had already highlighted that it was hard to attract new customers while hanging onto decent margins, and expected gross sales to fall from between 15% and 30% this year. With the extent of its slide in fortunes becoming clear, it’s share price fell by around 10% in early trade, and it’s down 93% year to date.
AO World's Stock Rises
The update from AO World PLC (LON:AO) has been greeted with a shrug of ‘it could have been even worse’ from investors, particularly with signs that the next financial year may be kinder to the electrical retailer. Its shares rose 12% in early trade with some reassurance that although sales have tumbled and the company reported a pre-tax loss of £37 million, the full year results didn’t come in lower than previous guidance. This contrasts with a £30 million profit in 2021, but the group pointed out a more meaningful comparison should be against its 2020 performance, which showed in the group’s latest results revenue terms are higher. Trading in the first quarter of the 2023 financial year is also meeting expectations, with cash and profit generation set to be back on the table.
AO World had been one of the darlings of the pandemic, with sales shooting up as people purchased electronic equipment and white goods while locked up at home to ensure they could stay well fed, entertained and working. It seems many of those purchases were brought forward and now faced with the cost-of-living crisis, a brand new fridge of TV is much further down on many consumers’ shopping lists. AO World’s recent woes have also been compounded by the supply chain crisis and the persistent shortage of drivers affecting the UK.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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