- Political chaos in the UK offers little relief for the pound while gilt yields edge up.
- Europe opens in the red after pessimistic outlook detailed by the Fed.
- Oil prices rise slightly despite the US release of strategic reserves.
- Hospitality already facing a tough time according to Lloyds Bank sector tracker
- Dunelm revenues slip but still on track for full year guidance
- Spam sales surge as shoppers hunt around for cheaper food amid cost-of-living crisis
Q3 2022 hedge fund letters, conferences and more
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Fresh UK Political Chaos
With fresh political chaos descending in Westminster, amid reports of the physical ‘manhandling’ of MPs in the House of Commons, it’s little surprise that the pound is struggling to make up much ground against dollar, with confidence in the Truss administration at such a low ebb.
It is still hovering around $1.12, down from $1.14 on Monday after a brief spurt of optimism when the bonfire of the tax cuts was announced.
Sterling is highly sensitive to economic policy uncertainty and with another senior member of the government, Home Secretary Suella Braverman resigning, along with fresh calls for the Prime Minister herself to go, there are still big question marks hanging over the direction of the government.
The UK’s borrowing costs have edged up again with 10-year gilt yields up above 4%, another sign of the repercussions of political instability on financial markets. The pound is experiencing the crushing effect of the strong dollar as well, and with rate rise expectations in the US still high, little relief seems ahead for sterling any time soon.
Fed Could Push The Economy To A Sharp Downturn
Worries are still lingering that a strong-arm Fed could push the US economy into a sharp downturn which will have repercussions around the world.
That sentiment appears to be weighing on markets today with indices in Europe, like the FTSE 100 and the DAX, opening in the red. The more pessimistic outlook was detailed in the Fed’s beige book report, which noted growing concerns about weakening demand.
The outlook for energy markets also remains highly uncertain, with the conflicting worries of supply and demand still in full flow. Even though President Joe Biden has announced plans to release 15 million further barrels from the US Strategic Petroleum Reserve in an attempt to lower prices, Brent Crude has pushed up above $93 a barrel.
The ripple effect of OPEC’s decision to cut production by 2 million barrels a day is still being felt, and concerns are rising about the impact on supply in the global market as the European ban on Russian crude edges closer.
The increasingly challenging environment for the leisure and recreation sector is laid bare in the Lloyds Bank UK Sector Tracker which shows it fell at a sharper rate than any other in September.
Output has hurtled downwards with the sector shrinking at the fastest rate since February 2021 when the UK was in lockdown. These are already tough times for pubs, hotels, restaurants and belts are set to be tightened even further in the months ahead.
It’s going to be a long and difficult winter ahead for businesses reliant on discretionary spending. Resilient spots are evident though, with output growth highest among software services providers, followed by healthcare firms. Our huge reliance on technology and ongoing demand for health services isn’t expected to wane however inclement the economic weather is.
Dunelm Still On Track
Dunelm Group plc (LON:DNLM) is staying resilient despite squeezed budgets with its full year guidance in place, despite a fall in revenue in the first quarter of 8%. Its diversified shop floor of products means that it still has plenty to offer the cash strapped shopper and people have been piling into its ‘Winter Warm’ range to add cosiness to the home in the months ahead.
It’s value brand should help it stay steady despite the turbulence. If people feel they can’t afford big items to freshen or refurbish the home, they may decide to make do with a cheaper makeover for now, which would benefit Dunelm.
Hot on the heels of another scorching inflation reading with sharply higher grocery bills powering up prices, we’re deep in the hunt for cheaper food alternatives. According to the Waitrose Food and Drink Tracker, almost a third of shoppers are now seeking bargains.
Customers are leaving curry meal kits on the shelves but fish head and spam sales are up by more than 30%. It seems some consumers are prepared to return to thrifty ways of eating as costs spike every way they turn, perhaps seeking solace in nostalgic meals of generations past who were also strapped for cash.
Instead of eating out, little luxuries are also being enjoyed around the table, with sales of puddings to be eaten at home soaring.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
