PageGroup struggles with UK jobs market, UK banks pass stress test and Wetherspoons sees strong sales growth

“US inflation figures are at the top of the agenda for investors with a new data set to be released this afternoon. Analysts and economists expect the annual inflation rate to have slowed to 3.1% in June versus 4% in May. That would be the lowest level in more than two years. However, on a monthly basis it is expected to have hit 0.3%, up from 0.1% in May,” says Danni Hewson, head of financial analysis at AJ Bell.

“Equity and bond markets are heavily tuned into inflation data as it is crucial to central bank decisions on interest rates.

“Pre-market indicative prices point to the US market opening higher on Wednesday, suggesting that investors don’t expect a nasty shock with the inflation figures.

“A clean bill of health for the banking sector in the Bank of England’s latest stress test helped to give the FTSE 100 a lift, rising 0.4% to 7,311. Financials were in strong demand along with miners, healthcare and pharmaceuticals stocks.

“The cost-of-living crisis continues to spur people to find cheaper alternatives when they are shopping. Among the key beneficiaries has been Shoe Zone, which continues to report solid trading. It has upgraded earnings expectations once again after a stellar month of sales, sending its shares up nearly 9%.

“Despite a fairly robust employment market, recruitment agencies are having to work hard to make money. PageGroup reported a 6.5% drop in second quarter profit and unveiled a slump in permanent job placements. Companies are preferring to adopt a more flexible approach to hiring given the uncertain economic backdrop and that is reflected by an 11.1% rise in revenue for PageGroup in temporary job placements.

“The UK was a major trouble spot for the business which suggests corporates are particularly worried about the economic outlook, despite the country having avoided recession.”

Banks

“The Bank of England’s latest stress test on the UK’s lenders confirms the country’s banking sector would be able to cope with a significant economic downturn. This will be a relief to people worried about the sector in the aftermath of several banks in US and Europe getting into trouble earlier this year.

“While everything was fine and dandy in the stress test, the outlook is far from rosy and reality is beginning to approach those stress test scenarios. The more interest rates go up, the greater the risk of some borrowers not being able to repay their debts and the greater the chance of an economic slump.

“UK banks are well capitalised and should be able to continue lending during a more difficult economic environment such as a housing crash and much higher unemployment. However, there is still the risk of greater delinquencies among customers. 

“If things get worse, banks will be under pressure from the government to provide support measures to customers struggling with higher rates. While that might not be good for earnings, this would be a perfect opportunity for banks to show they are responsible corporate citizens and that it’s not all about making every penny possible from the customer base.

“In a more difficult economic environment, banks would be under pressure to cut dividends, reduce bonuses and be more patient regarding loan repayments. Given that most investors own shares in banks for their generous dividends, such a move wouldn’t go down well with those holding the likes of Lloyds and NatWest in their ISA or pension.”

Wetherspoons

“A key takeaway from Wetherspoons’ otherwise steady as she goes trading update was the news it is no longer going to be reliant on the slack offered by lenders during covid as it brings its borrowings under control.

“The move away from covenant waivers is a sign Wetherspoons has finally been able to put the pandemic behind it, allowing the pubs group to capitalise on an opportunity to draw in more cost-conscious punters and gain market share as a survivor in a sector which has endured an apocalyptic few years.

“Wetherspoons has been particularly exposed to inflationary pressures thanks to a longstanding business model of prioritising volumes over margins, however it is now streamlining its estate, implying an attempt to become a leaner business. There are also encouraging signs that costs are starting to level off.

“The company is at pains to stress the divestment of pubs is not a fire sale of assets in response to the difficulties facing the hospitality sector. Instead, this is a move to close pubs which were effectively cannibalising its own sales elsewhere because they are located so close to other Wetherspoons venues.

“Sales are showing good momentum and this implies a strong thirst, which for so long went unquenched thanks to lockdown restrictions, for socialising over a drink. Wetherspoons’ mix of decent quality beers, food and keen prices is likely to stand it in good stead.”

These articles are for information purposes only and are not a personal recommendation or advice.