China rally goes into overdrive, oil prices retreat on fears of extra supply from Libya, Diageo jumps as things are bad but not getting any worse and Mitchells & Butlers faces sales slowdown

“It’s a good day to be invested in the markets as major equity indices pushed ahead across Europe and Asia,” says Russ Mould, investment director at AJ Bell.

“Fresh from big stimulus measures earlier in the week, all eyes remained focused on China amid talk that Beijing might inject up to 1 trillion yuan of capital into its top banks and to support the economy through interest rate cuts.

“The SSE Composite index is now up 9.5% since the start of the week, delivering a repeat of the stellar rally we saw in early February. It’s been a while since China was the talk of the town among investors, but it has certainly turned heads this week.

“Naturally, London-listed miners have revelled in China’s rich menu of initiatives to drive economic growth with their shares rising higher on the expectation of greater metals demand.

“However, the commodities market wasn’t entirely basking in glory. Oil prices retreated 2.5% to $71.65 on fears of increased supplies amid talk that Libya’s output could improve after a dispute, knocking shares in BP and Shell.

“Pennon investors weren’t impressed the South West Water parasite debacle in Brixham has cost the company £16 million. Shares in the company slipped, despite it saying group operating costs are expected to be lower in the second half of the year.”

Diageo

“Alcoholic drinks giant Diageo doesn’t exactly sound cheery in its latest trading update but the fact trading remains in line with expectations is prompting some relief after a period when many shareholders will have been left drowning their sorrows. The shares have jumped because of the absence of further bad news, rather than evidence of a turnaround.

“The company is pulling some levers internally to position itself for a recovery in demand, with CEO Debra Crew under some pressure to deliver after a difficult year-and-a-bit in charge. Crew took over from her longstanding predecessor Ivan Menezes after his sad passing, hardly the most auspicious circumstances from which to start.

“The problems the company faced in Latin America, where it had far more inventory than it needed, hinted at issues with controls and discipline in at least one area of the business. Having staked a position very much in premium spirits, which paid off during the pandemic when people were unable to go out and were buying high-end whisky, tequila and rum to consume at home, Diageo really needs to see a recovery in this part of the market.

“If Diageo remains in the doldrums for much longer it could attract activist interest or potentially a takeover bid. There could conceivably be pressure to break up the group with Guinness being hived off from the spirits brands.”

Mitchells & Butlers

“Mitchells & Butlers’ big comeback has encountered a few challenges along the way. The owner of Harvester and O’Neill’s has seen a slowdown in like-for-like sales growth for both food and drink over the past nine weeks. Mitchells & Butlers said total sales were up 2.5% in the period, making it the weakest quarter for growth over the past 12 months.

“The company has blamed a cool and wet period for part of the summer, disruption from riots in city centres during August, and the rate of inflation easing. You might think a lower rate of inflation would create a more favourable backdrop for consumers and make them more willing to spend money, but it also means that companies like Mitchells & Butlers might find it harder to keep raising prices at regular intervals.

“Despite this weaker quarter, the group says it is still performing better than the broader pubs and restaurant industry and that its full year results will come in at the upper end of market expectations. It is getting costs under control and that could lead to greater profit margins in time.”

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