Oil prices lifted by OPEC comment, Anglo American sells assets, Ryanair hit by lower fares, Sainsbury’s goes head-to-head with Aldi in convenience stores and Berkshire Hathaway plays waiting game

“After a difficult few days, the FTSE 100 got off to a steady start on Monday as resources and China-linked stocks made progress,” says AJ Bell Investment Director Russ Mould.

“Lawmakers in Beijing are sitting down this week to thrash out a big stimulus package to accelerate an economy which has been spluttering since the pandemic. Top of the agenda is addressing the issue of local government debt but also providing support to households who, unlike those in the West, received precious little support during Covid.

“This fiscal package is essentially what the market has been waiting for, ever since China fired the starting gun on stimulus in September. As ever, the devil is likely to be in the detail.

“News that oil producers’ cartel OPEC+ would delay hikes in output through December helped give oil prices a lift and, in turn, provided a tailwind to heavyweight oil stocks Shell and BP.

“Reports that Anglo American is selling its stake in some steelmaking coal mines got a welcome reception from the market, both for the tidy injection of cash involved and for signs the company is executing on a strategy to sell non-core assets.

“This might make the company easier to swallow for a potential acquirer. BHP may have moved on after its takeover attempts earlier this year but other parties might be interested in Anglo’s extensive copper assets.

“Figures from BDO suggest a tough start to the festive period for the retail sector after measures in the Budget around national living wage and employers’ National Insurance contributions which could have a disproportionate impact on hospitality firms and retailers.”

Ryanair / Airlines

“For a time, it felt like airlines and travel companies could pass on any costs to travellers as post-pandemic demand to get away was so strong. Combined with relatively limited capacity and you had the recipe for strong returns for carriers like Ryanair which were in a financially and operationally robust position.

“However, it looks like the sunny days for the sector are behind it, based on Ryanair’s latest numbers. It saw its first-half profit stripped down by the impact of lower fares over the crucial summer period as consumers’ capacity and willingness to splash out receded.

“There have been some signs of improvement in recent weeks but it remains to be seen if these will be sustained.

“Like several of its peers, Ryanair is also facing a knock-on effect from the production problems and industrial action at Boeing and, tellingly, has trimmed its forecast for passenger growth. The company also announced plans to cut UK flights thanks to the increase in passenger duty in the recent Budget.

“Separately, Wizz Air reported an uptick in passenger numbers for October and an increase in how full its planes are. However, investors will have to wait until the first-half results for the more significant news of how the business is doing when it comes to fares and profitability.”

Sainsbury's

“Supermarkets typically operate a dual-pricing structure – one set of prices for supermarkets and another for convenience stores. The latter typically have higher prices in the belief that shoppers should pay a little extra when they want to buy a small basket of goods ‘on the go’.

“Sainsbury’s going head-to-head with Aldi on 200 core items like bread, baked beans and milk is a radical shift in the grocery market. Fighting on price in a store format normally associated with premium prices is turning the model on its head. It shows that Sainsbury’s is serious about taking on the discount operators and stopping them in their tracks.

“Sainsbury’s is no doubt hoping that giving up some margin on products – as it matches Aldi on price – will be offset by greater sales volumes. It’s a bold move and one that could kickstart similar actions by other traditional grocers. The big players tend to copy each other, such as offering cheaper prices when using loyalty cards.”

Berkshire Hathaway

“When the world’s most famous living investor continues to sell down shares and sit on a considerable cash pile, it tells you something very important about the state of the market. It implies Warren Buffett can’t find anything worth buying at the current price, probably because valuations look a bit rich in many parts of the market; or he’s building up a war chest so he can go bargain-hunting in the case of a market correction.

“Buffett’s investment vehicle, Berkshire Hathaway, has been a net seller of stocks for eight quarters in a row. It continues to reduce its position in Apple, a stake was last month trimmed in Bank of America, and it has been recycling the proceeds into short-term Treasury bills. All this suggests that Buffett has serious concerns about the economic backdrop and the current state of the stock market. It implies a risk-off mentality and the hallmarks of an investor who is prepared to sit and wait for a better entry point.

“In May, Buffett said he expected the US government to increase taxes to tackle fiscal deficits. If true, Berkshire Hathaway might have to pay a higher rate of capital gains tax when selling down equity positions and this could have influenced recent actions in its equity portfolio.”

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