Markets retreat as Trump goes aggressive on tariffs, Melrose boosted by broker upgrade, Halfords stuck in the slow lane, Compass disappoints and AO upgrades guidance

“Talk about swinging from one extreme to the other. The week started on a calm note with the nomination of Scott Bessent as US Treasury secretary, a hedge fund manager seen as a safe pair of hands and someone who might rein in Donald Trump’s more aggressive ideas, such as toning down tariffs,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Trump was clearly having none of that, given he immediately took to social media to promise bigger than expected 25% tariffs on all products supplied from Mexico and Canada into the US, and a further 10% for Chinese goods, all on day one of his new presidency. That took the market by surprise, driving up the dollar and prompting a sell-off in the Mexican peso and Canadian dollar. The US dollar index rose by 0.2% to 107.06.

“If those tariffs are at the top of his agenda, there is now an elevated risk they will be closely followed by punishing tariffs on other countries. Trump clearly wants to make his mark and show he’s the boss.

“There has been a view among some investors that Trump’s tariff talk was a negotiating tactic, a threat rather than a promise. That might still end up the case, but it’s clear that the president-elect has no intention of backing down for now.

“A stronger dollar is typically bad for the FTSE 100 given how three quarters of its constituents earn in foreign currencies, many in the US currency. Big overseas earners falling on the UK index included JD Sports, Diageo, Shell, AstraZeneca and Experian.

“In other geographies, the European automotive sector retreated on fears their exports into the US would be hit if Trump was quick to impose new tariffs in Europe. Stellantis and Volkswagen both suffered share price losses.

“Melrose bucked the negative trend to rise more than 8%, putting it at the top of the FTSE risers’ list. The stock was lifted by a positive broker note, with JPMorgan raising its price target from 650p to 850p, saying Melrose should benefit from aftermarket earnings on engines sold over the past 15 years. This gave investors reason to reappraise Melrose following a weak showing for its share price between June and October.”

Halfords

“Halfords’ results show a business stuck in the slow lane. Make no mistake, the jump in its share price does not reflect a business in perfect health. This is simply a relief rally that full-year earnings guidance hasn’t changed.

“Halfords has been the bearer of bad news for a while and the consensus forecast for its 2025 earnings have been cut by 51% since January 2024. Those are savage downgrades, illustrating a business in a pickle.

“It is at the mercy of consumer spending and shoppers have been watching every penny. Sales of ‘nice to have’ items like bikes have been patchy while motorists have been opting for cheaper options on essentials to keep a car running.

“An additional £23 million in costs as a result of the Budget presents yet another headwind for Halfords and it will have to push up prices, find more cost savings in the business or cut jobs to mitigate this factor, or simply stomach lower profit margins.

“Motorists should brace themselves for servicing and repair prices to go up, but Halfords might find the consumer turns their back completely if prices go up too much on non-essentials. It means management must look in every nook and cranny for ways to save money.

“To its credit, gross margins have improved in the first half and there have been improvements to cash generation. The fact it has maintained the dividend, and not cut it, also shows that management aren’t panicking about the impact of the Budget on the business and its customers.”

Compass

“Catering giant Compass’ latest update stuck in the throats of investors as the company forecast slower growth in profit than had been forecast by analysts for its current financial year.

“It shows the big bounce back in the year to September 2024, as the company won new business and staff returned to offices after Covid, is a hard act to follow.

“Compass is investing to drive new business and is looking at strategic acquisitions to fill in gaps in its offering, but perhaps it isn’t realistic to expect such a business to deliver double-digit growth on a consistent basis. There may also be some disappointment at the lack of a share buyback given a relatively robust financial position.

“The results themselves are commendable, reflecting the opportunity to pick up the slack at workplaces and venues where employers and operators see outsourcing as an attractive option in the face of significant regulation and red tape.

“Crucially, the company has demonstrated its ability to translate growth in revenue into improved margins and cash flow, although this has already been reflected in a re-rating of the shares to a premium earnings multiple.”

AO

“Online white goods seller AO reported decent growth in a somewhat uneven first-half results which, nonetheless, included modest upgrades to full-year guidance.

“The company has made progress in areas like cash generation and has kept a lid on costs – although some of this progress could be undone by the changes to employer National Insurance contributions and the National Living Wage in the UK Budget.

“After a rollercoaster ride for shareholders since AO joined the stock market more than a decade ago, which took in the highs of post-pandemic demand and the lows of unsuccessful overseas ventures, investors want to see evidence of stability.

“Today’s numbers come ahead of the completion of the MusicMagpie acquisition which boosts its ESG credentials via greater recycling activities and expands its footprint in areas like mobile. The market will be watching closely if this is a step too far outside its comfort zone – or an opportunity to bring its logistics capabilities to the table to help make this business a real asset.”

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