FTSE up on sterling weakness, no shock with UK inflation, Shoe Zone halves profit guidance, Nissan and Honda in merger talks, National Grid unveils £35 billion plan and Kingfisher sells Romanian arm

“A weaker pound following the latest UK inflation figures gave a boost to the FTSE 100 and its bounty of dollar earners. The UK index rose 0.2% to 8,208, led by Shell and BP, with Ashtead among the big US-focused players giving support,” says Russ Mould, Investment Director at AJ Bell.

“UK inflation at an eight-month high sounds dramatic yet the annual 2.6% rate is bang in line with expectations and core inflation, which excludes food and energy, at 3.5% came in lower than the 3.6% consensus figure. As such, we haven’t had what the market would describe as an ‘inflation shock’. That explains why shares in interest rate-sensitive sectors like housebuilding haven’t retreated on the latest figures.

“Later today we’ll get the US interest rate decision from the Federal Reserve. Traders are pricing in a 96.6% probability of a cut – it would be more of a shock if the Fed didn’t lower rates than if it did. The most important thing from the Fed’s meeting will be comments on monetary policy in 2025 as the market is starting to fret about future rate cuts being less frequent.”

Shoe Zone

“Shoe Zone putting the blame for a major profit warning on the Budget seems a poor fit.

“The impact of increased costs from National Insurance contributions and the National Living Wage is undeniable and one shared by much of the retail sector. However, attributing weak trading to a decline in consumer confidence since the Budget is at odds with UK-wide figures suggesting confidence has ticked higher since the event.

“Poor autumn weather won’t have helped but Shoe Zone does not sell a discretionary product – it sells affordable footwear, for which demand should be relatively resilient.

“Perhaps Shoe Zone’s offering isn’t resonating with shoppers as much as it used to. At the very least, you would hope management is looking at what’s gone wrong rather than attributing everything to external factors.

“The company cannot be accused of putting its feet up – it is shuttering stores and suspending the dividend in response to the downturn in trading. This isn’t the first shock the company has delivered in 2024, with a cybersecurity incident and higher shipping costs among the bad news shareholders have had to absorb.

“The company’s reliance on its Chinese supply chain is a potential source of volatility and management, including executive chair Charles Smith and finance director Terry Boot, will be under pressure to turn things around if they are not to get the boot themselves.”

Nissan/Honda

“The automotive sector is facing problems and Nissan and Honda see benefits to teaming up to tackle these challenges.

“The Japanese carmakers had already agreed in March to explore a joint venture on electric vehicles and a merger feels like the next logical step.

“The two major issues facing the industry are a regulatory push to increase the volume of electric vehicles on the road when demand is uneven thanks to high prices, limited choice and range anxiety as well as the threat posed by Chinese EV makers who are able to offer lower cost vehicles thanks to lower manufacturing costs.

“There are reports Mitsubishi, in which Nissan is the main shareholder, might also get pulled in. Any transaction could prove complicated given the scope for Japanese politicians to get involved over the prospect of job cuts and because Nissan might need to extricate itself from its tie-up with Renault.”

National Grid

“It’s standard practice for utility companies to invest large sums on a five-year cycle as they upgrade infrastructure to keep it fit for purpose.

“National Grid’s £35 billion proposal sounds like an immense amount of money to spend, yet that’s what is required to meet growing demand for electricity. Whether that’s more homes being built, electricity-hungry data centres for all things AI or supporting the transition of industries to an electric world, electricity demands are getting bigger by the day.

“It’s clear that the UK’s network needs upgrading and this statement of intent by National Grid is a good step forward. The market is unfazed by the gigantic sum of money, with its share price barely moving on the news.”

Kingfisher

“Kingfisher has been running hard to stand still in recent years as the pandemic-inspired DIY boom faded away. It has adjusted how the business is run, such as rolling out smaller stores and driving more sales through digital channels. They’ve helped to keep its head above water but it remains in the slow lane.

“Selling its loss-making Romanian operations is not going to make much difference to this situation as it only accounts for 2.1% of group sales. However, it’s one less thing for management to worry about, and it makes sense to focus on the stronger parts of the group.”

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