UK retailers shares fall as easy street turns into “hard yards”, says Deutsche
UK retail stocks are selling off this morning after a downbeat note from analysts at Deutsche Bank.
Associated British Foods, which owns Primark as well as a range of other food and drink brands such as Twinings, has fallen by 5% this morning, after analysts at the bank downgraded their view on the stock from a neutral “hold” to “sell”.
Deutsche also downgraded its view on home improvement retailer Wickes to a “sell”, with its shares falling by as much as 9% this morning, making it the worst laggard in the mid-cap FTSE 250 index today.
B&Q owner Kingfisher was moved down from a “buy” to a “hold” rating, sending its shares down by as much as 4% this morning.
Adam Cochrane and Benjamin Yokyong-Zoega, of the bank, said:
We are taking a more cautious view on the UK consumer. The end of 2024 and early 2025 are likely to have been the sweet spot with real wage growth set to slow and fear of unemployment set to build from here.
Our Household Cash Flow model shows discretionary spending lagging spending power and, unless consumers reduce savings, there will be a 4ppt slowdown in discretionary spend to +3% in 2H from +7% in 1H.
Retail sales have been resilient into Q2 helped by warm weather although there is some variance by category. Consumer confidence metrics remain subdued and our new DB “Fear Index” suggests things may be getting worse.
The bank also lowered its target prices for Dunelm and Marks & Spencer, although still retained their “buy” ratings on the stocks. The shares are down 0.6% and 0.5% respectively this morning.
Key events
Closing summary
Time to wrap up…
UK retailer stocks sold off today after a downbeat note from analysts at Deutsche Bank.
Associated British Foods, which owns Primark as well as a range of other food and drink brands such as Twinings, fell by as much as 5% today, after analysts at the bank downgraded their view on the stock from a neutral “hold” to “sell”. Deutsche also downgraded its view on home improvement retailer Wickes to a “sell”, and B&Q owner Kingfisher was moved down from a “buy” to a “hold”.
Meanwhile, the US stock market has had a rather subdued open, with the S&P 500 rising slightly by 0.5% in early trading as the stock market seems to shake off worries about Trump’s latest attack on the Fed.
Trump has moved to oust Lisa Cook, a governor at the Federal Reserve, in his latest attack on the American central bank.
It is an unprecedented intervention by a US president, which threatens to undermine the independence of the central bank of the biggest economy in the world.
Meanwhile, Trump has also threatened to impose tariffs and export restrictions on countries whose taxes, legislation and regulations target US big tech companies such as Google, Meta, Amazon and Apple.
In a post on his social media platform, Truth Social, the US president said: “Digital taxes, legislation, rules or regulations are all designed to harm, or discriminate against, American technology.”
He said such measures – which include the UK’s digital services tax, which raises about £800m annually from global tech companies through a 2% levy on revenues – also “outrageously give a complete pass to China’s largest tech companies”.
Trump said: “As the president of the United States, I will stand up to countries that attack our incredible American tech companies. Unless these discriminatory actions are removed, I, as president of the United States, will impose substantial additional tariffs on that country’s exports to the USA, and institute export restrictions on our highly protected technology and chips.”
Sundus Abdi
UK tech firm Filtronic has announced its biggest ever contract worth £47.3m with Elon Musk’s SpaceX.
Shares in the County Durham-based defence and telecoms equipment maker rose nearly 5% on Tuesday after the announcement. The contract covers supply of a type of radio frequency tech designed for high-performance wireless communication, using next-generation gallium nitride (GaN) E-band technology.
Nat Edington, Filtronic CEO, said:
We are extremely proud to announce this landmark contract, which not only sets a new commercial record for Filtronic, but also reflect the success of our partnership with world-leading satellite company SpaceX, supporting the Starlink constellation.
It comes after Filtronic announced a £16.8 million contract in February with the US aerospace firm.
Bank of England’s Mann ‘ready for a forceful policy action’
The Bank of England policymaker Catherine Mann has said that while she thinks it is appropriate to hold interest rates at their current level, she stands ready to cut forcefully if there are serious risks to economic growth.
Mann, who will appear at the Future of Central Banking conference at the Banco de México today, will say in a speech:
A more persistent hold on Bank Rate is appropriate right now, to maintain the tight (but not tighter) monetary policy stance needed to lean against inflation persistence persisting. However, I stand ready for a forceful policy action, in the form of larger, more rapid Bank Rate cuts, should the downside risks to domestic demand start materializing.
The Bank of England’s monetary policy committee cut interest rates to 4% earlier this month, in line with projections of falling inflation over the next two years. However, several of its members, including Mann, voted to hold interest rates until the trend became clearer.
She will say in her speech today:
In my assessment, the scenario outlining upside risks to inflation through inflation persistence (which included additional second round effects in domestic price and wage-setting, amplified by weak potential productivity growth) is playing out, whereas the ‘downside risk to demand’ scenario remains a risk and is not my central case.
Debenhams pre-tax losses widen, explores PLT sale
Full year results for Debenhams have just landed: revenue fell 1% in the year ended in 28 February to £790.3m, while its continuing loss before tax widened from £164.4m in its last financial year to a loss of £263.9m.
However, shares in the retailer, which also owns brands boohoo and Karen Millen, are up by 2.2%. Investors are taking confidence in the fact that the company says all of its brands are now trading profitably in terms of adjusted Ebitda, and that it expects this measure of profit to be higher in its next half compared with the year prior.
The company also said it is exploring a potential sale of PrettyLittleThing, the fast fashion brand aimed at young women, as part of its business review.
Dan Finley, who has been chief executive of the group since November, said:
The business has been through a very challenging period which is reflected in these results. I want to assure shareholders that the business is taking the necessary actions, quickly and decisively, to address the challenges that we face. No stone will be left unturned.
…We are focused on delivering on the huge opportunity ahead for the Debenhams brand. Work is progressing to reposition and right size the Youth Brands, with a laser focus on profitability and cash generation under new management.
This will be a multi-year turnaround as was the case with the Debenhams brand. As part of our ongoing business review, we are exploring a potential sale of PLT. We are also assessing long-term options for our US and Burnley distribution sites to enhance efficiency and ensure alignment with our stock-lite strategy.
A strikes by hold baggage screeners at Gatwick airport scheduled for the end of this month has been called off, after workers voted to accept an improved pay deal.
The workers, employed by ICTS, will receive a 7% pay rise back paid to April 2025, the Unite union said.
The deal means that strikes scheduled from 29 August to 2 September will now not take place.
US long-term bonds fall, stock market poised to open lower as Trump attacks Fed
The yield on the 30-year US Treasury has risen by 0.022 percentage points to 4.909%, as investors worry that Donald Trump’s latest attempt to intervene with the Federal Reserve could undermine the independence of the American central bank.
Meanwhile, the yield on the two-year Treasury has dropped by 0.028 percentage points to 3.694%, as investors expect that pressure from the US president could lead to faster rate cuts.
The market is pricing in an 82% chance of a cut in mid-September, when the rate-setting Federal Open Market Committee is next scheduled to meet.
The US stock market looks like it will fall slightly at the open, with futures for the blue chip S&P 500 index down by 0.06%, and futures for the Nasdaq down 0.03%.
The blue-chip FTSE 100 index is trading down 0.5% so far today. B&Q owner Kingfisher is the worst performer in the group, with its shares down 4.1%. Primark owner Associated British Foods is a close second, down 3.8%, after a downbeat note from analysts at Deutsche Bank about the outlook for British retail.
The mid-cap FTSE 250 index is also down by 0.9%, led by an 8% drop at home improvement retailer Wickes.
Distributor Bunzl is the best performer in the FTSE 100, with its shares up 5% after it told investors that it would restart its share buyback programme. British American Tobacco is among the worst performers, down 2.5%, after it told investors this morning that its chief financial officer, Soraya Benchikh, will step down from her role effective today.
Entry-level vacancies hit five-year low
Vacancies for entry-level jobs have hit their lowest level in five years, according to the job search site Adzuna.
The proportion of new entry-level jobs has dropped to just over a fifth of the overall market, it found, its lowest share since 2020.
The number of overall vacancies dropped 1.2% in July to 864,705, Adzuna found. Graduate jobs nudged up 2.5% against June, but are still down 28% compared with the same time last year.
Salaries for listed jobs also fell by 0.3%, as competition for work has heated up: there are now roughly 2 jobseekers per vacancy, Adzuna said.
Andrew Hunter, co-founder of Adzuna, said:
After a hopeful uptick in June, July saw the pendulum swing back with vacancies falling again. While salary growth remains one of the few consistent positives – continuing to outpace inflation – hiring appetite is clearly uneven.
The ongoing strength in sectors like construction is in stark contrast to another consecutive monthly drop in healthcare roles – traditionally one of the most stable sectors. This speaks to a market still finding its footing. Until we see greater stability across the board, it’s likely this stop-start pattern will continue.
Vacancies in healthcare have dropped 25.4% since April, when the government changed the rules for employer national insurance contributions and the minimum wage.
The decline in entry-level jobs come as official figures show the number of young people not in education, employment or training (Neet) has leapt by more than a quarter in the past five years to reach almost 1 million.
Liz Kendall, the work and pensions secretary, told my colleague Richard Partington that Labour has a “mountain to climb” to bring down the numbers:
Graeme Wearden
The cost of insuring French government debt against default has risen today, but remains extremely low.
Data from S&P Global show that the cost of a five-year French credit default swap has risen to 37 basis points, the highest since May, Reuters reports.
That level indicates there’s very little chance of France defaulting.
For comparison, during the eurozone debt crisis of 2015, Greece’s 5-year credit default swaps rose over 1,900bps, amid heightened fears that Athens could default on its debts.
One in four UK late-night venues have closed since 2020, figures show
There’s also gloom in the UK hospitality sector, where late-night venues have been closing at an alarming rate.
More than one in four late-night venues have shut their doors since 2020, according to new data from the Night Time Industries Association (NTIA), who are calling on the government to cut VAT, reverse the increase in employers’ national insurance contributions, and maintain business rates relief for the sector.
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