Equities soar and Wetherspoon braces for end of consumer spending incentive

“Equities kicked the new week off with a bang thanks to renewed optimism over treating coronavirus. Stocks across Asia and Europe rallied following a decision by the US Food and Drug Administration to give emergency authorisation for the use of plasma to treat coronavirus patients. US President Donald Trump said the treatment could reduce deaths by 35%,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 jumped 1.2% to 6,071, the Euro Stoxx 50 index advanced 1.3% and Hong Kong’s Hang Seng jumped 1.6%. Pre-market indicative prices suggested the main US indices would see gains of between 0.5% and 0.7%.

“On the UK market, telecoms, industrials, healthcare and miners were in strong demand as investors were happy to buy a mixture of higher and lower risk stocks. BT led the charge following reports that it was strengthening its defences should a takeover approach emerge following share price weakness.

“Bunzl, which provides products that companies need to do business but not sell directly to customers, joined a growing list of stocks reinstating dividends. This suggests growing confidence among board rooms that they can get through the current pandemic with only bruises rather than major injuries.”

Wetherspoon

“Pubs, restaurants and cafés have been given a lifeline by the Help Out to Eat Out scheme during August, with many leisure companies reporting a strong pick-up in sales as a result of the Government initiative.

“Sadly, there are growing fears that the hospitality sector will see a sharp downturn in sales activity once the money-off scheme ends on 31 August.

“It was designed to encourage people to get out of their homes and start spending money on meals and drinks in leisure establishments. That certainly seems to have worked, yet the great unknown is how many people will continue to eat out once the discount ends.

“Wetherspoon is cautious about the outlook for sales from September onwards, and other hospitality operators have echoed similar thoughts. One could argue that if Wetherspoon is concerned, others should really be worried, as its low-priced menu of food and drink puts it in a strong position to attract cash-strapped consumers.

“Value-led operators are arguably better placed to get through the crisis as the public will be paying a lot closer attention to their spending patterns given a backdrop of growing unemployment.

“It’s understandable that Wetherspoon is making a big song and dance about how it is following social distancing guidelines as it wants the public to feel that its pubs are safe to visit.

“Guidance that it will report a loss in its most recent financial year won’t be a surprise given the considerable disruption to trading. What really matters now is how the business fares without the sales incentive and if it can avoid pushing up prices to help claw back some of the lost revenue from earlier this year. It cannot afford to upset customers who are already in a fragile state of mind.”

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