FTSE steady ahead of US jobs report and Peloton profit is punctured by supply chain issues

“The FTSE 100 made a steady start on Friday, putting it on course for a solid if unspectacular weekly gain which was just what the doctor ordered after a very up and then very down January,” says AJ Bell Investment Director Russ Mould.

“The markets may well be keeping their powder dry ahead of the US jobs report later with hopes of a vaccine-induced recovery balanced against evidence of the impact Covid continues to have on the economy with German factory orders down sharply.

“The FTSE itself was somewhat constrained by strength in sterling as the Bank of England indicated yesterday that negative rates were unlikely (and wouldn’t be introduced for at least six months in any case) and predicted a big bounce back in UK GDP.

“When the pound rises it hits the relative value of the overseas earnings which dominate the index. Oil prices remained strong, with Brent crude on the cusp of achieving the $60 per barrel level for the first time since the pandemic hit on a tight supply picture.”

Peloton

“If Peloton was on one of its own bikes after its latest earnings release it would be being implored to pedal faster.

“The company has seen strong demand in lockdown – a once in a lifetime opportunity for the business which it is danger of squandering as its supply chain falls off.

“It just can’t keep up with the clamour for its technology-enabled exercise machines and fixing the problem is going to impede profit.

“People are stuck indoors, unable to get to a gym and now feels like a time when they might consider taking out a monthly payment plan or doling out the upfront cost to get hold of one of Peloton’s machines and replicate the gym experience at home.

“In a few months’ time, assuming lockdown restrictions are eased, the situation might look quite different, with people actually able to enjoy fresh air while they cycle or go back to working out in public.

“It’s no wonder Peloton is prepared to sacrifice profitability in the short-term to ensure customers aren’t left waiting too long.

“Without its machines the company has very few barriers to entry – competitors with big pockets are only too keen to move onto the turf of offering exercise classes online.

“It needs to create really strong user loyalty and that means the pressure is on to execute, particularly at a time when it has a real chance to reach more people than normal.

“If it doesn’t Peloton could see the momentum built up through the pandemic deflate like a slow puncture.”

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