FTSE given a boost by commodities, and Domino’s Pizza could find life a bit harder soon

“A 0.7% rise in the FTSE 100 to 7,188 should certainly bring a smile to investors, with similar gains seen across most of the key markets in Europe. Even parts of Asia had a spring in their step, with the Nikkei up 1.5%,” says Russ Mould, Investment Director at AJ Bell.

“Brent Crude pushed ahead 0.8% to $83.85 per barrel, natural gas showed no sign of stopping as it advanced another 6.7% to 251.73p per therm, and even sterling was intent on making ground as it rose 0.2% against the US dollar to $1.3699.

“Stronger energy prices provide a tailwind to the FTSE 100 because Shell and BP are such big constituents of the index and their shares tend to do well when oil and gas prices rise.

“However, a stronger pound is typically bad for the UK stock index because so many of its members earn money in foreign currencies, particularly the US dollar.

“The reason why the currency movement hasn’t weighed on the FTSE today is down to the strength in the broader natural resources sector. Stocks like Anglo American, Antofagasta and Rio Tinto are rising because metal prices are moving ahead, most importantly copper.

“There had been fears in the market in recent months that a slowdown in the pace of economic growth in China, together with any fallout should property giant Evergrande collapse, might affect commodities demand from the Asian superpower.

“On a broader basis, a slowdown in the global economic recovery could easily trigger a pullback in commodity prices in the near-term, but for today it seems that investors are very much risk-on.”

Domino's Pizza

“It’s fair to say the pandemic has been horrific for most people but kind to Domino’s Pizza. It has benefited from more people wanting food delivered to their home, as well as a temporary reduction in VAT.

“While competition has intensified from the likes of Just Eat and Deliveroo helping more restaurants to deliver food, Domino’s has benefited from incredible brand strength and already has a delivery system that works like clockwork.

“The latest trading update shows that people are still hungry for its pizzas, with sales continuing to grow. That’s important as Domino’s faces a big test as Covid-related tailwinds start to fade.

“People are now able to go to restaurants again, and that Saturday night in watching Netflix with the family has got a bit monotonous, so there is temptation to get out and about in pubs and bars. Forget the pizza at home, we’ll grab a bite to eat in the pub or a kebab at midnight.

“That puts pressure on Domino’s to start doing something more creative to keep its sales moving upwards. There are only so many variations you can have on a pizza topping that product innovation doesn’t come easy, so it’s down to promotional deals to capture customers’ interest. Domino’s can push up prices, but its pizzas have always been quite expensive versus the competition, so there is a risk that households look elsewhere. And that’s a big risk when you think the overall cost of living is shooting up.

“If your energy bill is racing upwards and the weekly food shop is starting to become a lot more expensive, an easy way to save money is to cut back on treats like Domino’s. Therefore, life could get a lot tougher for the business in the coming months.”

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