FTSE makes strong gains after US tech fightback, Rio Tinto culture shock, and Joules continues its run of profit warnings

“Like a prize fighter on the ropes, the US tech sector produced a stunning fightback overnight and helped provide a positive cue for European markets this morning,” says AJ Bell Investment Director Russ Mould.

“The FTSE 100 was up 0.9%, with investors hoping February will bring a more positive outlook for global markets. Unsurprisingly tech-focused investment trust Scottish Mortgage was the top gainer in early trade. Miners were also higher.

“Virgin Money provided some encouragement for the banking space as it lifted its outlook for margins. A boost to profitability for the banks is widely expected as central banks hike interest rates.

“Irn-Bru maker AG Barr fizzed higher as it lifted profit forecasts – soft drinks firms should benefit from a lifting of Covid restrictions as more people buy cans on the go and people look for non-alcoholic options when eating out and socialising.

“The housing market continues to defy gravity for now – with the latest Nationwide figures, somewhat remarkably, showing the best start to a year since 2005.

“Whether this buoyancy can survive being punctured by cost of living pressures remains to be seen. Meanwhile the saga at Cineworld is starting to feel like a rival to the Marvel Cinematic Universe for longevity as the cinema operator looks for leeway from former shareholders in its US Regal Entertainment business over payment obligations.

“Cineworld should be a beneficiary of cinema’s revival in the wake of the pandemic but whether the market will recognise this given the mess the company finds itself in is open to question.”

Rio Tinto

“The revelations about the workplace culture at Rio Tinto are genuinely jaw dropping – they tick about all the negative boxes you can find. Sexual assaults and harassment, racism and bullying.

“In that context an increase in the share price in response looks a little odd, but perhaps it reflects market appreciation for Rio at least fronting up and taking the bull by the horns when it comes to fixing these deep-rooted problems.

“Today marks just the first step for Rio Tinto and, however committed CEO Jakob Stausholm and his team are to addressing the toxic culture, it will take time and could be a painful, if necessary, process for the business.

“The mining industry is looking to reposition itself as an ally in the fight against climate change, sourcing the metals and minerals required for a transition away from polluting fossil fuels and towards electric vehicles and renewables.

“This will shine an uncomfortable light on the sector and ramp up the pressure to encompass environmental, social and governance (ESG) factors in the way mining firms are run.

“This includes not just the E but also the S and G too. Rio Tinto’s card was already marked on this score thanks to the destruction of ancient Aboriginal caves in Australia in 2020 which led to the departure of its previous management team.

“Given Stausholm is relatively new to the job, he is likely to be given time by shareholders to try and sort things out. However, he has very little margin for error.”

Joules

“Joules is getting into the habit of issuing profit warnings centred on the key festive trading period – one came in January 2020, a pre-Christmas alert was sounded in December 2021, and now we’ve got a February 2022 shocker.

“It has suffered a multitude of problems stretching from supply chain issues and cancelled wholesale orders to weaker footfall and higher costs.

“That has prompted the company to liquidate old or unpopular stock, put up prices to help make up for inflationary pressures, and keep a lid on costs where possible.

“Retailers need to be well oiled machines in the current climate and Joules has clearly messed up by not running everything as efficiently as possible.

“All retailers have suffered from supply chain issues but plenty of them have sailed through thanks to good forward planning, something which Joules seems to have lacked.

“As a premium lifestyle brand, it needs to uphold a reputation for superior quality and that includes the way the business is run as well as the products.

“After numerous setbacks management will have to get the business back on track soon otherwise CEO Nick Jones could soon find he is fighting for his job.

“The share price is down approximately 70% since he became the boss and investors won’t put up with that kind of performance for long.”

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