Investors await Fed decision, Possible FTSE return for ARM, Premier Inn owner invests and WH Smith's customers see through the chaos

“The FTSE 100 made a positive start to what could be a pivotal day in determining the next move for global markets,” says AJ Bell Investment Director Russ Mould.

“Investors seem to have anticipated the US Federal Reserve will deliver a 0.75 percentage point increase in rates tonight so the focus is likely to be on whether it goes even further, amid some fairly wild talk of a full percentage point hike. There will also be plenty of attention afforded to the commentary made around the decision.

“The Fed will have hoped to engineer a soft landing for both the economy and markets alike as it tackled inflation. But it is looking more like a potential crash landing as things stand.

“Where the Fed leads, other central banks are likely to follow, and attention will switch almost immediately to tomorrow’s decision from the Bank of England.

“Recent weak economic data in the UK may affect the thinking of policy makers at the Bank of England. However, they can’t afford to be in any way complacent about the threat posed by rising prices.

“Premier Inn owner Whitbread has delivered what looks like a very robust trading update as it faces up to mounting inflationary pressures.

“Trading in both the UK and Germany, which has been the ugly stepchild of the group thanks to the lingering impact of Covid restrictions, is ahead of expectations.

“News the company will invest £30 million in labour, refurbishments and IT in 2023 may have created a frisson of concern for shareholders.

“However, this looks a sensible decision for the long-term health of the business and the value-based Premier Inn proposition could prove attractive when household budgets are tight but people still want to get away.

“Fine-tuning the product and paying a decent wage in a tight labour market to ensure it is supported by good staff are choices which could pay off down the line.

“There was also boost for the UK market on chatter that former FTSE 100 Cambridge chipmaker ARM might list some of its shares in London alongside a main listing in the US.

“There have been efforts to make the London market a hub for technology companies, a sector which is heavily underrepresented at present. A return for ARM, after a delisting necessitated by the 2016 acquisition of the group by Japan’s Softbank, would represent a baby step in the right direction.”

WH Smith

“To some people it’s a great mystery how WH Smith continues to grow earnings at quite a clip. Messy stores, overpriced sweets, newspapers stored in fridges and useless trinkets that collect dust on the shelves seem to point toward a firm going in the wrong direction.

“Despite all this, time after time its trading updates and results show that customers see through the chaos and are happy to keep spending in its stores.

“Its high street outlets have typically thrived from ‘crazes’, be that adult colouring books, slime or spoof humour books such as ‘Five Escape Brexit Island’. The latest fad to keep the tills ringing was Platinum Jubilee-related products, with the Queen’s face and Union Jack flags pasted on everything imaginable in a bid to shift units.

“The travel shops are easier to understand. The more people return to planes, trains and cars, the more likely they are to visit WH Smith outlets in airports, railway hubs and motorway service stations. Holidaymakers, business travelers and day trippers don’t have the luxury of being able to shop around for the best price as the selection of shops is typically limited. They also need to be able to pick up something in a hurry while they’re on the move – currently an especially rushed experienced for many flyers scuttling between airport security and the departure gate. Therefore, WH Smith can get away with charging more for products because of this captive audience.

“The current UK airport chaos works both ways for the company. On one hand, if your flight is cancelled then WH Smith loses out on potential business. On the other, if you’re already in the airport and find out you’ve been switched to a different flight later in the day, you might be stuck and find yourself filling up on Sudoku puzzle books, £8 Toblerone bars and £3 bottles of fruit juice.

“The fact that WH Smith believes its full year results will be at the higher end of expectations comes as surprise given the difficult backdrop for consumer spending. Most retailers are being very cautious about their outlook, so it’s welcome turn of events that WH Smith can be upbeat, albeit recognising the uncertain economic outlook.”

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