Pound slides after Sunak and Javid quit, oil rebounds, AO seeks more cash and Trainline soars

“In theory a weaker pound is good for the large number of companies on the UK stock market that do business in foreign currencies, as their earnings benefit when translated back into sterling. Yet the recent slump in the oil price is bad news for some of the biggest names on the UK market, principally BP and Shell,” says AJ Bell Investment Director Russ Mould.

“Weakness in oil has a negative read-across to other commodities as the black stuff and many other industrial metal prices can be proxies for economic activity.

“Recession fears have been hampering commodity prices in recent weeks as markets are worried that economic activity will stall, leading to a drop in demand for the type of natural resources used to power businesses, both from an energy and components perspective.

“Having slumped in price last night, oil managed to claw back some of its losses on Wednesday as the market stabilised. The question is, how long will this stability last? On one hand, a recession could easily reduce oil demand. On the other, supplies remain tight, so we perhaps won’t see a big price crash if the world grinds to an economic halt.

“Wednesday’s oil price bounce back helped lift the FTSE 100 by 2.4% and gave support to markets across the rest of Europe. However, don’t be fooled into thinking this is the start of a big recovery. Markets are likely to stay volatile for the near-term.

AO & Trainline

“Earlier this week it tried to calm fears about a third-party insurer pulling support which could force it to make upfront payments to suppliers. Now AO is now going cap in hand to investors to raise £40 million by issuing new shares at 43p, an 8.5% discount to last night’s closing price and 36.6% below last Friday’s closing price.

“That’s going to be a hard sell given the risk of a recession and how consumers have been cutting back on their spending as their monthly bills have shot up. Plenty of households will be thinking their fridge or TV could last a bit longer before an upgrade, so there is a big risk to AO’s near-term earnings.

“Even though plenty of people are still working from home and don’t miss their daily commute on public transport, there has been a big uptick in train travel in general. That’s music to the ears of Trainline whose share price has soared after it upgraded earnings guidance.

“An increase in tourists visiting Europe has led to greater demand for tickets and no doubt the chaos across airports has encouraged more people to travel by rail than plane.”

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