Fed puts markets in a tizz with latest hike, PZ Cussons demonstrates pricing power and JD Sports faces tougher times ahead

“While the 75-basis point rise in US rates was largely expected, particularly after US inflation proved stickier than hoped in August, the messaging around the decision helped put markets in a tizz overnight,” says AJ Bell Investment Director, Russ Mould.

“Wall Street ended a see-saw session firmly in the red as Federal Reserve chair Jerome Powell, like a sawbones of yesteryear warning a patient the leg will have to come off to prevent the spread of gangrene, noted there was no painless way to bring inflation under control.

“This reinforced investors’ growing realisation that central banks no longer have their backs to the extent they have done over the last decade or more.

“The Bank of England is widely expected to follow in its US counterpart’s footsteps later today – with a key question being whether the pain of higher rates will really deliver lower inflation given the myriad global causes of surging prices. Among them, big falls in the value of sterling which increase the relative cost of importing goods.

“The continuing and escalating conflict in Ukraine, with Russia ramping up tensions, has been a big contributor to inflationary pressures and Russian and Kazakh gold miner Polymetal has been caught up in the events.

“While it maintained production guidance alongside its first-half results, these details were somewhat overshadowed as it swung to a loss and unveiled a share exchange plan for those affected by sanctions.”

PZ Cussons

“PZ Cussons has always felt a bit second-tier in the world of consumer goods, but the company’s latest update did demonstrate some pricing power in the face of rising input costs.

“A more focused approach seems to be paying off for the business and arguably it could be even more streamlined, putting its time and resources into the brands which are truly worthy of the effort.”

JD Sports

“Life could get a lot tougher for JD Sports given the significant headwinds facing retailers. With interest rates set to keep going up for the foreseeable future and consumers starting to feel less confident about job security given the dark clouds over the economy, JD is going to need some highly desirable products on its shelves or its second-half results won’t be a patch on the first-half.

“A reduction in consumer spending combined with the potential for more supply chain disruptions could add up to a nasty cocktail, and one that could give Régis Schultz serious challenges in his first months as the new chief executive.

“The key thing to watch is unemployment levels. JD sells a lot of goods to young adults, many of whom work in the leisure and retail sectors, areas which could be susceptible to job cuts if the economy goes into a serious downturn.

“Interestingly, JD appears to be keeping its eye on the longer-term opportunity rather than retrenching because of the near-term headwinds. It is investing in stores to make them look smarter, thereby strengthening its appeal to shoppers who want to own the latest must-have trainers and be seen to shop in the best-looking places.

“This should serve the company well in the long term as many of its rivals are likely to be fretting about the current conditions and risk losing market share if they get scared. But JD still needs to be prepared for a tough period in the coming months and continue to keep an eye on the money coming in and going out.”

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