Gilts move back up, pension and property stocks fall, Next joins list of companies warning on profits

“The great gilt calamity of 2022 continues to inflict pain on investors as pension companies took a tumble on the UK market, dragging the FTSE 100 down with them,” says Russ Mould, investment director at AJ Bell.

“Legal & General and Phoenix Group slid as investors worried about their investment exposure to gilts, following yesterday’s panic over soaring government bond yields.

“Having fallen yesterday afternoon after intervention by the Bank of England, gilts started to nudge higher again on Thursday. The 10-year gilt rose to 4.202% while the 30-year gilt hit 4.126%.

“Also dragging down the FTSE 100 on Thursday were stocks linked to the property sector. With the news full of stories about the prospect of rising interest rates and mortgage deals being pulled, it’s understandable that some investors want to cut their exposure to anything linked with the sector, for fear that we could see a sharp slump in the property market. That might explain why housebuilders Barratt Developments and Taylor Wimpey, and property portal Rightmove were down in the dumps on the market.

“Many investors want to see the Government do a U-turn on a plan to cut taxes and increase borrowing, hoping that would help stabilise markets and be the better option for the country. Yet there is no sign of that happening.

“The main priority is bringing inflation under control yet the Government’s actions in its mini-Budget serve to make inflation even worse, given they’ve sent the pound tumbling. That will make it even more expensive to buy goods and services from abroad, leading to the prospect of even greater interest rates hikes in the future. Liz Truss implies that painful decisions need to be taken, but for many people the current situation is a catastrophe already.”

Next

“If Next is struggling, you can be sure the retail sector is in a real fix. Among the most consistent of retailers, the company has an excellent track record and is a highly transparent communicator with the market.

“The message it has to deliver is a worrying one. True, Next does have a habit of managing expectations downward, to give it a lower bar to clear. First-half results were strong and while the start to the current financial year was weak in August there was a notable pick-up in September. But there’s no disguising that behind the cuts to guidance lies deep uncertainty about the consumer backdrop.

“Given the outlook for UK interest rates, the moving parts Next has to consider seems to be changing by the hour and it’s not surprising the business is finding it very difficult to predict the trajectory of trading.

“Whatever is coming Next’s way the versatility of the business, which has allowed it to benefit from the recent preference for shopping in-store as opposed to online, a strong balance sheet, experienced management and its almost unmatched retail skills leave it well placed to endure.

“Next may find it comes out of the current turmoil in a stronger market position as rivals are either weakened or fall by the wayside entirely.”   

Profit warnings on the rise

“Profit warnings are becoming a regular occurrence and there are several big names today telling investors to expect lower earnings than previously anticipated, including retailer Next. This raises the prospect of other consumer-facing companies disappointing the market and next week we have three big names reporting: Tesco, Greggs and Wetherspoons.

“Tesco’s average basket size will be watched closely to see if customers are buying less; Greggs faces the prospect of people cutting back on savoury snacks as they watch their pennies; and Wetherspoons has already made investors nervous by saying earlier this year that drinkers were cutting back on pints in the pub.

“It’s not just consumer stocks under pressure. Medical gloves specialist Synthomer slumped 32% after saying that customer destocking following the pandemic is going to last for longer than previously thought.”

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