FTSE dips, OPEC readies production cut, Twitter deal back on, Tesco trims profit guidance

“After yesterday’s big rally there was a more sober start for the FTSE 100 this morning as the EU moved closer to a deal to cap the price of Russian oil,” says AJ Bell Investment Director, Russ Mould.

“Oil prices held on to previous gains as OPEC prepares to unveil an expected production cut. There will be a lot of attention on just how big this cut is – speculation they could be double the volume previously flagged at two million barrels per day has been behind the recent surge in crude.

“While the cartel is looking to protect itself from a downward swing in demand as major economies face up to the prospect of recession, the move will only add to inflationary pressures and could make any downturn deeper.

“The strength in stocks over the last 24 hours followed a surprise from Australia where the central bank slowed rate hikes and data showing the US jobs market had cooled, potentially leading the Federal Reserve to soften its own hawkish stance on rates. The fall in the dollar was notable and given a strong dollar is usually bad news for stocks, markets will be watching closely to see if the 4% slide since hitting two-decade highs last week will be extended.”

Twitter

“In something of a climbdown for the controversial entrepreneur, Elon Musk looks like going ahead with his $44 billion purchase of Twitter.

“Investors in the social media platform will likely be relieved after enduring considerable volatility in the share price as the takeover saga ran on and legal action loomed.”

Tesco

“In an environment where consumers are being assailed from all sides by mounting energy bills, rising interest rates and higher costs for all manner of goods and services you are much better off selling essential staples than discretionary items.

“However, that doesn’t mean Tesco is immune from the weak consumer backdrop as today’s modestly lowered profit guidance reveals.

“Tesco has to try and offer attractive prices to stave off the competitive threat from the German discounters Aldi and Lidl and while it can rely on its purchasing power to some extent, it is still having to sacrifice margins to meet this challenge.

“The uncertainty is palpable in the company’s outlook comments and inevitably this will make the market rather nervous.

“On the plus side, Tesco is entering a difficult period with a decent market position and solid balance sheet.

“However, it is hard to see the coming months as anything other than extremely difficult, with cost inflation affected not only by higher energy and labour costs but also the cost of importing goods from overseas thanks to lower sterling.

“The profitability of its online shopping business, which seemed to finally come into its own during the pandemic, will also be affected as smaller basket sizes still cost the same to deliver.”

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