FTSE steady as Amazon and Fed comments temper Wall Street’s optimism, BAE Systems boosted by increased military spending and Vodafone cuts forecasts

“The FTSE 100 started the day flat on Tuesday after mixed trading in Asia and a late sting in the tail on Wall Street overnight,” says AJ Bell Investment Director Russ Mould.

“The optimism which had built up in the wake of last week’s weaker than expected inflation number was punctured by comments from a US Federal Reserve official suggesting investors had, not for the first time, got ahead of themselves in expecting a pivot on rates.

“News that even corporate titan Amazon is having to tighten its belt with job cuts also helped to sour sentiment.

“The latest UK jobs figures demonstrated some resilience with unemployment remaining low, though notably there are more working age people quitting the world of work entirely and the number of working days lost to strikes hit a decade high.

“This has implications for the country’s productivity as the Treasury looks to plug a big gap in the public finances.”

Bae Systems

“The company might not scream it from the rooftops but a more turbulent global picture for geopolitics and security is good news for defence outfit BAE Systems.

“Its latest trading update underlines how a more turbulent world benefits BAE, with the company seeing robust defence spending in many of its markets as war continues to rage in Ukraine.

“Countries are making long-term commitments to upgrade their military capability and capacity and that brings with it long-term growth potential for BAE. This is reflected in a rapidly expanding order book.

“Critically BAE is investing in technology and its own capacity to position itself to take advantage of the opportunities.

“Like most big manufacturing businesses, BAE continues to face supply chain issues though it is notable that management is now more relaxed about a tight labour market. BAE also seems to have done a decent job of managing energy costs.

“The UK remains an important market for BAE and investors will therefore be watching the Autumn Statement on the 17 November to see if the UK government will cut back on defence as it looks to balance the books.”

Vodafone

“With tiny revenue growth, a flat dividend and guidance for earnings to be at the lower end of previous guidance, telecoms group Vodafone is not exactly firing on all cylinders.

“It says a lot when one of Vodafone’s strategic highlights is finding new ways to save a significant amount of money. Cost cutting may help cushion earnings but there is always the risk that cuts go too far and the quality of the business and its services are negatively affected.

“Activist investor Cevian has been pushing for the group to simplify its international operations and sell poorly performing divisions following a sluggish period for the group. But even Cevian has grown tired of waiting for progress and has been reducing its stake in the business.

“This puts pressure on chief executive Nick Read to deliver better results otherwise his days with Vodafone might be numbered.”

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