FTSE flat as pound hits post-Truss highs against the dollar, Fed hints pace of rate hikes to slow, Dr Martens trips up after margin hit, Jet2 holds up well and Kingfisher boosted by energy efficiency drive

“The FTSE 100 started the day a smidge lower as the pound reached its highest levels against the dollar since the start of Liz Truss’ ill-fated premiership,” says AJ Bell Investment Director Russ Mould.

“A stronger pound hits the relative value of the FTSE 100’s largely overseas earnings but the reason for the dollar’s slide is a positive one for sentiment.

“Stocks made gains on Wall Street as the latest minutes from the US Federal Reserve provided the reassuring message investors wanted to hear – the pace of rate increases is set to slow from here.

“While there’s no suggestion the Fed will stop hiking interest rates anytime soon, the messaging at least allows markets to start to look forward to that point.”

Dr Martens

“The maker of iconic footwear, Dr Martens has tripped up in a big way with investors following its first half results.

“The main reason the company has lost a bit of shine and polish is news that margins are under significant pressure.

“While external factors such as a stronger dollar are playing a part, the company is also suffering from weakening demand and there are at least hints that its pricing power isn’t what many might have hoped given the apparent strength of the brand.

“Growth in the lucrative direct-to-consumer sales channel is slipping and that matters because building out this part of the business is a key thread of the strategy.

“Hopes that a hefty increase in the dividend would keep the market sweet have proved forlorn, though one item which is hitting profitability, but which should earn Dr Martens a bit of credit, is the investment in the business.

“Taking a short-term hit to profit now to support growth in the future is what any business should be doing, and Dr Martens will hope this will help it put its best foot forward from here.”

Jet2

“Airlines are now reaching the point where they can report earnings that reflect life after Covid, with travellers having had the chance to receive the vaccine and boosters. However, as one headwind passes another arrived in the form of airport disruption with a lack of staff causing chaos to flight schedules and the whole travelling experience.

“Against this backdrop Jet2 has done remarkably well, with profits well ahead of pre-Covid days thanks to pent-up demand for travel, greater capacity to fly customers abroad and a greater percentage of sales coming from higher margin package holding customers. It has also needed to run fewer promotions which has saved a few quid on marketing costs and helped to avoid big margin dilution.

“Despite having to shell out significant compensation payments from the mid-summer disruption to air travel, Jet2 can’t really grumble about its latest financial performance. However, it won’t be plain sailing from here.

“While winter bookings have held up well, airlines traditionally see a lot of bookings after Christmas and early in the New Year. By then, people will have enjoyed the festivities and suddenly face the prospect of going back to work and there being quite a while until Spring arrives and with it, longer hours of sunshine and hopefully brighter weather.

“It’s natural to want to book a summer holiday while Winter is still upon us as it gives people something to look forward to. The big unknown is whether foreign holidays are going to be affordable for a lot of people while the cost of living remains high. On top of this demand uncertainty, Jet2 faces a profit margin squeeze from factors including higher wage and fuel costs.

“All airlines will be in the same situation so the challenge for Jet2 is to try and stand above the crowd and make sure it is the one chosen by consumers looking to travel. It looks well placed thanks to its range of all-inclusive holidays which are ideal for someone wanting to go abroad but know exactly what the get-away will cost them beyond simply buying a ticket and accommodation.”

Kingfisher

“B&Q-owner Kingfisher’s latest update may have taken profit guidance down a notch but the retailer did demonstrate some impressive resilience in its recent trading.

“It seems the work-from-home trend is continuing to drive some business and, despite pressure on household budgets, wider home improvements and the do-it-for-me market remain robust.

“People may have stuck to plans to improve their living space, even as they make savings elsewhere, and given the huge demand after the pandemic many of these projects might have been in the offing for months awaiting the availability of builders and materials.

“The need to ensure homes are energy efficient and to save on exorbitant heating bills are another driver of business which could persist over the medium term. Kingfisher’s launch of energy-saving tools to help consumers find the right products and services looks smart.

“Kingfisher continues to grab market share and while it remains buffeted by higher energy costs and increased wages, it has laid the foundations to get through the current consumer downturn.”

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