Jeremy Hunt’s warning puts a dampener on UK stocks, Microsoft to take stake in London Stock Exchange, Ashley takes new bet on Frasers and ASOS in talks with lenders over bringing in restructuring specialist

“A bleak warning from Chancellor Jeremy Hunt about ‘a tough road ahead’ for the UK economy put a downer on the domestic-focused FTSE 250 index, knocking it by 0.4% on Monday and casting a dark cloud on consumer-facing companies,” says Russ Mould, Investment Director at AJ Bell.

“Retailers and travel businesses were among the biggest fallers as investors fretted about how much their goods and services would be bought by the public over the coming months if times are going to get even bleaker.

“Royal Mail is struggling under the weight of repeat labour strikes and investors are increasingly getting tired of waiting for a resolution and are voting with their feet. The shares in its parent company International Distributions Services dived another 4.5%, meaning they are now down 61% year-to-date. The arrival of snow across parts of the UK will only add to the company’s problems as deliveries might be delayed.

“The FTSE 100 dipped 0.3% to 7,454 thanks to weakness across the mining, retail and property sectors. Brent Crude oil fell 0.6% to $75.65 per barrel.”

London Stock Exchange / Microsoft

“Normally when a mega cap company takes an equity stake in another business it sets tongues wagging as to its ultimate intentions, namely a potential takeover. That doesn’t seem likely with Microsoft buying 4% of the London Stock Exchange. Instead, it indicates how serious the working partnership between the two companies is likely to be.

“London Stock Exchange is going to use Microsoft technology to upgrade its data and analytical capabilities and it will also have a representative of the US firm on its board.

“There is lots of talk about improving capabilities but as with any large technology project it’s easy to talk up the benefits and underestimate the challenges associated with execution.

“By owning a chunk of London Stock Exchange, Microsoft will share the upside if the project works and also the downside if it cannot deliver on time or to the desired effect.”

Frasers

“Mike Ashley has a nose for a bargain so investors may well sit up and take notice of his move to take advantage of a recent sell-off in the business he founded – Frasers.

“A strong run in Frasers’ shares was arrested by a negative reaction to its first half result last week. The market seems to be concerned about a lack of organic growth in the core sporting goods business.

“Ashley doesn’t seem too worried though; by selling put options at 900p he is putting himself on the hook to buy the shares at a significant premium to the current price.

“Committing the not immaterial sum of £1.8 million suggests Ashley is confident Frasers has what it takes to ride out the current turmoil in the retail market and enjoy a strong recovery once consumer sentiment improves.”

ASOS

“The online fashion lender should not be in the mess it is now. Yes, times are tough, but ASOS is coming off the back of favourable trading conditions during the pandemic.

“Reports about seeking to hire a specialist in restructuring hint at the level of stress the ASOS balance sheet could be under.

“By ignoring the adage that you should fix the roof when the sun is shining, ASOS has left itself vulnerable to the effects of people returning to shops in person, a greater number of costly product returns to process, rising costs across the rest of the business and a downturn in demand thanks to the weak economic backdrop.

“Some of these are short-term headwinds but what will really concern shareholders, and potentially lenders, is that the whole fast-fashion model will struggle to recover thanks to a more parsimonious and ethically-minded consumer.”

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