FTSE steady after Fed minutes, Next, B&M and Greggs bring retail joy, Amazon announces big job cuts

“Like a climber on a perilous ascent the FTSE 100 is stubbornly holding on to the big gains it made on the first trading day of 2023 without showing any signs of moving higher just yet,” says AJ Bell Investment Director Russ Mould.

“Gains in the retail sector after bellwether Next’s better-than-expected Christmas trading helped counteract any hit to sentiment from the release of minutes from the Federal Reserve’s latest meeting.

“These took the wind out of the sails of US stocks as they revealed little sign the Fed is contemplating an end to rate rises or that it might pivot towards cutting rates soon.

“Investors will get an insight into the health of the US economy and whether Jerome Powell and his colleagues might feel the need to provide the healing balm of a more relaxed monetary policy tomorrow with the release of non-farm payrolls data and the ISM Services PMI reading.”

Retail: Next, B&M, Greggs

“The bricks and mortar retail channel is far from dead, judging by the latest round of retail sector trading updates. Next and B&M have both raised their full-year earnings guidance and Greggs has proved to be resilient in the face of weakening economic conditions.

“We’re now many months into a severe cost-of-living crisis, yet the latest figures would suggest that certain retailers can still draw in the crowds if the proposition is seen to be good value for money.

“Next isn’t necessarily the cheapest fashion or home retailer, but its products are considered good quality and something that will last.

“While restaurants might be suffering as more people eat from home, a £1.20 sausage roll ‘on the go’ is still seen as an acceptable purchase even if money is tight, hence why Greggs is standing proud.

“B&M appeals to people who want to trade down from more expensive retailers, showing that the value proposition from a pricing perspective is a winning model in the current environment. Importantly, it talks about improved gross margins and more efficient supply chains, two areas which have been problematic for the retail sector in the past year.

“Next, B&M and Greggs are united by having a presence on retail parks where business has been better than expected in general. Widespread train strikes will have prevented a lot of people from going to city centre shops, which means retail parks with their plentiful parking spaces have been the preferred alternative shopping destination.

“None of these three companies are blind to the fact that consumers are still under significant financial pressure, yet if they’ve been able to successfully navigate a tough end to 2022, there is good reason to suggest they could continue to keep their chins up as we move through 2023.”

Amazon

“The biggest reduction in Amazon’s workforce in its history is worth keeping in perspective for several reasons. While 18,000 job cuts sound like a lot – in the context of a workforce of more than 1.5 million it is a drop in the ocean.

“It’s also important to consider where the cuts are being made. They are mostly in areas like human resources as well as its Amazon Go and Amazon Fresh physical stores, and the latter represent something of an experiment for the company.

“Amazon has often tested the waters in different markets, but it probably feels in the current climate that the focus should be on its core e-commerce and Amazon Web Services cloud operations.

“Still, these job cuts represent a significant increase on previously outlined levels. It shows Amazon is taking the current economic challenges seriously. As is often the case, the news was pleasing to shareholders who will prize any efficiencies which can increase their slice of the returns generated by the business.

“Amazon’s announcement also matches the trend seen at other big tech firms including Facebook owner Meta, Twitter and Salesforce – a clear retrenchment from the big expansion in the sector seen during the pandemic.”

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