FTSE 100 higher as it shrugs off inflation and interest rate concerns, Associated British Foods lifts guidance as Primark boosted by resilient demand

“The FTSE 100 made a strong start to the week as investors shrugged off the inflation and interest rate concerns which bedevilled markets last week,” says AJ Bell Investment Director Russ Mould.

“This went against the prevailing mood in Asia which followed in the footsteps of the US in seeing material declines after a key inflation reading closely watched by the US Federal Reserve came in ahead of expectations.

“The obvious concern is that sticky inflation will prompt the Fed to keep rates higher for longer and turn waiting for a pivot to rate cuts into a modern-day version of Waiting for Godot.

“There was volatility in the pound early on Monday as traders waited to see if a deal might be done on the Northern Ireland protocol in the face of opposition from the euro-sceptic wing of the Conservative party and the DUP.”

Associated British Foods

“Primark owner Associated British Foods painted a positive picture with its latest trading update. There’s good news on both demand and costs which has helped the company lift its guidance.

“Resilient spending at Primark could well reflect the company’s budget credentials, people trading down from more expensive chains and brands. Particularly in areas like kids’ clothes where growth spurts mean clothes have a relatively short shelf life and therefore price rather than quality is a big driver of purchases.

“Longer-term there is a challenge for Primark to address concerns about disposability, particularly as shoppers become more environmentally conscious. The company has at least been making some progress on this front with its clothes containing a greater proportion of recycled materials and cotton farmers in its supply chain in Asia taught regenerative farming techniques.

“The reference to less volatile inflation is significant. It suggests well-run companies, of which Associated British Foods is one, can manage rising prices so long as they are reasonably stable and allow them to plan with some visibility.

“The company is managing to raise prices in its food business and is also successfully trimming costs to help protect its profitability.”

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