New banking fears pull down markets, Whitbread upbeat and Primark guidance spooks investors

“First Republic Bank’s latest results have restarted the market’s worry engine, triggering a sell-off across Europe. Its shares fell 22% in after-hours trading after revealing a sharp decline in deposits, prompting speculation it could be the next bank to be taken over,’ says Russ Mould, Investment Director at AJ Bell.

“There are already concerns that banks in many parts of the world will choose to be more selective over whom they lend to, which in turn could have negative implications for the economy.

“Investors certainly lost their appetite for banking stocks, with NatWest falling 2.2%, Lloyds down 1.8% and Barclays slipping 1.2%. Together with weakness in economically sensitive mining and packaging sectors, the FTSE 100 fell 0.5% to 7,875.

“Whitbread was one of only 11 stocks in the FTSE 100 in positive territory, rising nearly 4% after its results showed a strong recovery in trading for Premier Inn and news of a £300 million share buyback.

“Concerns about the slowdown in the housing market have weighed on shares in builders’ merchants for some time, and Travis Perkins’ latest trading update does nothing to change market sentiment.

“Weakness across the new build housing and domestic repair, maintenance and improvement markets is problematic for the group, meaning it has become more reliant on the commercial, industrial and public sector markets for business.”

Associated Britsh Foods / Primark

“Despite the impressive headline figures showing strong revenue growth, what really matters to investors is guidance for the future. On this front, there is enough cautious news to drive Associated British Foods’ share price down.

“Management is worried about the impact of high inflation and higher interest rates on the consumer and so it is guiding for slower growth at Primark. It also says margins aren’t going to improve near-term, which will disappoint many people.

“Even though freight and energy costs are easing, it expects to incur higher staff costs and extra investment in technology. Buying stock from abroad is also more costly due to unfavourable foreign exchange rates.

“While these are short-term issues to stomach, ABF continues to have its eye on the longer-term prize and that includes a much bigger presence for Primark in the US. Despite existing competition in the country from the likes of Forever 21 and Old Navy, ABF clearly believes there is room in the market for its low-cost retail model to expand. Its latest target is the southern part of the country.

“UK stores have slowly been fine-tuned with a better shopping experience helped by a broader range of clothes, more health and beauty products, a select number of cafes and premium-priced essentials for women.

“It has also helped that the high street is back in fashion after the pandemic, with consumers having clearly missed the in-store shopping experience during lockdown and are fed up waiting for parcels to arrive in the post from online orders.

“Primark is cognisant that ignoring the online channel completely is dangerous and so it has been testing click and collect services. That is obviously going well given the pilot is to be extended across more stores.”

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