Markets calm ahead of US inflation reading, ASOS goes from bad to worse, Wetherspoons expects profit at top of expectations, Airbnb slumps on weak outlook and TUI still short of pre-pandemic booking levels

“European markets pressed ahead on Wednesday, shrugging off any negativity from Wall Street’s disappointing session last night. The FTSE 100 rose by five points to 7,769, propped up by financials, energy and mining stocks. Whether this situation lasts is another matter as US inflation figures later today could easily turn markets upside down if inflation proves stickier than hoped,” says Russ Mould, Investment Director at AJ Bell.

“Investors are eager to see proof that inflation is easing as that is another reason for the Federal Reserve to stop raising interest rates. The sharp rise in the cost of borrowing has had a brutal impact on consumers and businesses and any relief on this front would be welcomed by the market – even if it is just a rates pause rather than reduction in the near-term.

“This is a moot point as investors increasingly believe we could get rate cuts by the year-end. Failure for this to transpire could be the next worry point for the market.

“In the world of small caps, shares in Unbound crashed 62% after a fundraising deal collapsed. The owner of the Hotter footwear chain has been an unmitigated disaster for investors since being demerged from Electra Private Equity. Trading conditions have been tough for the business and this has spooked Marwyn Investment Management which had been planning to buy £10 million of new shares. It’s now pulled out, leaving Unbound to look at alternative options to strengthen its balance sheet.”

ASOS

“ASOS’s half-year results are as ugly as sin. Sales and margins are down, net debt has ballooned and pre-tax losses are getting a lot worse. It’s all very well having a turnaround plan, but at some stage you have to show results and it feels like ASOS should have been delivering the goods by now.

“The company implies the economic backdrop has been unfavourable which has hampered its progress. It’s at times like these that consumers look for bargains which means ASOS’s decision to cut back on markdowns is somewhat ill-timed. Yes, it is prioritising profits over volumes, but it also needs to be in tune with what the consumer wants.

“ASOS has suffered in the past from having too much inventory and too much discounting, which has essentially made the customer associate the brand with cheap products. If it takes away the discount carrot then customers are going to turn their nose up and shop elsewhere. ASOS has been the architect of its own mistakes and is now paying the price.”

Wetherspoons

“If you were picking a survivor from the apocalyptic conditions faced by pubs during the pandemic then Wetherspoons might well be it. It has scale, some balance sheet heft and prominent sites as well as a cheap and cheerful offering with mass-market appeal.

“However, the last few years really haven’t played out like that. Even as we emerged from Covid, its town and city centre locations have been a problem due to falling footfall as people work from home and a model focused on volume rather than profitability has left the company heavily exposed to rapidly rising costs.

“More recently though the shares have started to rally and today’s third-quarter update suggests the business might be kicking into gear as it enjoyed its busiest-ever Saturday during the May Day Bank Holiday weekend and a record Easter. Significantly, the positive momentum is tangible enough for the company to guide for profit at the top end of expectations for the year to 31 July.

“As usual chair Tim Martin uses his soapbox to call out politicians and give his views on how they could tackle inflation. Pressures on household budgets could be a positive tailwind for Wetherspoons as its cheap and cheerful prices appeal to more people.”

Airbnb

“Investors were checking out of Airbnb in numbers in after-hours trading as the good news of better-than-expected quarterly performance was swiftly followed by the bad news of a weak outlook.

“As feels customary these days the company was keen to talk about its plans to integrate AI into the business. However, investors care about the brass tacks of bookings and prices and both are heading in the wrong direction as far as Airbnb is concerned.

“This is unsurprising, people are likely to opt for the most affordable accommodation on the platform if they can. Perhaps a bigger worry is this could be the first sign that the impressively resilient spending on travel in the wake of the pandemic is coming under greater pressure.

“The company also faces a competitive threat from the likes of Booking.com and Expedia-owned Vrbo and also could face stricter regulation. There are plans in the UK, for example, to make homeowners listing entire properties on short let platforms to have to seek planning permission first.”

TUI

“A negative reaction to TUI’s first-half results may be the fact summer bookings still haven’t quite recovered to pre-pandemic levels.

“They may not be far off but investors have had to wait some time for a proper recovery and they backed the company in a big fundraise recently so patience may be starting to wear a bit thin.

“Bookings are up and, for now, the company is able to pass higher cost on to holidaymakers. However, people’s capacity to spend on jetting away looks set to continue to be tested given persistent inflationary pressures.

“Competitive pressures also remain, with Jet2 taking TUI’s mantle as the biggest package holiday firm in the UK this year, and there is definitely no room for complacency.”

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