FTSE 100 off to a strong start as miners rally, UK bond market in turmoil, US inflation figures in focus and ASOS looks to fix balance sheet

“UK stocks made a strong start on Friday after an Nvidia-inspired charge on Wall Street overnight helped move investor attention away from the rumbling US debt ceiling crisis,” says AJ Bell investment director Russ Mould.

“Bumper earnings from chipmaker Nvidia indicated some substance behind the recent hype over AI as big players limber up for a battle for supremacy in this nascent market and get ready to spend on the infrastructure behind it.

“The first cabinet-level talks between the US and China in months provided the backdrop for a rally in UK mining stocks, also supported by positive broker comment, and this helped to power the move higher for the FTSE 100.

“In the UK’s domestic economy retail sales held up better than feared but the continuing ructions in the bond market raise the spectre of punishing rate increases following the unexpectedly sticky inflation numbers earlier this week. Chancellor Jeremy Hunt is on record as saying the pain of recession would be worth it to help bring down the rate of inflation.

“Rising borrowing costs could derail the recent improvement in previously bombed out consumer sentiment and undermine the outlook for what has been an impressively resilient retail space.

“Later today the US will print its latest core inflation figures as the prospects for interest rates in the US and UK appear to diverge.”

ASOS

“The key question for ASOS is: will raising £80 million by issuing new shares and refinancing its debt really cut it?

“The fast fashion online retailer hopes this can create a solid base for the company’s recovery. However, with the company paying high rates of interest on its newly agreed debt, much of the money raised from shareholders will almost immediately be going out the door on servicing its borrowings.

“The danger is ASOS hasn’t raised enough this time round, either through choice or necessity, and it will have to dig out the begging bowl again before too long. After all, the company is not generating free cash flow and the prospects of it doing so soon do not look too encouraging.

“ASOS and other pure online plays did well during the pandemic as there was no alternative and people were less likely to make returns. That situation has now reversed leaving the company exposed to a difficult combination of rising costs and shrinking demand, as well as mounting competition.

“And, longer-term, the whole idea of fast, disposable fashion may not fit with the attitude and ethos of a youthful demographic which are particularly sensitive to environmental issues.” 

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