Markets wobble on UK inflation reading, Berkeley guides for big sales decline and Fedex warns of ongoing demand weakness

“Inflation is proving as sticky as superglue, prompting talk that central banks will keep raising interest rates. The prospect of the Bank of England potentially taking UK rates to 6% by early next year is alarming, particularly if you think that the current 4.5% level is already causing stress among consumers and businesses,” says Danni Hewson, Head of Financial Analysis at AJ Bell.

“It’s no surprise to see housebuilders among the top fallers on the FTSE 350 index as the prospect of higher borrowing costs could prove damaging to the property market as affordability issues become more acute.

“There are already ripples across the housebuilding sector, with Berkeley Group guiding for 20% lower sales for the year to March 2024. It has also raised a warning around signs of financial distress in the supply chain which is a worry.

“Elsewhere, there are some odd movements on the market when you consider the fragile backdrop. There have been some recent cracks in the luxury goods market, yet investors seem happy to keep bidding up shares in Aston Martin – up a further 1.3% today and the share price has more than doubled year-to-date. Brickmaker Ibstock also rose, despite warning signs for the housebuilding sector.

“The top mover on the FTSE 350 was Bakkavor, suggesting that if the world goes to pot, at least we’ll find solace in a pot of houmous.”

Fedex

“It’s fair to suggest the outlook for the global economy is not very bright judging by Fedex’s latest results. Typically seen as an economic bellwether, the logistics group has flagged ongoing demand weakness which has put pressure on the business to find more ways to cut costs.

“A pullback in e-commerce activity after the pandemic boom is certainly hurting, so too is the higher cost of borrowing which has caused businesses and consumers to think harder about where they spend money.

“Interestingly, shares in Fedex are now higher than on the eve of its September 2022 warning about a global recession. The stock slumped on that warning, yet the market appears to be looking through current concerns in the belief that any economic weakness will be shallow and short-lived.

“A lot of emphasis was made by Fedex in its latest conference call to cost savings, which is all very well, but one cannot ignore the fact that the backdrop is looking more fragile by the day. In six to twelve months’ time, if the world is looking in an even gloomier place because interest rates have gone up further, just remember there were red flags galore about demand weakness in Fedex’s results and commentary.”

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