FTSE 100 flat on US Independence Day, housebuilders under pressure, banks summoned to FCA, Sainsbury’s enjoys increase in sales volumes, Ryanair and Wizz Air see further passenger growth

“The FTSE 100 started Tuesday flat and with the US markets largely closed for Independence Day it could struggle for direction throughout the trading session,” says AJ Bell Investment Director Russ Mould.

“Earlier this year housebuilders were breathing a sigh of relief as the surging mortgage rates seen in the wake of the mini-Budget eased. That’s no longer the case amid sticky UK inflation and the prospect of higher rates for longer.

“Ahead of a string of updates from the sector, negative commentary from investment bank JPMorgan is putting the likes of Persimmon and Barratt Developments on the back foot.

“The pressures on households caused by the UK’s inflation problem led regulators and politicians to take a more active interest in the activities of consumer-facing businesses. First supermarkets were in the crosshairs and now the banks are being summoned to the FCA to explain why mortgage rates are going up more quickly than savings rates.

“In a global context there was some relief, reflected in gains in Asia Pacific markets, at the decision by the Australian central bank to keep interest rates unchanged. It is holding fire as it waits to see the impact of its previous hikes. Playing the waiting game has logic for monetary policy makers given the typical lag between increasing rates and seeing the full impact on the economy.”

Sainsbury's

“If the overall value of a supermarket’s sales were not going up at a time of rampant food inflation something would be seriously wrong, but what’s more telling in the latest update from Sainsbury’s is news of an increase in volumes.

“Under Simon Roberts, who took over the business a little more than three years ago, there has been a renewed focus on its core food retail operation and this seems to be paying off. The market positioning of Sainsbury’s means it could be taking some business away from the more premium-priced Waitrose and Marks & Spencer, helping to compensate for any market share lost to the German discounters Aldi and Lidl.

“The company is also benefitting from its deliberate push to use its Nectar loyalty scheme to offer keener prices to repeat customers, cribbing the idea from its main rival, Tesco.

“There will be wider relief at Roberts’ indication that food price inflation is starting to ease. The company’s general merchandise arm – in essence the Argos retail brand – is more exposed to economic uncertainty than the grocery division. After all, people need to eat, they don’t need to buy products like toys and electrical goods.

“Sainsbury’s is at least being proactive in this area, working on efficiencies in the background so it can attract customers with keener prices in the foreground.”

Ryanair / Wizz Air

“Low-cost airlines are having a whale of a time thanks to the sharp rebound in travel demand. The decision to expand fleet capacity during the cost-of-living crisis was a calculated risk and the move is now paying off.

“Ryanair grew its traffic by 9% year-on-year in June, while keeping its planes 95% full on average. Wizz Air saw even bigger growth in demand, carrying 22.5% more passengers in the month at a load factor of 92.2% (June 2022: 86.1%).

“Strike action remains the key hurdle to clear, particularly over the all-important summer period. Air traffic controllers downing tools caused 160,000 Ryanair customers to suffer from cancelled flights in June and further ATC strikes are planned in July. There are additional airport and airline-related strikes threatened for the coming months which could see big delays or cancellations, causing further mayhem.

“The frequent recurrence of these issues means a lot of travellers have become used to the problems that come with flying, but they still go ahead and book flights. Airlines will be thankful for that, although they would prefer a much smoother experience for the customer.”

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