Investors await key US inflation reading, China misery continues, Salesforce shines and Frasers raises stake in Boohoo once again

“The FTSE 100 was holding on by its fingertips to its latest move higher as investors awaited the latest reading of core inflation from the US,” says AJ Bell Investment Director Russ Mould.

“The markets are so data driven right now, aping the stance adopted by central bankers, and it feels like a worse than expected reading could extinguish the recently improved sentiment.

“If what has been an up and down – or, more accurately, down and up August for the markets – is to have a positive conclusion then the Core PCE index, often seen as the Federal Reserve’s preferred measure of inflation, needs to come in at, or below, expectations.

“If it comes in higher than anticipated then we could see renewed nervousness ahead of the Fed’s meeting next month.

“The situation feels fragile given the continued dismal news from China, where property developer Country Garden continues on a path which could lead to a similar destination as its virtually demolished peer Evergrande, and the country’s manufacturing sector shrank for a fifth straight month in August.

“For those looking for a bright spot in the factory data, at least it is contracting a little slower than had been forecast.

“Renewed focus on profitable growth, and excitement around the company’s ability to benefit from AI, have propelled shares in Salesforce forward this year and second quarter numbers have helped further the momentum behind the stock.

“The global leader in customer relationship management software posted an impressive set of numbers but, more importantly, followed it up by delivering upbeat guidance.”

Boohoo / Frasers

“With many people focused on finishing up their summer holiday or making sure they’ve got everything ready for their children returning to school, some dealmakers have taken advantage of the relatively quiet market conditions to pick up shares.

“Sports Direct owner Frasers has quietly increased its stake in online fashion retailer Boohoo from 7.8% to 9.1%, picking up more stock after they traded at their lowest price in eight years.

“Dresses-to-tops specialist Boohoo has seen its share price fall 91% since April 2021 after its success story derailed. Growth has slowed, with sales being hit by the cost-of-living crisis, while it has faced heightened competition and the business has struggled with intense cost pressures.

“More people have gone back to shopping on the high street since the end of the pandemic, preferring to try on clothes before buying rather than ordering them blindly off the internet. That’s hurt online-only sellers like Boohoo.

“Furthermore, the fast fashion business has come under scrutiny as more people make ethical considerations and try to avoid buying items that might be cast away after one use.

“Mike Ashley-founded Frasers has developed a reputation for being a vulture – picking at the bones of businesses when they are down. While buying assets out of administration is its preferred modus operandi, it also likes buying equity stakes in companies when their shares are weak.

“Frasers is constantly looking for ways to offer a broader range of products to its customer base and there is a natural crossover between people who shop at Sports Direct and Boohoo.

“Both sets of customers want casual clothes that don’t cost a lot of money, so there might be an opportunity to put Boohoo’s products into Sports Direct outlets, making it a win/win situation for both parties. Sports Direct would give shoppers another reason to visit its stores, while Boohoo gets to benefit from having a distribution channel on the high street.

“This is all theoretical – it may simply be that Frasers believes Boohoo’s shares are too cheap and it is buying them purely as an investment, with the intention of selling them if the shares go up in value. However, what’s certain is that Frasers is watching the share price closely as it has been regularly buying more stock all summer.”

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