FTSE steady after bond rout and selling on Wall Street, Spirent warns on profit, Superdry agrees Indian licensing deal and Tesco shares up on strong result

“It feels gloomy right now with a ‘higher rates for longer’ assumption helping to sour sentiment,” says AJ Bell Investment Director Russ Mould.

“This is reflected in the sell-off in bonds – with US government bond yields hitting levels last seen in 2007, not a year with particularly happy memories for investors.

“The most recent catalysts include the JOLTS job openings survey, which showed a surprisingly buoyant US labour market, and the uncertainty across the Atlantic created by a closely averted government shutdown and the shock ousting of Republican speaker of the House of Representatives Kevin McCarthy.

“Later today there is a PMI reading from America’s services sector, with the market badly in need of an inline number which can help dial down some of the recent volatility. There will be similar hopes for Friday’s influential non-farm payrolls release too.

“Given the unhelpful backdrop, the FTSE 100 was proving resilient in early trading on Wednesday. Supermarkets and utilities led the way.

“2023 is shaping up to be a bad year for telecoms testing outfit Spirent Communications as it slips to share price lows not witnessed in seven years. Seen as a beneficiary of the rollout of the 5G mobile network, delays to investment programmes by its big clients means this opportunity is not playing out as hoped.

“A previous uptick in demand fizzled out over the summer and, with a fairly large component of fixed costs, the resulting drop in revenue will have an outsized impact on profit.

“High street fashion retailer Superdry secured itself some breathing space and reignited its international ambitions having agreed a £40 million licensing deal with India’s Reliance Brands – the injection of some much-needed funds providing a boost for long-suffering shareholders.”

Tesco

“Tesco is reaping the benefits of becoming a more competitive and well-run business.

“The grocery sector is cutthroat and Tesco is managing to stay ahead of the pack by being able to offer low prices on core products while also being very clever with its loyalty scheme.

“By offering big discounts to those using its Clubcard, Tesco is able to successfully compete against Aldi and Lidl while also learning more about its customers’ shopping habits, enabling it to tailor offers in the future.

“It is experiencing two tailwinds – one is from people trading down from more expensive grocers and the other is selling more posh food under its Finest brand as people look to treat themselves at home rather than eating out.

“Importantly for the customer, Tesco has lowered prices as global commodity prices fall. That should earn it a lot of respect from shoppers. A lot of businesses will have hiked prices over the past few years as they passed on higher costs but then kept those prices level when cost pressures eased, which is good for their profit margins but not exactly in the spirit of treating customers fairly.

“Online trends are interesting – the number of orders per week has increased and so has the basket size. It has also been able to give more customers everything they ordered. One of the perils of online grocery shopping is the driver turns up with multiple substitutions as what you wanted wasn’t available. Better stock management and having a more efficient picking operation should lead to higher service levels and greater customer satisfaction and that is all-important in the quest for customer loyalty.

“The improvement in Tesco’s banking arm performance could make it easier to sell the business if it chooses to go down that route. Earlier this year there was speculation that Tesco might sell its financial services arm in an effort to focus solely on its supermarkets.

“While offering the likes of credit cards and insurance mean greater engagement with customers and the opportunity to cross-sell products, we’re now in an era where corporations are focusing on what they do best rather than trying to have fingers in as many pies as possible.”

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