Markets perk up as investors adjust to new landscape, Imperial Brands fires up another £1 billion buyback and Metro Bank shares slump on funding speculation

“The market sell-off which saw government bond prices fall and yields rise has taken centre stage this week, and investors continue to watch the 10-year Treasury yield like a hawk. Having dipped slightly on Wednesday, the yield has since crept back up to 4.75% as investors readjust portfolios to align with the prospect of interest rates staying higher for longer,” says Russ Mould, Investment Director at AJ Bell.

“The bond market wobble has knocked confidence slightly, but not enough to put long-lasting fears among investors as nearly all of the major indices in Asia and Europe traded higher on Thursday.

“It looks like a typical knee-jerk reaction by investors – there have been plenty of signs to suggest central banks will continue with their fight against inflation by keeping rates high, but a lot of people seem to have been too complacent and expected a sudden drop in rates.

“With the message now loud and clear that this situation is unlikely in the near-term, investors can have some sort of certainty and thus reposition their trades accordingly.

“The FTSE 100 nudged up 0.1% to 7,422 with Tesco extending yesterday’s gains following robust results and Imperial Brands clawing back some of the losses it experienced when Prime Minister Rishi Sunak outlined plans to clamp down on smoking and vaping.

“A trading update from Imperial Brands saw the company appease shareholders with a new £1.1 billion share buyback, following last year’s £1 billion programme. The UK is already one of the company’s weak spots, so political intervention will only add to its problems. However, this is a global business and the company says the US, Spain and Australia remain key opportunities to offset weakness elsewhere.

“If anyone wants proof that the cost-of-living crisis is still hurting parts of the country, just look at Ramsdens’ latest trading update. The company has been a beneficiary of hardened times and its core pawnbroking operations have been busy, to put it mildly.”

Metro Bank

“Is the age of the challenger bank over? Media speculation suggested Metro Bank urgently needs to raise more cash, after regulators dismissed a request last month to lower the amount of capital it needed to hold to underpin its mortgage business. The company responded by saying it was looking at its options including issuing new shares and debt, refinancing and asset sales, but no decision had been made.

“Metro as an individual institution is certainly being pushed into existential territory with the shares now at all-time lows.

“As ever when something goes wrong in the banking sector, there will be concern about contagion risks but, in truth, Metro Bank has been struggling for years to get on a path to sustained profitability and has made lots of mistakes – notably a big accounting scandal in 2019.

“Metro was a bastion of the attempted disruption of the high street banking sector coming out of the financial crisis – becoming the first new name in that sector for more than a century at its launch in 2010.

“Winning attention for initiatives like offering water bowls for customers’ dogs and other little touches, it seems Metro was rather less adept at the nuts and bolts of banking itself. The key question is will it find enough backers should it conduct a fundraise?

“Existing creditors and investors may feel they have no choice but to participate, though they are unlikely to do so with any great enthusiasm.”

These articles are for information purposes only and are not a personal recommendation or advice.