UK markets up ahead of Autumn Statement, Nvidia fails to win over investors and B&Q-owner Kingfisher sunk by French woes

“UK stocks were in fashion ahead of the Autumn Statement at lunchtime. The more domestic-focused FTSE 250 index rose 0.2% to 18,378, with property and construction stocks among those in demand,” says Russ Mould, Investment Director at AJ Bell.

“Chancellor Jeremy Hunt is expected to unveil measures to boost British business including removing planning red tape, boosting foreign investment and cutting business taxes.

“Talk that Hunt will make changes to National Insurance would amount to a tax cut for consumers, implying that many will have a few extra quid in their pocket on payday to spend on goods and services. That could be good news for retailers and leisure companies.

“Sterling has strengthened 3% against the US dollar over the past month to $1.2529 while the 10-year gilt yield has fallen from 4.54% to 4.13% over the same period, suggesting the market is starting to have more confidence that UK interest rates have peaked in the current cycle and that inflationary pressures are easing.

“Investors will be watching the currency and government bond yields like a hawk when Hunt gives his speech at lunchtime, hoping his announcement doesn’t cause tremors in the market like with the disastrous Truss/Kwarteng mini-Budget a year ago.

“Software group Sage got another leg-up from its latest results, meaning its share price is now up nearly 50% over the past eight months. Business is going well and that’s translating into growth in underlying recurring revenue and profit.”

Nvidia

“The downside of being a superstar company is having to continuously smash expectations. US chipmaker Nvidia certainly beat market forecasts for its third quarter apart from a small miss on free cash flow. However, investors want nothing short of remarkable each time the company reports and there wasn’t enough pizzazz in the announcement to drive its shares higher, at least for now as the long-term outlook is still bullish from the company’s perspective.

“China has been a headwind for Nvidia thanks to export control regulations by the US government. Guidance that sales to China and other markets affected by the regulations including Vietnam will decline significantly in the fourth quarter certainly casts a cloud over what’s been a strong growth story to date.

“True to form, Nvidia doesn’t seem too worried, saying weakness from these areas will be more than offset by strong growth in other regions. That reassurance seems to have pacified investors who initially panicked at the news and helped reverse most of the share price slump when the results came out.

“Nvidia is going all-in on AI, believing we’re on the cusp of a radical shift in the world of technology. Companies in every industry are exploring ways to use AI to improve productivity and that creates a huge runway for Nvidia to grow its earnings.

“Its key challenge is to keep up with demand and to keep innovating, rolling out new products that can help companies, while also ensuring it remains at the cutting edge of the AI industry. Nvidia is the dominant force in market and there is no room for complacency, otherwise competition will be biting at its heels.”

Kingfisher

“B&Q-owner Kingfisher had a great opportunity to fix the roof while the sun was shining during Covid. As one of the few retailers still able to trade during a period when people were keen to refresh the home in which they were spending an inordinate amount of time, the company saw big gains in profit and its share price.

“This had followed years of uneven performance and today’s profit warning suggests the company is returning to its patchy form of the past. The issue this time is the French business which is performing worse than expected.

“The problem seems to be unseasonably warm temperatures dampening demand for insulation and heating products. Blaming the weather never goes down well with the market.

“There is no question the economic backdrop is far less helpful to Kingfisher today. DIY activity is closely linked to property markets which have been scarred by rising borrowing costs and weak consumer confidence.

“The message from CEO Thierry Garnier, appointed in 2019, is that the company will focus on what it can control like growing market share and driving productivity gains – the latter an area which can be notoriously difficult to execute on. Questions may be raised about the structure of the group and the role the various businesses play in it and whether any of these are candidates to be sold off.

“If Garnier is to have a happier ending to his tenure than his immediate predecessor and compatriot Véronique Laury, he needs to show he can get the business on track in tough times as well as in favourable market conditions.”

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