FTSE 100 lower as financials fall, Fed official raises prospect of rate cuts, supermarkets face loyalty card competition probe and Halfords warns on profit

“The markets struggled to find direction despite signals from Fed Governor Christopher Waller that interest rates could start to fall next year – catnip for investors right now. US markets finished flat and European stocks started Wednesday on the back foot,” says AJ Bell Investment Director Russ Mould.

“Financials helped to drag the FTSE 100 lower amid speculation about rate cuts given the potential implications for their profitability.

“The current wave of respiratory illness in China is understandably causing nervousness despite assurances from Beijing this is not a novel virus but is instead a result of a post-lockdown surge in sickness.

“Supermarkets Tesco and Sainsbury’s are taking news of a probe by the competition authorities into their loyalty schemes in their stride for now. However, signs of a clampdown on the practice of offering Clubcard and Nectar card holders special discounts could be more damaging.

“After all, Tesco’s Clubcard initiative was successful enough to prompt Sainsbury’s to follow suit and when household budgets are under real pressure it is an obvious way to lock in customers.”

Halfords

“A profit warning less than a fortnight since takeover talk surrounded Halfords certainly changes the narrative. No sooner were investors excited about the prospect of Halfords buddying up with van hire group Redde Northgate, we’ve now got reduced earnings guidance amid weak sales of bikes and tyres. The share price has understandably taken a beating.

“Apart from a fruitful period during the start of the pandemic where everyone was clambering to get hold of a bike, cycling hasn’t been kind to Halfords for a long time. One has to question the long-term future of bikes within the business.

“While it has a competitive strength in being one of the few national brands to sell bikes, thereby making it front of mind for consumers looking to buy such products, this remains a highly discretionary purchase and therefore earnings visibility is poor.

“The future for Halfords seems to be in motoring services where there is a more of a defensive element to its earnings. People rely on their cars to get from A to B and if something goes wrong most have no choice but to pay for repairs. On the whole this is non-discretionary spend and that creates opportunities for Halfords to find more ways to earn from drivers.”

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