FTSE 100 lower on weak US economic data and falling oil prices, British American Tobacco guides for profit decline, Indian stocks reverse gains, Vistry agrees rental homes deal and Chemring facility hit by adverse weather

“The FTSE 100 started Tuesday in negative territory amid signs of US economic weakness and mixed trading in Asia,” says AJ Bell Investment Director Russ Mould.

“Also not helping matters was a fall in oil prices, as OPEC’s surprise decision to start rolling back some of its production cuts before the end of the year hit the market. Index heavyweights BP and Shell, as well as other resources names, were on the back foot.

“News of slowing activity in US factories is a double-edged sword as it could provide the Federal Reserve with more room for manoeuvre on interest rates. Job openings data later today could reveal if a softening economy is being reflected in looser labour market conditions. Friday’s non-farm payrolls release is also in focus as investors await the latest decision from the Federal Reserve next week.

“Indian stocks reversed gains made on an initial exit poll after signs incumbent prime minister Narendra Modi may not have won as overwhelming a victory as expected. The fear will be that if he has to rely on alliances with smaller parties, any market-friendly policies will be diluted.

“Housebuilder and regeneration specialist Vistry has pursued a differentiated strategy versus its peer group in recent times, allowing it to significantly outperform the wider sector. A deal with private equity firm Blackstone and property investor Regis to build new homes for the rental sector is an example of the company’s approach as homes are pre-sold to partners with deep pockets.

“Chemring may be benefiting from shifts in the geopolitical weather but there’s not a lot the business can do about difficult meteorological weather with its Tennessee countermeasures facility hit by adverse conditions. Nonetheless, the market will likely be encouraged by the group’s record order intake – a barometer of the buoyant market conditions.”

British American Tobacco

“Guidance for a decline in first-half revenue and profit shows that even companies with addictive products aren’t always guaranteed to do well. British American Tobacco continues to struggle in the US thanks to consumers buckling under the pressure of high interest rates which has impacted spending decisions, together with the rise of illegal vapes. The company even had a little dig at the authorities for saying there is ‘continued lack of effective enforcement’ against illegal vapes.

“With the US tobacco and vape industry undergoing a shift in normal buying patterns, it’s only natural for wholesalers to change their ordering habits and that’s hurt British American Tobacco. At the same time, the company is investing in the US to strengthen its longer-term position, meaning it will have to lean more on other geographic regions to drive profits near-term.

“Additional headwinds present a longer-term problem for the group. Governments are increasingly anti-smoking and anti-vaping despite the tax income these products generate. More individuals are prioritising health and wellness, and this plays into a growing movement in society to stamp out bad habits like smoking and eating unhealthy things. Competition also remains fierce. Add these things together and it’s clear that British American Tobacco faces a tougher future.”

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