Sea of red for European shares, Sainsbury’s non-food operations continue to lag, Shoe Zone hit by shipping costs, BYD closes the gap on Tesla

“Without a positive contribution from the big oil producers, the FTSE 100 would have experienced an even worse day than it already has done. Falling 0.5% in early trading to 8,128, most sectors were in the red apart from oil and gas, with BP and Shell rising on the market thanks to oil prices extending yesterday’s rally to trade at their highest level since April,” says Russ Mould, Investment Director at AJ Bell.

“Investors are eagerly awaiting new US jobs data and a speech from Federal Reserve chair Jerome Powell, two events which could provide the all-important clues on how the central bank might act with monetary policy.

“Markets’ current thinking is that any sign of weakness in the American jobs market could encourage the Fed to make the long-awaited first cut in US interest rates from the 5.5% mark reached last summer. That would be seen as a move to boost US growth, by making credit cheaper and easing the pressure on US government finances in the process, to the benefit of company earnings, thanks to higher demand and lower interest bills.

“The theory is that lower returns on cash and lower bond yields will persuade investors to see a higher return in different, albeit riskier, asset classes, including equities.”

Sainsbury's

“Sainsbury’s has the same nagging feeling as the England football team – it eventually scores a goal but you know it could do a lot better.

“On the one hand, the food business is trucking along nicely and the grocer is winning market share. On the other hand, non-food items across clothing and general merchandise including Argos aren’t resonating with its customer base.

“Sainsbury’s has a food-first strategy so it might argue that as long as the core part of the business is doing fine, the rest will eventually catch up. However, the non-food operations have been letting the side down for a long time and causing unwelcome distractions for management when they could be doing even more to capitalise on the new-found strength in food.

“It’s beginning to have a lot of similarities to the Marks & Spencer of old, running a two-pronged business with one engine constantly spluttering. Marks & Spencer has finally fixed its engine problem and is now racing away, which might give some hope to Sainsbury’s situation.

“Analysts are optimistic about the non-food bit because the year-on-year comparative figures will soon be easier to beat, but that doesn’t get to the root of the problem, which is why consumers aren’t choosing Sainsbury’s for clothing and general merchandise in the way they used to.

“After all, its Tu clothing brand was once seen as a robust player in the market, and Argos has certainly been the envy of the retail world in the past.

“It’s clear that a lot more work is needed to reshape the proposition, otherwise one has to question if the non-food operations are worth bothering with at all.”

Shoe Zone

“Budget footwear firm Shoe Zone left investors with cold feet after its latest profit warning. Perhaps the most significant takeaway from the downbeat guidance was the flagged increase in shipping costs, with upward pressure on container prices thanks to the reroute away from the Red Sea and the Suez Canal.

“Shoe Zone’s warning also dragged down LED lighting specialist Luceco, another big importer of product from overseas.

“It is a reminder that inflationary pressures remain in the global economic system which may have wider implications than tripping up Shoe Zone. It also means investors will be closely monitoring companies with global supply chains to see if they are experiencing a similar impact.

“Because Shoe Zone’s appeal is based almost entirely on value, it has limited scope to pass on costs to consumers. Like lots of retailers, Shoe Zone is also at the mercy of the weather, with the unseasonably soggy conditions for much of 2024 meaning its spring/summer offering hasn’t been flying of the shelves like it usually would.”

BYD

“The world’s second biggest electric vehicle maker by volume, China’s BYD unveiled record new EV sales in June, meaning its second quarter sales were also at an all-time high. This closes the gap with Tesla, to which it surrendered the mantle of global EV leader in the first quarter when sales were notably sluggish.

“While some of the driver for the sales increase has been price cuts, it is significant that BYD has revamped its tech to encourage greater demand.

“BYD has lifted its profile thanks to its position as an official partner of the Euro 2024 football tournament. However, it faces the threat of tariffs in Europe which could stall its momentum, with the US already taking action to protect domestic car makers.”

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