UK stocks fall as inflation data lowers chances of imminent rate cut, HSBC appoints new CEO, ASML riding high on AI, Adidas bounces back and Reckitt hit by tornado

“UK stocks took a tumble after components of the latest inflation data lowered the chances of a near-term interest rate cut from the Bank of England,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Services inflation still looks too high for comfort. The Bank has long said it is data-driven and today’s numbers don’t look soft enough across the board to convince the policy committee to change gear.

“The more domestic-facing FTSE 250 fell 0.3%, with interest rate-sensitive real estate and technology stocks acting as a major drag on the index. Housebuilders and property investors had hoped for a rate cut which would drive more activity in the broader real estate market so they will be disappointed at the latest data.

“Tech stocks often command higher valuations because of the potential for strong growth in the future, yet interest rates staying higher has a negative impact on the present value of future cash flows.

“Even though about three quarters of FTSE 100 members generate their revenue overseas, the equity index is still exposed to general sentiment towards the UK market because some of its biggest sectors are domestic players, including some in the banking and housebuilding sectors. The FTSE 100 fell 0.2% to 8,146, with weakness in the mining and pharmaceutical sectors also pulling down the index.”

HSBC

“Georges Elhedery had been the favourite to get the top job at HSBC ever since Noel Quinn said he was stepping down, and confirmation that he will become the next CEO should reassure investors. He is seen as a safe choice and a solid pair of hands who already knows the business inside and out.

“Safe and boring is arguably what a bank needs, rather than a maverick visionary. Running a bank doesn’t require a thirst for innovation in the way a technology firm does; it needs someone with attention to detail, good communication skills and a sharp focus. Ultimately, Elhedery will need to ensure that each of the cogs that make up the business are running smoothly.

“Elhedery’s background as a numbers man will come in handy as juggernauts of the banking industry such as HSBC continuously need to keep costs under control. If he can make the business run more efficiently, it will create the right kind of platform to look at longer-term strategic growth opportunities. Outgoing CEO Noel Quinn has already greased the wheels by offloading various businesses such as operations in Canada, France and Argentina, making HSBC leaner and arguably healthier.

“While Asia is HSBC’s core focus, the new boss is a multi-linguist and has experience doing business in the Middle East which might come in handy if the bank wants to attract more of the region’s wealthy individuals.

“Elhedery takes the wheel of a business in a good shape, but banking is a highly competitive industry and there is still a lot more to be done to make HSBC a stronger player on the battlefield.”

ASML

“ASML is further proof that the AI boom still has legs. Demand is soaring for the semiconductor equipment maker.

“Companies across countless industries are investing heavily in AI which means chip makers have the confidence to build more manufacturing plants. That feeds into greater demand for ASML’s equipment which plays a crucial role in the production of computer chips.

“Net sales of €6.2 billion were at the high end of guidance and gross margins of 51.5% were better than expected. Unfortunately, the strong figures weren’t enough to sustain the recent rally in the share price as the stock fell back on the results after investors banked some profit.

“Two negative factors triggered the share price pullback. Third quarter guidance wasn’t as strong as expected and China still represents nearly half of ASML’s sales, making geopolitical risk a big issue for investors to digest.

“Western policymakers have put restrictions on the type of products ASML can sell to Chinese customers, meaning it can only supply older equipment and not more advanced lines. Given the choice, investors in ASML might prefer for the company to have greater geographical diversification and far less reliance on China given heightened geopolitical sensitivities between the West and the Asian country.”

Adidas

“Adidas jumped 4.6% after giving the market hope that ailments in the sporting footwear market don’t appear to be getting worse.

“Big brands like Adidas and Nike have been clouded by worries that younger, fresher brands were eating their lunch and consumers were losing their appetite for buying the latest trainers. Adidas has now increased its full-year guidance for the second time in three months, putting a spring in its step.”

Reckitt

“Companies often blame the weather when things go wrong. Sometimes that’s a feeble excuse but occasionally it’s a valid reason such as a tornado which has ripped apart a warehouse in the US housing important products for Reckitt’s nutrition business.

“While the company is confident an insurance payout will cover most of the lost earnings, there is still a short-term risk to supplies which could see rival brands take centre-stage. Nutrition is a competitive market and any disruption to getting products on the shelves is a major risk to Reckitt as it gives rivals a chance to swoop in and grab consumers’ money.”

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