FTSE 100 makes steady start, unexpected drop in unemployment lifts pound, Dowlais profit and cash flow plunges and Genuit hit by weak construction market

“The FTSE 100 ticked higher on Tuesday morning as the calm which returned to markets in the latter half of last week persists,” says AJ Bell Investment Director Russ Mould.

“The calmer waters partly reflect the steadier showing of the yen after interventions from the Bank of Japan. This means less pressure on the yen carry trade where traders borrowed cheaply in Japanese currency to invest in areas like the US stock market.

“However, this does suggest that the trade may not have fully unwound and it therefore remains a shadow hanging over the market should volatility return.

“The pound was stronger as the UK unemployment rate unexpectedly fell, suggesting some remaining tightness in the jobs market and potentially reducing the likelihood of another rate cut when the Bank of England meets in September.

“However, the figures were mixed with wage growth falling to a two-year low and given this data is often subject to revision it is unlikely to move the dial for monetary policymakers on its own. Adding weight to the idea that the Bank of England might take a pause next month were figures from Kantar showing grocery inflation ticked higher in the four weeks to August.”

Dowlais

“Investors can be attracted to corporate spin-offs as these new entities are less constrained than they were within a wider group and better able to make decisions in their own interests.

“However, automotive engineer Dowlais is an example of a spin-off which, until now at least, has been a bit of a car crash – losing more than half of its market value since splitting off from Melrose in 2023.

“The company has undoubtedly been affected by a wider malaise in the sector with adoption of electric vehicles not following the trajectory which had been expected. This makes it tough not only for the carmakers themselves but also for businesses like Dowlais which supply it with components.

“That’s reflected in a pretty dreadful set of first-half results with a 9% drop in revenue translating into much bigger falls in profit and cash flow. The company has significant fixed costs which cannot be reduced at the same pace as business drops off.

“The company is not just surrendering to its fate; it has disposed of the loss-making hydrogen operations and is considering a sale of its powder metallurgy arm. Dowlais has also engaged in significant cost cutting. The danger is this reduces its capacity to place itself at the heart of the industry’s transition to EVs.

“The company is working to make itself ‘powertrain agnostic’ – meaning it can benefit whether demand is there for traditional vehicles, hybrids or electric vehicles – but achieving this level of flexibility could represent a tall order.”

Genuit

“Results from drainage, air conditioning and heating systems maker Genuit are indicative of the recent negative trends in the construction market.

“The positives for the company are the progress it has made on getting its own operations up to speed and that’s reflected in progress in the underlying operating margin.

“However, ultimately the company is reliant on an improvement in the wider backdrop and it will hope some of the recent green shoots in the housebuilding sector come to fruition.”

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