FTSE 100 higher as China considers mortgage reforms, house prices see biggest annual increase since December 2022, Lululemon avoids catastrophe, Dell boosted by AI server demand

“The FTSE 100 made a strong start to proceedings on Friday with Asian-focused financial firms HSBC and Prudential in demand,” says AJ Bell Investment Director, Russ Mould.

“This followed reports of reform in the Chinese mortgage market, which helped lift shares in the world’s second largest economy.

“In the UK, house prices rose at their fastest pace since the end of 2022 on a year-on-year basis but were down month-on-month to hint at the continuing pressures on purchasers from higher mortgage costs.

“The property market could get a renewed boost if the Bank of England opts to follow up its August interest rate cut with another reduction next month. Core PCE inflation data, the Federal Reserve’s preferred measure of prices, could offer some clues around the likely trajectory of rates across the Atlantic when it is released later today.”

Lululemon

“It could have been much worse for Lululemon. In a year when cracks appeared in the athleisure market and it had a catastrophic new product launch, there was always the risk that its financial results would be a flop.

“While it did miss sales forecasts and cut forward guidance, Lululemon managed to pull a few rabbits out of the hat to help it beat earnings estimates, including stronger margins.

“The shares moved higher in pre-market trading, perhaps a mixture of relief as well as the earnings beat, given the stock had previously been pummelled as investors priced in a lot of bad news.

“Sales growth has ground to a halt in the US, with womenswear the key problem area. Earlier this year it messed up by not stocking enough of the sizes or colours customers wanted. Now it regrets not having enough new products for women to drive sales.

“Even some of the new lines it did introduce didn’t always have a positive reaction, principally the Breezethrough leggings which were pulled from the shelves after a swathe of negative reviews and customer complaints.

“Competition is intensifying as other companies fight for a slice of the pie, having seen a surge in demand over the past decade for athleisure products. Layer on top the prospect of high interest rates making some consumers think twice about spending on non-essential items and you’ve got a much tougher backdrop for Lululemon.

“Add these negative factors together and you could have seen a catastrophic set of results. However, Lululemon is one of the few companies where China has come to the rescue rather than been a drag. Consumers in this part of Asia have snapped up its products in droves, making China the major engine for its overseas operations.

“The company believes it is still early days for growth in China and it is taking a localised approach to brand building, working with fitness instructors and influencers to get its name out there, and so far, its marketing strategy appears to be working.”

Dell Technologies

“Dell is most familiar to people as a provider of personal computers and laptops, whether for home use or in the office, but the bit of the business really generating excitement is AI-optimised servers.

“The Texas-based outfit is one of the biggest players in providing these high performance computers, powered by Nvidia chips, which sit inside data centres. Strong demand helped push revenue ahead of forecasts in the quarter just gone.

“It shows how the companies which are providing the equipment required to make AI happen are proving to be big beneficiaries of the tech trend – in much the same way as those offering picks and shovels made handsome profits selling to hopeful participants in the California gold rush.

“As well as private clients, Dell sees opportunities in ‘sovereign AI’ – leveraging existing relationships with global governments. These sorts of contracts can be sticky and large, making them an attractive prize for Dell to chase.

“The PC market is proving more problematic as Dell contends with increased competition and there is still the question of what the company will do with its controlling stake in cybersecurity operation SecureWorks. The business probably doesn’t have sufficient scale to compete against larger providers and Dell has previously explored a sale with reports suggesting it may revive these efforts.”

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