Markets await ‘burden on business’ Budget, BHP ‘moves on’ from Anglo American, GSK gets the shivers, Next beats expectations, Alphabet gets cloud boost and Volkswagen sales plunge

“Get ready for a Budget that’s a burden on business,” says Russ Mould, Investment Director at AJ Bell.

“The prospect of a higher rate of employer National Insurance, a rise in the minimum wage and changes to employment rights will all drive up costs. That’s likely to be seen as negative for job creation, wages and consumer prices, and businesses will inevitably pass on extra costs to the customer.

“Rachel Reeves might pitch the Budget as putting more pounds in people’s pockets, but their money might not go as far as they’d like or appetite could wane for splashing the cash.

“The bond market has already braced itself for higher levels of government borrowing, with gilt prices falling in recent weeks which has lifted yields. The 10-year gilt stood at 4.256% in early trading on Wednesday, having yesterday hit its highest level since June at 4.32%. The 10-year yield had eased back to 3.763% in the aftermath of the general election but changed direction in September upon indications that the government might move the goalposts to fund investments.

“Sterling remained calm ahead of the Budget, edging higher to $1.30216 but not wildly out of line with where it has traded for much of October.

“Investors will be hoping this isn’t simply the calm before the storm. The last thing the market wants is for Reeves to pull a Halloween-themed rabbit out of the hat that scares investors and causes another Liz Truss-era horror show.

“For all the wild speculation around what might be in the Budget, investors don’t seem to be on tenterhooks going into the announcement. All the classic UK stocks heavily tied into the economy such as banks, housebuilders and retailers were in demand in early trading on Wednesday. Whether that remains the case after 12.30pm is another thing.

“The FTSE 250 kept its head above water and that’s the index to watch closely as it has a much greater proportion of stocks generating their income from the UK than the FTSE 100.”

Anglo American / BHP

“BHP’s chairman has downplayed the idea that the miner might come back with another bid for Anglo American. Speaking at BHP’s annual shareholder meeting, chair Ken MacKenzie said the company had ‘moved on’.

“There was a lot of speculation that BHP might have another go at buying Anglo after its previous attempts were shot down, partially because the structure of the deal was too complicated.

“BHP may no longer be interested in buying Anglo as a whole but it might create a plan B which is snapping up individual assets. It’s had plenty of time to analyse Anglo’s portfolio and might find that cherry picking assets is a quicker and more straightforward way of increasing scale than the hassle of buying a whole corporation. The downside is that it might have to pay up to secure certain assets.”

GSK

“Investors had hoped GSK’s results would be a shot in the arm for its share price. Unfortunately, the update had the opposite effect and sent chills across the market.

“Vaccine sales have been weak and GSK downgraded full-year guidance for this area of its business.

“That is not a good look for GSK given that vaccines are a central part of its strategy. Vaccines have become a thorn in the side for GSK and it needs to find a cure fast.”

Next

“UK retail star Next has done it again. The company is an expert at managing expectations, frequently setting the bar low with cautious guidance and then leaping over it.

“To see full-price sales come in meaningfully above expectations is impressive in an uncertain consumer backdrop – for a change, we’ve got a company thanking rather than cursing the weather gods as chilly temperatures helped it sell higher price tag items like coats and jackets.

“Thanks to this latest upgrade Next is on course to join an exclusive club of UK retailers with the company on track to break through the £1 billion barrier on profits for the first time this year.

“With the shares in touching distance of all-time highs and some typical caution on display in terms of the outlook it’s perhaps not a surprise to see this update get a reasonably muted response.

“The next step for Next is to pursue its international ambitions with expansion overseas still in its infancy.”

Alphabet

“Google-owner Alphabet’s latest quarterly results seem to have got investors enthused about the stock again after a few months in the doldrums.

“The pre-market move higher in the shares could be pinned on the sharp acceleration in growth for its Google Cloud business which is being supported by the implementation of AI.

“There were some less-positive elements in the update. Search advertising growth slowed from 14% to 12% which may add to concerns this foundational part of the business is under threat from AI chatbots. Alphabet will hope innovations like ‘circle to search’, which allows people to search for a product by circling an image in a photo, will keep search relevant in the year to come.

“The company is also spending huge sums on AI with capital expenditure expected to see further growth in 2025, having already come in consistently ahead of 2023 levels so far this year.

“Eventually the market will want to see evidence this spending is delivering a meaningful return. For now, Alphabet’s beat sets a positive tone ahead of updates from other Magnificent Seven names through the rest of this week.”

Volkswagen

“Like a lot of companies in the West Volkswagen is finding life difficult in China, but the response to a big drop in sales and profit shows that its problems run deeper.

“The company wants to cut costs but that may be difficult given the attitude of its employees who are looking for pay increases. Expect a big battle over plans to close several plants and lay off tens of thousands of workers.

“Like many of its peers the industry is in a difficult position, essentially in flux as the transition to electric vehicles has encountered some major speed bumps. Not least a sharp decline in sales in its domestic German market after the government cut back purchase subsidies in late 2023.

“The problems around electric vehicles come down to two things – people still find the ticket prices are too high and they have ‘range anxiety’ which leads to a preference for hybrid vehicles. Western car manufacturers also face tough competition from Chinese operators offering lower cost models.

“There was a smidge of positive news in the sector as Aston Martin Lagonda slashed its pre-tax losses in the third quarter although, like Volkswagen, the company is experiencing difficulties in China and supply chain disruption.”

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