Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

THIS week JD Wetherspoon provided another readout on the UK consumer economy, as it reported better trading than before the pandemic. Sales were 11% up on 2019 levels in the first ten weeks of the company’s current quarter, boosted by a strong Easter and bank holiday period1. The shares jumped on Wednesday.

Meanwhile, Shoe Zone raised its profits forecast for the current year after reporting exceptional sales in June. The company also said lower container rates and favourable foreign exchange rates had boosted margins2.

Taken in conjunction with recent, positive reports from retailers like B&M European Value Retail and Poundland’s owner Pepco Europe, these results seem to confirm that cost-conscious consumers remain in the ascendency.

UK banks bounced back after a challenging few months dominated by concerns over rising future mortgage defaults. Following its 2022/23 stress test, the Bank of England said the UK’s eight largest banks showed no capital inadequacies.

The test employed a scenario more severe than the 2007-2008 global financial crisis. However, banks sailed through owing much to their improved asset quality, which was superior compared to when the Bank performed its stress test in 20193. That relaxed the downward pressure on bank share prices, with Virgin Money delivering one of the best gains of the week.

Water utilities including Severn Trent rallied on news of a cash injection at Thames Water. While the Thames saga may not be over yet, an improvement in sentiment may at least buy the sector some time.

Energy shares began the week under pressure as the latest data from China seemed to point to a stalling economy. Both BP and Shell bounced back latterly though, on further evidence of falling US energy supplies and a Saudi reiteration of production cuts to come. A trading update from Shell that was broadly in line with forecasts (given lower oil prices) also helped.

UK property landlords including Hammerson and Land Securities started the week on the back foot after HSBC downgraded commercial property stocks and warned the property market is in a “precarious” situation. However, with the consensus having already moved towards a “higher for longer” scenario for UK rates, there was room for contrarian investors to drive a recovery later in the week.

The same may have applied to UK housebuilders, which have also experienced a worrisome few months. Taylor Wimpey staged a modest rebound, having dipped briefly below £1 earlier in July.

Internationally, America’s quarterly results season rolled into view. First of the big companies to report were PepsiCo and Delta Air Lines overnight Thursday. Delta reported record revenues of $14.6 billion as the post-pandemic travel boom continues4.

Megacap tech stocks like Apple and Microsoft consolidated after their recent big gains, but NVIDIA continued to ride the AI train. Prices were underpinned by the latest US inflation data suggesting recent interest rate hikes are beginning to bite. Companies with profits weighted far into the future are particularly vulnerable to the interim effects of high interest rates.

The annual rate of change of the US consumer prices index was a lower-than-expected 3.0% in June, down from 4.0% in May5. That’s the lowest annual rate we’ve seen since March 2021.

Source:

1 JD Wetherspoon, 13.07.23
2 Retail Gazette, 12.07.23
3 Bank of England, 12.07.23
4 Delta Air Lines, 14.07.23
5 US Bureau of Labor Statistics, 12.07.23

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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