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17 January 2024

Market Round-Up

The 2021 Suez Canal obstruction remains engrained in our memories as one of the more noteworthy events of the 2020s. The fiasco generated significant disruption to global trade and helped to further fuel inflation, both domestically and abroad. A similar situation risks being repeated due to the actions of Houthi militants and their ongoing attacks on commercial shipping in the Red Sea.

As a result, many freight companies have decided to divert their vessels away from the Red Sea, forcing them to go round the Southern point of Africa instead. Such a decision is likely to significantly drive-up fuel and time costs for cargo ship operators, with Maersk, one of the largest freight companies on the seas, estimating that the detour will increase fuel expenditure by approximately 50%.

Maersk’s chief executive, Vincent Clerc, stated that he expects the disturbance to last for months, generating anxieties about the disruption’s mounting toll on global trade. At the beginning of January, the volume of sea traffic going through this crucial trade channel has plummeted to only 10% of what it was at that point in the previous year, and we have now seen attacks launched by the US-UK taskforce in a bid to render the region safe again for international shipping.

Already, the cost of shipping a 40ft container on a long-haul route has more than doubled between December and January. The ramifications could be severe, with the reintroduction of inflationary pressure into the European and North American economies possibly delaying central bank plans to cut interest rates.
The Christmas season has proven quite lucrative for a selection of UK grocers and retailers. Tesco and Marks and Spencer (M&S) have come out on top, recording the most impressive growth figures during this year’s festive period.

Tesco raised its profit outlook to £2.75bn, up from the previously projected range of between £2.6-2.7bn, after like-for-like sales rose 9.2% in the four weeks to Christmas. This was mainly driven by strong demand for products within the Tesco Finest range, as Tesco cut prices on various foodstuffs and consumers cut back on discretionary spending, choosing to replace activities like dining out with home cooking.

M&S has similarly benefited from strong food sales, which increased by 10% in the 13 weeks to December 30th, compared to the previous year. The FTSE 100 company has attributed this to the quality and appeal of its products on offer. M&S also outperformed in the retail division, with clothes and home sales beating expectations.

Conversely, Sainsbury’s has suffered from a fall in general merchandise sales, which fell by 0.6% in the 16 weeks to January 6th. This contrasted with a 9.3% increase in grocery sales during the same period, making some question if the company is neglecting its non-food division. Despite this, Sainsbury’s has not altered its pre-tax profit forecast as like-for-like sales still rose 7.4% in the last quarter of 2023, 1.5 percentage points higher than in Q4 of 2022.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance.
 
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