Market Round-Up

May brought positive news regarding US inflation figures, marking the 11th consecutive month of easing price increases. Following a peak in inflation at a 25-year high of 9.1% in June 2022, the economy seems to be feeling some impact of the central bank's aggressive cycle of interest rate hikes. According to the Bureau of Labor Statistics, headline figures saw a decline to 4% in May, primarily influenced by a reduction in energy prices. However, despite this apparent downward trend, core inflation, which provides a more dependable indication of underlying economic pressures by excluding volatile elements such as food and energy prices, saw a modest increase. Notably, increasing housing-related costs made up the bulk of this sticky core data, implying that sticky prices remain persistent across the economy. Despite these lingering price increases, the US stock market showed a positive reaction on the back of the report, with the US S&P 500 and Nasdaq indexes both rising approximately 0.7% and investors interpreting this as a positive sign for the wider economy, indicating the possibility of a Federal Reserve interest rate pause in June, while maintaining a cautious stance.

In a surprising turn of events, UK-based We Soda, the world's largest producer of natural soda ash, has abruptly cancelled its plans to go public on the London Stock Exchange (LSE) just weeks after announcing the move. This unexpected decision comes as investors' cautious sentiment toward the initial public offering (IPO) market becomes apparent, posing challenges to the UK's financial centre. The ramifications of We Soda's cancellation reflect a broader story about the evolving landscape of UK equity markets and the potential consequences for the country's financial services industry. We Soda, responsible for supplying the essential natural compound used in numerous everyday products such as glass bottles, batteries, detergents, and soaps, had initially aimed to raise £600m through its listing on the LSE. However, Chief Executive Alasdair Warren recently revealed that investors, particularly in the UK, “remain extremely cautious” about the IPO market. Warren's statement contrasts starkly with his previous confidence in London as a thriving financial hub, highlighting the underlying concerns surrounding the IPO market's viability.

The We Soda news represents just a small fragment of a larger narrative surrounding UK equity markets. Historically, the LSE has attracted a disproportionate share of investor capital relative to the country's economy. Yet, over the past two decades, this trend has dramatically shifted. In 2000, UK-listed equities comprised 11% of the MSCI World Index, which tracks the majority of the global stock market. Today, that figure has dwindled to a mere 4%, indicating a substantial decrease in investor interest. Such declines have partly been driven by pension funds veering away from British stocks, opting for lower-risk assets such as bonds and overseas equities. This shift not only diminishes the UK's presence in global markets, but also has far-reaching implications for the country's financial services industry. Listing activities generate substantial ancillary business, contributing more than 10% of the UK's entire economy and tax revenues. Therefore, We Soda's decision to forgo a UK listing deals a blow to the financial services sector, prompting a critical examination of London's competitiveness as an attractive destination for businesses.

At the start of June, the Yorkshire-founded, premium high street supermarket retailer Marks & Spencer released its annual report. In this, Chairman Archie Norman wrote a letter to shareholders outlining some of the key developments over the last year, highlighting strong trading performance across most parts of the business, managing to increase its market share in both Clothing & Home and Food over the period, despite a difficult trading environment. The company also saw improved returns within its international business; sales were up 11.2% with profits recovering comfortably despite the impacts of the war in Ukraine and EU border-related costs. While ahead of expectations, the retailer forecast a modest growth in revenues and a slight decrease in profits for this financial year as it believes the economic outlook for consumer spending remains uncertain given the levels of inflation currently seen.

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