30th September 2021
Good morning After an 18 month delay the new James Bond film finally hits the big screen today. No Time To Die, the 25th film in a series that has been running for more than 50 years, is Daniel Craig’s fifth and final outing as Bond.
The run time of 2 hours and 45 minutes will provide movie goers with some much-needed escapism from the ongoing supply chain issues, labour shortages, fuel crisis…
- Sterling takes a pounding
- Next upgrades profit outlook…for the fourth time
Sterling takes a pounding
What’s going on?
The rate between the pound and the US dollar fell below $1.35 for the first time since January as fears of stagflation emerge.
Why is this important?
If you’ve never heard the term stagflation before then get ready to hear a lot more about it. It’s when inflation is high and growth stagnates – a nightmare scenario for investors and governments.
It's problematic because raising interest rates is used to tackle rising inflation but this makes borrowing more expensive which doesn’t help economic growth.
Inflation recently hit its highest level for nine years and the Bank of England predicts it will soon head above 4%, while monthly growth figures showed economic growth almost ground to a halt in July.
It’s these concerns over the UK economy that have led to a sell-off in sterling over the past few days, taking it to a 2021 low versus the dollar. Headlines on the petrol crisis and rising energy prices have spooked investors, with many worried that this will have knock on impacts on economic growth.
Central banks around the world increasingly look like they're going to take action on inflation. When this happens it's likely to come via higher interest rates or a tapering down of the enormous stimulus packages that many have implemented in recent years.
Although we’re not officially in stagflation territory yet, the mere talk has already rattled markets.
One consequence of a weaker pound is that it makes earnings of FTSE 100 companies look more valuable. That’s because around 70% of their revenues come from outside the UK, so a fall in the value of the pound makes their worth more. As a result the FTSE 100 tends to perform better than the more domestically focused FTSE 250 when the pound slides.
Next upgrades profit outlook…for the fourth time
File this one under nice problems to have. Yesterday Next upgraded its profit expectation for the fourth time this year. The clothing and homeware retailer said a recent rise in sales and the strength of its online business means it now expects both revenue and profit to be above pre-pandemic levels.
At the start of 2021 the company predicted £700m in profit but now expects this to be closer to £800m or 7% higher than before Covid. Revenue is expected to be 10% more than in 2019.
The company is gaining a reputation for under-promising and over-delivering, even admitting it wasn’t “without some embarrassment” for announcing another profit upgrade.
So why is Next doing so well when other traditional high street retailers are struggling?
It has a lot to do with its online business. It has invested in the website and mobile offering over the years meaning it was well placed to benefit from the ecommerce boom sparked by the pandemic. Even after the reopening of physical stores post lockdown, online sales have fallen back less than expected.
It wasn’t all good news, the retailer did utter a word of caution over the supply side issues plaguing many industries. Next revealed that higher shipping costs would lead to price hikes. And the shortage of HGV drivers and warehouse workers would create inventory challenges as it heads into the busy Christmas period.
Shares finished up over 4% at £84.36 on the announcement.
Stat of the day
The most searched for term on Microsoft’s Bing search engine is…Google
Other stories to keep you in the loop
- Three more energy suppliers go bust
- World queue up to mock Britain over petrol shortages
- Morrisons takeover tussle to be settled in auction process
- Evergrande: Struggling firm to raise $1.5bn as debt payment looms
- United Airlines set to fire nearly 600 workers for defying vaccine mandate
- British software company Blue Prism agrees $1.5bn sale to US private equity
Interesting links from around the web