FTSE 100 loses fizz, Rightmove rejects REA and Red Sea disruption puts pressure on DFS – All About Shipping

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• The FTSE 100 opens lower, losing ground gained after China’s major stimulus plan.
• Fed governor warns geopolitical tensions, strikes could fuel inflation.
• Red Sea disruption exacerbates DFS problems.
• Rightmove rejects REA Group’s latest bid.
• Geopolitical tensions keep gold prices near record highs and Brent crude prices around $75 a barrel.
• Co-op returns to profit, but shoplifting and fraud cost the group £39.5m.
• Boeing’s problems are mounting due to the ongoing wage dispute.

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

”The FTSE 100 has lost its spark in early trading as fresh concerns over the course of the global economy emerge. An escalation of tensions in the Middle East is also raising inflation concerns as a widening of the conflict could lead to a spike in oil prices, pushing up the cost of transport and goods. While stocks have gained ground on Wall Street, with the S&P 500 closing at a new high, sentiment in Asia and Europe is more subdued, with optimism waning following the Chinese central bank’s ‘kitchen sink’ stimulus.

Focus has turned back to a disappointing US consumer confidence reading, signalling renewed caution about spending going forward. That would weigh on the world’s largest economy and the outlook for companies with a global footprint. It could also limit the number of expected rate cuts going forward. There is uncertainty over what the Fed’s main driver now is – bringing inflation to its target or halting a deeper economic slowdown – and what that will mean for the direction of interest rates. Attention now turns to the release of the latest Personal Consumption Expenditures Index on Friday, as this is the Fed’s favoured measure of inflation. It is expected to rise again and Fed Governor Michelle Bowman has warned of upside risks to inflation and the potential for supply chains to become further entangled in conflicts and labour disputes.

Furniture group DFS has been hit by a double whammy of disruption across the Red Sea and consumer caution amid high borrowing costs. Many buyers have shunned larger items such as new sofas as they grapple with high interest rates. Those who did order were hit by delays, meaning the company had to delay recognising some fourth-quarter sales, compounding the problems and leading to a 65% drop in annual profit. Shares fell as investors were warned of a long road to recovery for the furniture retailer.

Rightmove is playing hard to get and Rupert Murdoch’s REA Group will have to up its game again if it is to have any chance of convincing the board to accept a takeover bid. Bids have been rejected out of hand so far and even the improved latest offer is seen as a material undervaluation of the company and its future prospects. With the UK government pledging to build 1.5 million new homes, interest rates falling and the property market reviving, Rightmove clearly sees significant growth opportunities ahead.

Brent Crude remains near $75 a barrel as supply concerns continue to mount. While crude prices are still well below their 2022 peak of nearly $120 a barrel, the intensity of Israeli strikes on targets in Lebanon has raised concerns that the conflict will spread further across the Middle East. This could potentially affect the distribution of oil from Iran and the passage of tankers through the Strait of Hormuz, a key route for global crude supplies. Oil prices have risen 8% in the past two weeks as Israel’s war against Hezbollah has escalated. However, prices are being kept in check for now amid expectations of lower global demand and rising US production this year as fracking and horizontal drilling have ramped up.

Gold prices are hovering near record highs as its appeal as a safe haven continues to grow amid heightened geopolitical tensions. The Fed’s massive rate cut and expectations of more cuts this year have also helped lift prices as it has weakened the dollar. Gold is primarily traded in US dollars, so currency declines can make the metal cheaper for buyers, helping to boost demand. The rise in gold prices this year has also been helped by buying from China, particularly its central bank. Part of gold’s appeal is as a hedge against inflation, which remains above target in some economies, and there are also concerns that governments around the world are continuing to accumulate large amounts of debt, which is linked to rising long-term inflation expectations.

The extent to which shoplifting continues to plague the UK retail sector is evident in the Co-op’s results. The group has managed to return to half-year profit despite theft and fraud costing it £39.5m. This is a significant chunk of profit, so it is no surprise that the group has been at the forefront of campaigning on the issue. The amount of money lost to thieves has increased by 19% compared to last year, highlighting the growing wave of crime facing retailers. Data from the Office for National Statistics shows that shoplifting offences rose by 30% in the year to March compared to the previous 12 months. They are the highest level since current police records began in 2003. This cannot be blamed solely on cash-strapped consumers struggling to make ends meet. The driving force behind such crime is criminal gangs targeting entire ranges of goods.

Boeing is still deep in a wage dispute, which is foreshadowing new production problems. Shareholders who hoped that the arrival of new CEO Kelly Ortberg in August would help the company quickly get out of trouble have been sorely disappointed. The deep-seated nature of the challenges facing the company has become even clearer, with the rejection of a 30% pay offer to workers. Relations between management, union leaders and workers appear to have broken down further, with workers complaining that they were not given time to vote on the latest proposal. The continuation of the strikes, which are affecting factories that produce the 737 Max and 777 planes, will compound Boeing’s production problems. Orders are already coming in late, leading to reduced capacity for customers such as Ryanair. Shares fell this week and are down more than 38% so far this year, and the turbulence looks set to continue.”