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04/09/23 Labour Day Briefing

Forecourt fuel prices rose at some of the most rapid rates in over two decades during August, as rising wholesale costs from the likes of production cuts hit drivers.

A near-7p and 8p rise in the prices of petrol and diesel respectively marked the fifth and sixth-largest monthly hikes in 23 years, automotive services firm RAC said on Monday.

Higher wholesale oil prices prompted by OPEC+ cuts earlier this year largely weighed in, RAC said, as retailers work on tighter margins thanks to a probe by the Competition and Markets Authority (CMA) following stubbornly high prices at pumps previously

2:28pm: Airlines could face crackdown on hidden fees

Airlines could face a crackdown on hidden fees, as part of a new government plan to improve transparency for people shopping online.

A public consultation being launched by the Department for Business and Trade on Monday will look at ways to clamp down on firms that add necessary charges at checkout, bumping up the final price.

It comes as new government research suggests the practice is "widespread" across a range of industries.

In total, this costs consumers £1.6bn a year, the research said.

Susannah Streeter, head of money and markets, Hargreaves Lansdown noted: "Inflight add-ons are highly lucrative for airlines, adding a big cushion to the bottom line."

She said while this ‘drip pricing’ strategy doesn’t seem to be putting off passengers from splashing the cash, a "deepening cost-of-living crisis" may make passengers "more sensitive to add-on costs."

"More legroom or another bag might be worth paying the price for, if bank accounts are flush, but as budgets are eroded further these ‘nice to have’ extras will be easy to ditch," she suggested.

2:02pm: Superdry tumbles on return from suspension

Heading into the afternoon, and shares in London are wilting a touch - perhaps traders have headed out to enjoy the late Summer sun.

More of a tumble, than a wilt, at Superdry which has returned to trading after suspension and promptly fallen 11%.

Trading in the fashio retailer's shares was suspended following a delay to the publication of its annual results.

The firm revealed on Friday that it had swung to a £150 million loss as it warned over stunted sales growth this year amid intense pressure on shoppers.

Not a great first day back.

12:50pm: Hammerson boosted by Morgan Stanley (NYSE:MS)upgrade

As mentioned below, Morgan Stanley (NYSE:MS) has been updated its ratings and price targets across the European property sector.

We’ll concentrate on the UK moves, where the investment bank has an overweight skew, and where an upgrade for Hammerson has lifted the share price by 3.4% to 24.76p.

“UK balance sheets screen as sufficiently capitalised in the context of modest asset appraisals, while NAV valuation for many is close to or at all-time lows,” the investment bank noted

“We are alive to the fact that broader UK exposure and offices as a sub-sector are out of favour, but at current valuation the risk reward is compelling in our view,” it said.

On an individual stock basis, Hammerson has been upgraded from equal-weight to overweight with its price target increased by 33% to 36p from 27p.

The broker believes the firm is making significant restructuring progress and it sees value in the shares at current levels.

But Land Securities heads the other way to equal weight from overweight with the price target down to 650p from 750p.

“We see value in the UK diversified names, but the valuation gap with British Land is now at alltime wides, and therefore we see more upside potential in British Land,” the bank commented.

Morgan Stanley (NYSE:MS) also reduced the price targets for most UK REITs with office exposure by 10-15% to reflect more weakness in offices compared to what we previously assumed.

In addition to Land Securities, the target for Derwent (rated overweight) moved to 2,700p from 3,000p overweight, Great Portland (overweight) to 545p from 640p and British Land (overweight) to 450p from 450p.

The price target for Unite (overweight) was raised to 1,25p from 1,050p.

12:16pm: Stocks off highs, property sector in the spotlight

Just after midday, and the FTSE 100 has just eased off its earlier highs but remains firmly in the green, now up 31 points.

US markets are closed for Labour Day, so there may be a lack of catalysts for the rest of the day to provide direction but we will see.

Over in Europe, and the Cac-40 is up 0.5% while the Dax is 0.45% to the good as the feel good mood spreads.

Property stocks seem to be in vogue today.

After news that JP Morgan has downgraded British Land to neutral from outperform, comes a sector review from Morgan Stanley (NYSE:MS)which has changed ratings on five stocks in the sector across Europe.

Hammerson which is 3.7% higher has been upgraded to overweight from equal weight, but Land Securities has been the other way, to equal weight from overweight.

We'll have the details on this next.

11:39am: Entain a buy despite lower price target, says Jefferies

Entain PLC (LSE:ENT) shares have climbed as Jefferies highlighted the stock’s attractions despite lowering estimates and its price target for the betting operator.

Jefferies noted higher interest, increased minorities (STS) and a higher share count after the recent c8% placing leads it to cut EPS forecasts by 14%, 12% and 12% for the next three financial years.

It also lowered its price target for the owner of Ladbrokes and Coral to 1,460p from 1,850p.

But it has retained a buy rating.

It thinks that despite few shorter-term trading catalysts, “a low valuation, scrutiny around capital allocation and ongoing MGM speculation will underpin” Entain shares.

The broker thinks the 15% fall in the share price suggests downgrades are now priced in.

Jefferies noted the previous MGM deal structure of 0.6 MGM shares per Entain share, equates to c£20.50 per Entain shares now, around 75% ahead of the current share price.

Shares rose 2.6% to 1,183p.

11:17am: Interest rate rises to drive up business failures

Just the brighter news in the markets things in the business world remain tough.

Around 28,000 UK businesses are expected to fold next year, as high borrowing costs put an unbearable strain on companies, according to a new survey.

Economics consultancy the CEBR is predicting that Britain is likely to witness 7,000 business insolvencies per quarter in 2024, as the economic drops into recession.

The CEBR warned that rising interest rates and weaker demand from the cost-of-living crisis will lead to more business failures, with debt repayments hitting unsustainable levels for some businesses.

“If large investments in projects are being delayed, likely due to high borrowing costs, and businesses are collapsing, there will be impacts felt throughout the economy, from suppliers of materials to workers losing their jobs,” the CEBR said.

Firms have already gone to the wall since the Bank of England began its cycle of rising interest rates. There were 6,700 business insolvencies in Britain in the April-June quarter this year – 50% higher than before the pandemic.

10:43am: Abrdn boss calls for double in pension contributions

Abrdn chief executive Stephen Bird has called for a doubling of minimum pension contributions from 8% of pay to 16% in what would amount to a huge change to the retirement saving rules.

Bird reckons millions of people were heading for an inadequate income in retirement because the present minimum 3% contribution from employers and 5% from employees was not nearly enough.

Writing in The Times, Bird said: “To have any chance of achieving decent retirement outcomes, the contribution rate needs to double - taking it closer to the levels seen in other developed economies, or indeed, the Abrdn employee scheme.”

More “visionary thinking and boldness” was needed from ministers, said Bird, whose firm manages £368 billion of savings for pension funds and individual investors.

Minimum contribution rates were initially set at 1% for employers and 1% for employees in 2012 when the auto-enrolment pensions regime was first phased in, and were raised in both 2018 and 2019.

10:15am: FTSE extends gains on US and Chinese hopes

It's mid-morng already and the FTSE 100 continues to make progress, now up 54 points at 7,519.

Russ Mould, investment director at AJ Bell, explained: "Investors are growing warm to the idea that the Federal Reserve might not rush to raise interest rates again at its next meeting."

"An increase in unemployment for August and lower than expected wage growth suggest the Fed may sit on its hands and make no change to rates,” he said.

“Judging by the messages from US corporates regarding a slowdown in trading, it does feel like we could be at a turning point for monetary policy," he thinks.

"Nonetheless, it is impossible to say for certain what the Fed will do, given these are only data points from a brief period of time."

He also pointed to improved sentiment across Asian markets after the weekend vote by creditors in favour of restructuring a bond repayment by Country Garden.

"Chinese authorities also lowered downpayment requirements for first and second-time home buyers, thereby providing yet another stimulus initiative to drive greater economic growth," he added.

This latter move has boosted home sales, according to Bloomberg.

It reported existing-home sales for Beijing and Shanghai doubled over the weekend from the previous one, citing CGS-CIMB Securities.

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