The FTSE 100 gave back some of this week’s gains on Wednesday as short-term profit taking and concerns around the health of the UK consumers hit the supermarkets.
In a FTSE 100 index dominated by overseas revenues, Wednesday’s trade was dictated by UK facing companies as the UK’s supermarkets and retailers sank following Tesco’s interim update.
Tesco said their profit would be towards the lower end of guidance and revealed falling margins as the cost of living crisis drove consumers to budget lines.
Tesco shares fell some 3.6% while premium retailer Ocado saw its shares sink 5.8% as investors extrapolated Tesco’s results across the rest of the market. Ocado was the FTSE 100’s worst performer at the time of writing.
“Supermarkets are no strangers to dealing with cost-of-living pressures, there’s been an all-out price war in the industry for some years now,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.
“Amongst the larger players, Tesco’s arguably been one of the standout businesses in the battle against low-cost outfits but pressures on consumer spending can only build for so long before something must give.”
“That pain’s slowly starting to feed into performance, as shopping behaviours continue to normalise from bumper levels seen over the pandemic and inflation keeps costs high – that’s meant full year profit guidance got a slight downgrade toward the bottom end of the previous range.”
Sainsbury’s shares were 4.3% weaker ahead of their interim results in early November.
Truss Speech
Liz Truss’s conservative conference speech failed to ignite any further confidence in UK assets as GBP/USD fell 1% to 1.1360. Investors are awaiting the OBR’s economic assessment to gauge the impact on the UK’s finances and the Prime Minister’s speech provide no respite for concerns her mini-budget would cause economic difficulties in the short-term.
UK housebuilders have been one of the most heavily hit sectors since Kwasi Kwarteng’s fiscal announcement, and today Persimmon, Barratts Developments and Taylor Wimpey ended a three-day rally from their worst levels last week.
The FTSE 100 was down 1% to 7,015 at the time of writing.