Poor earnings updates from US technology shares and a sharp sell off in French luxury names translated into a soggy start for UK equities as the FTSE 100 began trade deep in the red. Although the index recovered some of the losses as the session progressed, it was unable to turn positive by lunchtime.
Tesla and Google reported earnings overnight with both of the tech giants trading down in the pre-market curtailing demand for risk assets.
The French CAC started the session down over 1% as luxury brand LVMH plummeted taking the index with it. The negative sentiment from overseas was too much for the FTSE 100, which was trading down 0.05% at the time of writing.
“The FTSE 100 was lower after disappointing corporate results in the US and a lacklustre session on Wall Street,” said Dan Coatsworth, investment analyst at AJ Bell.
“A volatile US presidential race presents an unhelpful backdrop for markets, with a first reading of US second-quarter GDP and the Federal Reserve’s preferred inflation measure later this week providing some insight into whether the ‘soft landing’ narrative still holds water.
“Weak results from LVMH and Rémy Cointreau suggest the malaise in the luxury goods sector is yet to abate and this puts further pressure on battered British fashion brand Burberry.”
Although concerns from overseas weighed on the index, Wednesday saw many positive stories for FTSE 100 companies.
After a sharp selloff on the back of a downbeat update from its peer, EasyJet shares soared on Wednesday on news the airline’s profit grew in the its third quarter as passenger. In stark contrast to Ryanair’s performance, EasyJet seem to be enjoying the current environment and could even be eating Ryanair’s lunch.
“easyJet’s third-quarter numbers landed a little better than expected. That’s a welcome relief after disappointing numbers from Ryanair earlier this week caused some share price turbulence for UK airlines,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“Revenue moved 11% higher in the period as the group’s increased capacity was filled by a growing number of passengers. The group’s striking ability to sell extras to existing passengers also contributed to top-line growth. These include things like extra baggage, legroom, and food and are a great way to grab a larger share of sunseekers’ budgets.”
Reckitt Benckiser was another standout on Wednesday, not because of its share price performance on the day, but because the management is finally doing something about dismal share price performance over the past year by announcing plans to shake up the consumer goods company’s portfolio by disposing of non-core brands to focus on core brands it dubs ‘Powerhouses’.
Alongside plans to reduce its portfolio, Reckitts outlined a target to achieve £1 billion in costs savings which should be welcome news to investors.
The plan was outlined alongside the release of its half-year report which revealed falling operating profits despite volume growth across many of its categories.
“Investors will be happy to see Reckitt streamline the business,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Half-year results were solid despite lowering the sales outlook, partly due to extreme weather events impacting the nutrition business. But the real story here is the strategy shift. Selling assets that generated £1.9bn in sales last year is a bold move, but rightsizing is the aim of the game for many consumer goods companies these days. It’s no longer about size at all costs, and it gives Reckitt a chance to refocus.”