On Tuesday, Hermes reported a solid 15.6% sales growth in Q3, surpassing analyst expectations.

Hermès shares are up 1.30% and were trading at €1,719 at the time of writing.

Hermès consolidated revenue at the end of September totalled €10,063 million.  Sales were up 22% at constant exchange rates compared to the same time last year. At the constant exchange rates, sales were up 17%.

According to the Executive Chairman of Hermès, Alex Dumas, “The solid performance in the third quarter reflects the desirability of our collections all over the world, with still a sustained momentum in Asia and in the Americas. More than ever, in an uncertain global environment, we are reinforcing our investments and our teams to support growth.”

After Hermès raised prices by 7% this year, sales in Europe were up 20% in Q3 (+22% in France).

According to analysts, this success in the face of an unstable economic and geopolitical climate is largely driven by brand loyalty and the so-far timeless value of the iconic Hermès Birkin bags, the value of which can go up to €200,000.  

According to Steve Clayton, head of equity funds at Hargreaves Lansdown, “it all shows the value of brands positioned at the very top end of their segments. Buyers who want a Birkin handbag have to join waiting lists, making Hermes’ revenues highly predictable. It also helps that Hermes has been less reliant on Asian and Chinese demand. Their growth this quarter has come from customers in the US and Europe, suggesting that right now, at least, old money is more dependable than new.”

FTSE 100 distribution company Bunzl said in a trading statement on Tuesday that their Q3 revenue was down 4.8% at a constant exchange rate.

Bunzl said the reduction of COVID-19 related sales hit revenue. Additionally, the current rate of inflation and “wider post-pandemic-related normalisation trends drove expected volume weakness consistent with the prior quarter,” Bunzl stated.

The reduced number of trading days had a negative 0.8% impact on revenue. Acquisitions contributed to 2.0% growth at constant exchange rates, but the disposal of the UK healthcare business lowered revenue by 1.3%.

Despite a decline of 8.8% in group revenue over the quarter at actual exchange rates, the operating margin remained very strong.

According to the statement, while announced acquisitions of enterprises, such as CT Group, a surgical and medical device distributor, will provide a boost, a decline, influenced by prior strong growth and the UK healthcare disposal, is expected.

The operating margin for 2023 is forecast to achieve a record level similar to recent years.

According to Frank van Zanten, Chief Executive Officer at Bunzl, “Our performance continues to highlight the strength and resilience of the Group’s business model, with revenue over the quarter 29% higher and operating margin substantially higher than the comparable period in 2019 at constant exchange rates.”

He added that “I remain confident in our ability to sustain a higher operating margin compared to pre-pandemic levels, supported by the acquisitions we have made over the period. Furthermore, today we announce our 13th and 14th acquisitions of 2023, with a total year-to-date committed spend of more than £425 million. I remain excited by the Group’s medium-term opportunities, which continue to be driven by our proven compounding growth strategy and active acquisition pipeline, supported by a strong balance sheet.”

The FTSE 100 was marginally lower on Tuesday as London’s leading index broke down and touched the lowest level since August.

However, the declines were more benign than recent selling in UK stocks and trading down 4 points at 7,370, the FTSE 100 was well off the lowest levels of the session at the time of writing on Tuesday.

There was a tentative improvement in sentiment as expectations of a Bank of England rate hike receded after news the UK jobs market was showing signs of cooling.

That said, good news for financial markets may not necessarily translate to good news for the UK economy in the medium term.

“This isn’t the agony of a collapsing jobs market: it’s the chronic malaise of an economy growing gradually weaker. With employment falling slightly, unemployment rising, economic inactivity up and vacancies dropping again, optimism is ebbing slowly away. We need to prepare for more difficult times ahead,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“There’s no need to panic. Vacancies are still well ahead of pre-pandemic levels, and while there was a bump in redundancies in August, there’s no clear overall shift in job losses just yet.”

Interest rate hopes

A weaker jobs market will provide the Bank of England the ammunition it needs to hold off hiking rates at the next meeting. The prospect of rates remaining on hold is undoubtedly a positive for stocks, and the UK’s jobs news helped offset weakness in UK banks on Tuesday.

“The FTSE 100 was steady on Tuesday morning as UK jobs numbers suggested further loosening in the labour market,” said AJ Bell head of financial analysis Danni Hewson. 

“With banks on the back foot thanks to Barclays’ mixed quarterly results, the miners were doing the heavy lifting for the UK’s flagship index as they moved higher on positive analyst commentary.”

Barclays shares were down around 5% at the time of writing after lowering their guidance for net interest margins as completion heats up for the UK’s retail banking customers. Investment banking activity also missed expectations.

Housebuilders provided minor support for the index on the prospect of steady interest rates for the rest of this year. Taylor Wimpey gained 0.4% and Barratt Developments added 0.2%.

As alluded to by Danni Hewson, miners rebounded from a sell-off yesterday and were among the top gainers. Rio Tinto gained 2% and Anglo American added 1%.

Bunzl was 4% lower after revenue declined in the third quarter.

Greatland Gold investors were dealt a blow on Tuesday after the company said the Havieron feasibility study would be delayed until late 2024

Greatland Gold shares were down around 11% at the time of writing on Tuesday as investors reacted to the prospect of a long wait for a key milestone in the Havieron project’s development.

The delay is a result of paused decline development at the Havieron gold-copper project in Western Australia as further work around managing groundwater is completed.

The company is nearing a key milestone of reaching the lower confined aquifer (LCA) with its decline tunnel, which is now at over 2,000 meters. But Greatland wants more data on expected water volumes and management before intersecting the LCA, likely later this quarter.

Greatland said the temporary pause will allow them to boost confidence in handling LCA water volumes before restarting decline work. Other underground activities like ventilation development continue.

“Havieron is an outstanding orebody which has been developed on an expedited basis in parallel with finalisation of the Feasibility Study. Through this approach production can be brought forward to enhance the value of the asset. At the same time it is essential that we continue to set the project up for long-term success by optimising and de-risking the current development phase, while maintaining an accelerated pathway to production,” said Greatland Managing Director, Shaun Day.

“We view Newmont’s imminent involvement as our Havieron Joint Venture partner as a tremendous positive and look forward to working together to deliver the full potential of Havieron for all stakeholders.”

Barclays shares were materially lower on Tuesday after the bank lowered its net interest margin guidance for 2023 and investment banking activities underwhelmed.

Barclays shares were down around 6% at the time of writing.

Net interest margin is a key measure of profitability in retail banking activities and Barclays now say this is set to be 3.05% – 3.10% for the full year, a reduction from previous guidance.

The lowering of net interest margin guidance is important because it marks an end to improving trading conditions as a result of higher interest rates.

“This was a mixed quarter for Barclays. Higher rates are still providing a healthy tailwind, more than offsetting the impact of a weaker mortgage market and a shift in deposit levels. But it well and truly looks like net interest margin has peaked for the UK arm, with full-year guidance pulled lower,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

“Consumers are no longer happy to park their cash in low-rate current accounts and are going shopping for higher yields, be that from money market funds, cash savings platforms or term deposit accounts – all of which are a hit to banking profit margins and deposit levels.”

Although net interest margins will drive Barclays shares on Tuesday, there was a small win in better-than-expected £6.4bn profit before tax in the last quarter.

In addition, resilience among their customers meant Barclays only put aside £433m in bad debt provisions.

“Profit came in ahead of expectations as losses for expected bad loans were better than feared. Credit card delinquencies in both the UK and the US remain at relatively low levels for now, despite increasing pressure on disposable incomes. Though keep an eye on the US, where things look to be trending in a more precarious direction,” said Britzman

Britzman concluded by highlighting Barclays trades at a reasonable discount to European banking peers and maybe a share to keep an eye on through the winter.

“Pulling back a bit, Barclays continues to trade at a discount to European peers, largely a result of poor image from a slew of mishaps and a lack of faith that recent returns are sustainable. It’s a valid perspective, but one that’s now perhaps been a little overdone. Return on tangible equity is starting to consistently surpass the key 10% level, the structural hedge should be a healthy income tailwind and while the investment banking arena continues to look dicey, green shoots are emerging.”

The Legal & General share price has been ravaged by the global interest rate hiking cycle. Truss’s doomed mini-budget and subsequent fallout in UK debt markets a year ago exacerbated the company’s awful performance.

After the recovery from the pandemic, Legal & General shares were trading above 300p in early 2022. Since then, the company has suffered a string of external setbacks that have culminated in a Legal & General share price just above 200p.

Legal & General’s operating profit fell 2% to £948m in the first half of 2023 as the company navigated challenging conditions. Their investment and retail segments were the most heavily impacted as interest rates hit the value of investments.

Nonetheless, the company pushed on with a 5% dividend hike. Legal & General dividend now yields 9.3%.

Investors will be concerned the dividend has failed to bring meaningful interest into the stock, with shares continuing to slide despite the dividend being covered around 2x.

It is all too apparent the macroeconomic environment is driving the Legal & General share price. Considering that markets are pricing in another rate hike by the Bank of England, further declines in Legal & General are entirely plausible.

From a valuation perspective, Legal & General is trading at 10x forecast earnings which isn’t overly good value, especially in the current climate. This could fall to 7x – 8x before bargain hunters flood in. This would suggest a price of around 140p -160p if earnings forecasts remain the same.

Indeed, if 200p is broken, the next major support levels stand at around 180p, 160p and 140p, based on previous price action. 180p is certainly a level many investors will have limit orders.

For 180p to break, it would assume severe disruption in financial markets that would bring 160p and 140p into play.

Trade in London’s leading shares reflected ongoing concerns about the conflict in the Middle East although tentative signs of de-escalation sent oil prices lower.

The FTSE 100 was down 0.3% to 7,376.

Equities were heavily hit last week on fears forces aligned with Iran would enter the conflict and risk a region-wide war.

“Markets remain edgy amid the ongoing conflict in the Middle East, with the FTSE 100 pulled lower by commodity stocks,” said AJ Bell investment director Russ Mould.

“This followed a reverse in oil prices on reports Israel plans to delay its ground invasion of Gaza. Any sign of de-escalation would be received positively for humanitarian reasons but also by investors wary of the risks of the war in Gaza spreading to other parts of the region or bringing in other actors.”

In addition to concerns about the Middle East, the continued march higher in US treasury yields weighed on global equity markets and sent US futures lower.

Looking past the gloom, Mould pointed to US earnings this week and a raft of earnings releases from technology companies that have previously provided support for markets.

“This week the US earnings season really hots up with earnings reports from a good chunk of the ‘Magnificent Seven’ of tech stocks who, like their cinematic counterparts, have been standing tall alone against a wave of malign forces this year.”

FTSE 100 movers

The FTSE 100 top fallers were dominated by commodities companies, including Glencore, Anglo American, and Fresnillo, as iron ore futures slipped back from recent highs.

However, there was selling across a variety of sectors on Monday, with names such as Segro, Unite Group and BT suffering on the day.

Flutter Entertainment was the top riser gaining 2.5% as bargain hunters stepped in after a prolonged period of selling.