The FTSE 100’s UK banks and housebuilders were among the top risers on Wednesday morning despite the UK economy contracting faster than expected in July.

UK GDP contracted 0.5% in July, more than the 0.2% consensus of economist estimates. The dismal reading has been blamed on the timing of the coronation, poor weather and a slowdown in construction.

Regardless of the reasons behind the drop, a 0.5% contraction should be a cause for concern.

“Today’s GDP data reflects a sluggishness surrounding the UK economy. While a technical recession remains at arm’s length, the challenging economic environment persists,” said John Glencross, CEO and Co-Founder of Calculus.

Nonetheless, the FTSE 100’s UK-focused housebuilders and banks rose on the news in early trade on Wednesday. A contracting UK economy is far from supportive of these companies’ earnings.

However, such a poor report of UK economic activity will have a major influence on the Bank of England’s next rate decision. Although wages are soaring according to data released yesterday, slowing economic activity will help to slow inflation and provide the BoE with an opportunity to pause rate hikes.

Lower rates will please investors in homebuilders struggling in the face of higher mortgage rates. This will then feed through banks and their mortgage lending activity.

This is the upside scenario. The downside scenario is persistent contraction, recession, and an even worse housing market than we have already.

Belluscura delivered a promising helf year report on Wednesday which set the scene for strong future growth.

Belluscura has been in its development phase with the launch of new products and the most interesting part of their results is the post-period orders for their portable oxygen units.

The company has inked a ‘transformational’ deal with InnoMax who will have an exclusive license for Belluscura’s technology in China, Hong Kong, Macau and Singapore. The deal is valued at $55m in minimum royalties over the term of the license.

Belluscura has also received orders for over 6,500 DISCOV-R worth around $15m.

“I am very pleased with the substantial progress the Group has made this period,” said Bob Rauker, Chief Executive Officer Belluscura.

“The signing of new distribution agreements, the strong reception and orders for DISCOV-R, the continuing progression of X-PLOR and the signing of the significant licensing agreement with Innomax sets a strong foundation for great progress next year and beyond.

“The Portable Oxygen Concentrator Market is predicted¹ to grow at a compound annual growth rate (“CAGR”) of 14.0% from $1.63 billion in 2022 to $2.76 billion by 2026, making this is a very exciting time for Belluscura’s category leading products.”

There was slight disappointed with revenue falling to $0.4m for the six months ended 30 June 2023, from $0.6m in the same period.

However, this was before the company inked the landmark agreement with their Chinese partners and won 6,500 DISCOV-R orders.

“We believe the signing of the groundbreaking Exclusive License and Royalty Generating Agreement with InnoMax, an affiliate of the world’s leading electronics manufacturing company, will be transformational for the Group,” said Adam Reynolds, Chairman of Belluscura.

BP CEO Bernard Looney has resigned with immediate effect after admitting he failed to disclose relationships with staff.

The CEO job is to be filled by CFO Murray Auchincloss on an interim basis until a long-term replacement is found. 53 year-old Bernard Looney has been leading BP for less than four years after starting as an engineer at the oil major in 1991.

Despite Looney’s long tenure, he was shown no quarter for risking bringing the British institution into disrepute.

“BP is one of the biggest players in British business, missteps of this magnitude aren’t what investors expect from one of the country’s most influential C-suites. Strong governance and conduct controls are rightly non-negotiables, and the emergence of a second round of allegations relating to Looney’s improper disclosure of relationships has proved a bridge too far,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“BP is now in a position where a permanent replacement needs to be found. A clear path forward needs to be forged sooner rather than later to limit negative sentiment. This of course all lands at a time when oil majors are already grappling to boost their ESG credentials, which adds weight to the problem. Looney has spearheaded an aggressive and green-thinking strategy during his tenure, and replacing him with someone that can convince the market they’re up for carrying the mantle and sprinting with it, isn’t going to be an overnight task.”

BP investors will not be pleased with the development as the company contends with mixed energy prices and increasing pressure to meet net-zero targets.

“The recent oil price spike only provides a limited cushion under BP’s valuation, with longer-term forecasters far more concerned about strategy and how well-prepared BP is for the energy transition,” Lund-Yates said.

After a rally yesterday spearheaded by the FTSE 100’s cyclical stocks, it was the defensive sectors turn to take the index higher on Tuesday.

Telecoms, pharmaceuticals and the recently unloved UK retail sector helped the index higher by 0.4% as of 14.10.

AB Foods was the standout performer on Tuesday as investors digested strong food sales and robust like-for-like sales across Primark’s outlets. AB Foods shares were over 6% higher at the time of writing.

The mining stocks at the forefront of Monday’s rally were among the worst performers. Housebuilders fell as investors learned of soaring UK wage growth which threatens further rate hikes by the Bank of England.

Smurfit Kappa was the FTSE 100’s top faller after announcing they would merge with WestRock, creating packaging giant Smurfit WestRock. Investors were not impressed with the terms and shares sank 8%.

US CPI

All eyes will be on tomorrow’s US CPI print and whether US inflation has further its trend to the downside.

“Investors are expected to stay largely treading water on Wall Street rather than taking any ambitious strokes ahead of the key consumer inflation reading,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Although Fed policymakers are expected to sit on their hands and keep interest rates on hold this month, the forecast for another hike ahead is uncertain. Sentiment keeps oscillating with expectations of another rate rise in November decreasing a little, with policymakers thought to be more nervous about doing too much and pushing the economy into a deeper slowdown.”

Expect fireworks tomorrow at 13.30 if CPI is materially out of line with the 3.6% consensus.

Fevertree shares reversed sharp losses on Tuesday as bargain hunters stepped in after the release of their first half 2023 interim results.

Fevertree’s interim results were a tale of two stories. The soft drinks and mixers company’s push into the US is paying off with 40% revenue growth in the six months to 30th June. However, higher glass costs and poor performance in the UK smashed gross profit margins.

Group revenue rose 9% to £175.6m with the US and a 40% jump in revenue to £56.1m doing all the heaving lifting.

Gross margins fell to 30.7% as gross profit sank to £53.8m. Adjusted EBITDA more than halved to £10.2m.

“Unfavourable weather for much of the summer has made it harder to shift tonic water and other mixers for spirits, judging by comments from Fevertree,” said Russ Mould, investment director at AJ Bell.

“The business can’t seem to get a break. Despite delivering strong growth in the US, gaining market share in the UK and seeing progress in other parts of the world, Fevertree still seems to have as many critics as it does fans.

“Admittedly, profits, margins and cash fell in the first-half period which suggests a business under pressure. Its challenge is to reverse that trend and get everything back on track.”

Although analysts and traders were initially pessimistic about the update, with shares down over 5% in early trade, many chose to look past cost pressures to focus on booming US demand, and bid the stock back up to trade positively at the time of writing.

The company expects a much better second half and is guiding for FY23 EBITDA in the range of £30m to £36m.

AB Foods released an upbeat fourth quarter trading update on Tuesday pointing to growth across their food business and robust Primark sales.

AB Foods shares have staged a material rally over the past year and are almost 50% higher over the past 52 weeks. Today’s announcement validates this rally.

Primark reported strong like-for-like sales growth of 8% in the fourth quarter, driving its overall outlook higher than previously expected. The fashion retailer, owned by Associated British Foods, said it now expects full-year sales to be around 15% ahead of last year with 9% like-for-like growth.

Despite challenging weather in the UK and Europe, Primark’s fourth quarter sales in the UK rose 8% with 7% like-for-like growth. Sales in Europe excluding the UK jumped 18% with 9% like-for-like growth.

Parent company ABF said it now expects Primark’s full-year adjusted operating profit margin to be around 8%, higher than previously thought. It attributed the better margin to strong sales growth and carefully selected price increases that helped recover high inflationary input costs.

In food, AB Foods said its grocery division is expected to see significantly higher full-year adjusted operating profit compared to last year. The company’s sugar business also performed slightly better than expected in the fourth quarter. ABF said it now expects full-year adjusted operating profit for sugar to be modestly above last year.

ABF also pointed to Primark’s overseas store expansion, digital development and celebrity collaborations as driving the fashion retailer’s sales growth. It opened 8 new Primark stores in the fourth quarter and expanded its click-and-collect service.

“Not all retailers are made equal. Primark expects to report a 15% increase in sales for the full year, largely driven by price increases,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“The group’s savvy model means that starting with bargain prices allows more room to pump up price tags before putting consumers off in this very tough economic climate.

“The cost-of-living crisis hasn’t stopped customers from flocking to new stores either, which is a direct contradiction of the fortunes of many other large physical retailers who are closing their doors – not opening new ones. For all this to be possible Primark has to have a laser-like focus on its ranges and make sure it’s offering precisely what people want – there is no room for wasted hanger space. This seems to be being executed near perfectly, and is also being supported by Primark’s digital pivot.”

AB Foods shares were 0.8% to the good at the time of writing on Tuesday.