Must read: Bank of England, Wall St, Whitbread, Ocado

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS

European markets are under pressure following a sell-off on Wall Street. Fed chair Jay Powell suggested that further rate hikes could be on the cards stateside. Almost every stock on the FTSE 100 is in the red with banks such as Barclays (LSE:BARC), Standard Chartered (LSE:STAN) and HSBC Holdings (LSE:HSBA) near the bottom of the index. Ocado is sharply outperforming, up double digits in percentage terms following a report from The Times about potential bid interest for the supermarket technology company.

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The Bank of England is expected to raise interest rates again for the 13th consecutive time to the highest level since 2008. However, the market is divided over whether the central bank will carry out a 25-basis point move to 4.75% or whether it will opt for a more aggressive 50 basis point increase to 5% in light of yesterday’s sticky inflation data and recent hefty wage growth figures. Ex-Bank of England policymaker Sir Charlie Bean told the BBC’s Today programme that Brexit is pushing up inflation and he would vote for a half a percentage point hike today.

WHITBREAD

Whitbread (LSE:WTB) reported first quarter total sales growth of 19% with a 10% jump in its food and beverage division and an 18% increase in UK accommodation. The owner of Premier Inn and Beefeater said its forward booked revenue in the UK is well ahead of last year and its £300 million share buyback programme is on track. Having opened its first hotel in Frankfurt in 2016, Whitbread said its on track to break-even in Germany in 2024. CEO Dominic Paul said, ‘our business is in great shape and trading well.’ Encouraged by the update, JPMorgan raised its target price to 4,400p from 4,300p on the stock this morning.

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Shares in Whitbread have enjoyed a strong 2023 so far, rallying around 27%, sharply outperforming the wider UK market thanks to a rebound in demand for hotel rooms and hospitality post pandemic. Its relatively low price-point offering has proven to be quite resilient amid pressures from the cost-of-living as consumers trade down to less expensive options. The resumption of corporate travel and conferences after covid may also have provided a boost to demand for Premier Inn hotel rooms in the UK.

The sad reality is that a number of independent hotels and restaurants are being forced out of business because of inflation, resulting in less competition and therefore increased demand at the UK’s leading budget hotel chain. For Whitbread, this is helping to offset its own operational challenges from cost inflation and worker shortages. Beyond the domestic market, Whitbread is making good progress in Germany thanks to a recovery in demand in this market.  

OCADO

Shares in Ocado Group (LSE:OCDO) are trading sharply higher, at the top of the FTSE 100, defying the broader market doom and gloom.

This follows a report from The Times suggesting that American tech giants such as Amazon (NASDAQ:AMZN) have been considering a takeover bid. Ocado has fallen out of favour with investors lately, trading down 40% over the past 12 months even after today’s jump, attracting potential opportunistic interest from parties looking to pounce on its depressed share price. It was a stay-at-home stock market winner during the pandemic with shares surging in 2020, however the economic reopening ever since has prompted a downward trendline to emerge with many investors unwinding their holdings.

In February its full-year losses mushroomed to $604 million, below analysts’ expectations, despite its joint venture with Marks & Spencer Group (LSE:MKS) and its US partnership with Kroger as cost-of-living pressures on the consumer as well as elevated cost inflation and expensive energy bills take their toll.