Must read: FTSE 100 rebound, oil price, UK inflation, ASOS

GLOBAL MARKETS

After the FTSE 100 plunged nearly 2% on Tuesday on the back of concerns about higher-for-longer interest rates and geopolitical unease in the Middle East, the UK blue-chip index has opened slightly higher.

Most indices in Asia fell overnight, punished by comments from Federal Reserve chair Jay Powell who said inflation is taking longer than expected to hit the 2% target. However, the Shanghai Composite bucked the negativity, rallying more than 2% helping to lift China sensitive stocks on the FTSE 100 this morning including Burberry Group (LSE:BRBY), Prudential (LSE:PRU), and miners like Anglo American (LSE:AAL) and Rio Tinto Registered Shares (LSE:RIO). Fresnillo (LSE:FRES) is the top gained on the FTSE 100 today, up over 3.5% thanks to positive broker comment from JP Morgan which raised its outlook on the stock from 'neutral' to 'overweight'. 

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It was a mixed session on Wall Street, with the S&P 500 suffering its third straight down day while the Dow Jones snapped a six-day losing streak. Morgan Stanley closed higher by 2.5% after quarterly earnings surpassed expectations in wealth management, trading, and investment banking. 

Oil prices are under pressure again for the third straight session after a sharp rally last week, with the market waiting to see how Israel plans to respond to Iran’s retaliatory attack over the weekend. Investors are trying to weigh up the geopolitical risks in the Middle East and the size of US crude inventories on the supply side versus the outlook for the US and Chinese economies on the demand side.

UK INFLATION  

The UK annual rate of inflation fell to 3.2% in March, down from 3.4% in February but above expectations for 3.1%. Nonetheless, this was still the lowest level of inflation since September 2021, with price pressures falling from their all-time highs in October 2022 of 11.1%. 

March’s inflation reading eased thanks to food prices which rose less than a year ago as well as a slower pace of increase for restaurant and hotel prices. This, however, was partly offset by rising fuel prices, with oil prices up close to 20% since the beginning of the year. There are concerns that tensions in the Middle East and their upward effect on energy markets could derail inflation’s path back down to the 2% target, and could lead to higher-for-longer interest rates, prompting central banks including the Bank of England and the Federal Reserve to delay their first rate cuts. 

When it comes to lingering threats to inflation’s path to 2%, aside from rising oil prices, the Bank of England is likely to be still be concerned about other factors including inflation in the services sector, which is still running hot at 6% as well as wage growth which remains very high at 6% and runs the risk of second round inflationary effects. 

Nonetheless, Bank of England governor Andrew Bailey struck an optimistic tone this week – speaking at the IMF in Washington, he said there is ‘strong evidence’ that inflation is falling, and said he is seeing ‘very encouraging signs’ for the economy. That’s despite the IMF’s new forecasts suggesting that the UK economy will grow by a lacklustre 0.5% this year, landing it in penultimate position on the G7 leaderboard. Whereas growth in the United States is expected to come in at double the rate of any other G7 country.

ASOS 

Shares in ASOS (LSE:ASC) are soaring today, helping to reverse some of its painful year-to-date losses, with investors breathing a sigh of relief after the fashion e-commerce retailer kept its guidance for positive adjusted full-year EBITDA unchanged. That’s despite reporting a first half adjusted EBITDA loss of £16.3 million, swinging from a profit of £4.6 million in the same period last year. ASOS is also running ahead of target in terms of reducing its excess inventory. 

ASOS has been battling against two major problems – excess stock and intense competition. Last month the e-commerce fashion retailer reported an 18% slump in first half sales and said it anticipates sales to drop in the full year by around 5-15%. That wasn’t as bad as some thought, but is still clearly disappointing. It has been focusing on reducing excess inventory and improving stock efficiency. ASOS also wants to try and increase the speed at which it can deliver fashion trends to meet changeable customer demands. 

While e-commerce retailers fared well during the pandemic, when most people were stuck at home and bricks and mortar stores were closed, ASOS has struggled with weak demand since amid pressures from the cost-of-living crisis and intense competition. ASOS is facing stiff competition on price from the likes of cheaper, online fashion rivals such as China’s Shein as well as from the high street brands like Zara and H&M. CEO José Antonio Ramos Calamonte has been attempting to drive a turnaround since he took to the helm in June but clearly needs more time for it to bear fruit.