Must read: UK food inflation, Darktrace rallies, Revolution Beauty

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

GLOBAL MARKETS

European markets have opened mixed, with the FTSE 100 trading around the flatline. Ocado Group (LSE:OCDO) has soared to the top of the UK index, hitting a five-month high after maintaining its full-year guidance. 

After China’s GDP figures on Monday, Deutsche Bank has cut the economy’s full-year growth forecast from 6% to 5.3%. Focus is on US earnings season today, with results from banks including Morgan Stanley (NYSE:MS), Bank of America Corp (NYSE:BAC) and Bank of New York Mellon Corp (NYSE:BK). 

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

UK KANTAR GROCERY INFLATION 

The Kantar UK grocery inflation rate fell to 14.9% in the four weeks to 9 July from 16.5% in June. After peaking in March, this is the steepest drop of the year, falling 1.6 percentage points to mark the fourth consecutive monthly decline. The German discounters Aldi UK and Lidl GB enjoyed particularly strong sales growth of 24% and 22.3% respectively while overall UK grocery sales increased by 10.4%. 

Food inflation is moving in the right direction but remains stubbornly high, exacerbating the squeeze on household budgets amid the cost-of-living crisis. Tesco (LSE:TSCO) has been pushing its grocery suppliers to drop its prices so that it can continue reducing consumer prices on the shelves. Challenging weather conditions have limited supplies of food imports from Spain and North Africa this year, exacerbating the UK’s food inflation problem. 

Official ONS inflation figures on Wednesday are expected to see the headline rate of inflation fall but remain above 8%, highlighting the persistent price pressures in the British economy. 

On the one hand, energy prices have been coming down and food price inflation is expected to ease, echoing the Kantar figures, with supermarkets cutting prices to attract customers as consumers feel the squeeze. On the other hand, wage growth hit a record high in the three months to May, raising the risk of second round inflationary effects if businesses pass on their additional cost pressures to consumers through higher prices. Rishi Sunak’s goal to halve inflation this year looks increasingly challenging. 

Central bank watchers will be paying close attention to Wednesday’s inflation reading. Current expectations are for a 50 basis-point hike from the Bank of England at its next meeting in August, although this could shift to 25 basis points if the inflation data posts a notable drop.

The pound has been on a tear lately, partly driven by a weaker US dollar. This reflects growing expectations that the Federal Reserve could be nearing the end of its rate hiking cycle as US inflationary pressures subside. A cooler-than-expected UK inflation reading could prompt an abrupt end to sterling’s recent bull run.

DARKTRACE

Darktrace (LSE:DARK) says it expects full-year revenue growth of at least 31% to $544.3 million. Its adjusted EBITDA margin for the year is expected to reach 22%, ahead of previous guidance for around 19%. The cybersecurity company added 396 net new customers in the fourth quarter, up 18.3% year-on-year. However, it warned that the macroeconomic uncertainty is affecting new customer acquisitions and some existing customer behaviour. 

It also announced the conclusion of an independent third-party review from Ernst & Young which investigated its ‘key financial processes’, after short seller Quintessential Capital raised concerns about its accounting in January, sending shares in Darktrace to an all-time low. There were ‘no key findings’ arising from the inspections. 

The stock has surged today by almost 20%, bringing its six-month rally to over 40%, reflecting the optimism towards the third party review that rebukes the short-seller concerns. Shares had already been rebounding significantly this year after the company raised its 2023 guidance in April.

The stock is now trading around 350p a share, sharply higher than its IPO price of 250p where it began trading on the London Stock Exchange in April 2021. However, Darktrace still has a long way to go to reclaim the highs from October 2021 at around 945p.

REVOLUTION BEAUTY 

CEO Bob Holt and Chairman Derek Zissman will step down from the board of Revolution Beauty Group (LSE:REVB) while CFO Elizabeth Lake will remain in her position. This is part of a settlement agreed with its major 26% shareholder Boohoo Group (LSE:BOO), after the fast fashion company tried to remove all three last month in a very public spat between the two sides. 

Trading was reinstated in Revolution Beauty last month following a suspension in September when auditors BDO highlighted concerns about its numbers, meaning Revolution couldn’t publish its financial results. In June, the three C-suite members were appointed despite opposition from shareholders. Revolution Beauty and Boohoo had very different views on how to deal with the issues facing the affordable beauty brand, which floated on the AIM market in July 2021.  

Today’s settlement between Revolution and Boohoo is a welcome development that highlights the willingness for both parties to recognise the other’s point of view and move forward in a more positive direction, hopefully putting an end to the war of words. 

Shares have surged over 8% earlier this morning, pricing in Revolution Beauty’s détente with Boohoo. The stock has now rebounded by an impressive 33% since trading resumed.