Must read: UK gilts, China's rate cut, food inflation, Frasers/Currys, Lookers

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

GLOBAL MARKETS 

European markets have opened mixed, with the DAX under pressure while the FTSE 100 is modestly higher. Ocado Group (LSE:OCDO) is languishing at the bottom of the FTSE 100 after JPMorgan and HSBC cut their price targets on the stock to 400p and 370p respectively. 

The UK 2-year gilt yield topped 5% for the first time since July 2008 on Monday and has hit new 15-year highs today. This week, the UK interest rate swaps market pointed to a greater than 50% chance that the Bank of England raises its Bank rate to 6% by February 2024. Before that, a 25 basis-point increase is expected this Thursday. 

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

China’s PBOC cut its one-year and five-year loan prime rates by 10 basis points each for the first time since August 2022 to provide support for its stumbling economy. Citi and Goldman Sachs cut their China economic forecasts in light of the macroeconomic headwinds facing the world’s second largest economy. This follows similar downgrades from JP Morgan, UBS, and Bank of America. 

UK KANTAR GROCERY INFLATION 

UK grocery inflation eased to 16.5% in the four weeks to 11 June from 17.2% in May. According to Kantar, food inflation has cooled for a third consecutive month to reach the lowest level of 2023. However, some products continue to rise rapidly in price including eggs and cooking sauces. 

Aldi and Lidl continue to be Britain’s fastest growing supermarkets. Tesco (LSE:TSCO) remains the largest with 27.1% of the total market share. Last year, Aldi overtook Morrisons to enter the big four, while Lidl is now also catching up with Morrisons, threatening to boot it out of its fifth position. 

Supermarkets have been cutting prices lately in a bid to attract customers amid the cost-of-living crisis. Just this week Marks & Spencer Group (LSE:MKS) and Morrisons became the latest supermarkets to lower prices on basic items following similar moves from Sainsbury (J) (LSE:SBRY), Tesco, and Aldi, despite rampant food inflation. 

Meanwhile British food manufacturers reported the first drop in production costs since 2016 according to a new report from Lloyds Bank. 

All eyes are on this week’s Bank of England rate decision and UK inflation figures with price pressures likely to show slight signs of cooling.

FRASERS / CURRYS 

Frasers Group (LSE:FRAS) has bought an 8.9% stake in Currys (LSE:CURY), lifting shares in both companies. Similarly, earlier in June, Frasers Group acquired a strategic stake in AO World (LSE:AO.) of 18.9% for £75 million. 

These deals are part of Frasers’ broader intelligent strategy to acquire and build stakes in other businesses, with the goal of positioning itself as a consumer platform for the world’s best brands to provide ‘a world-leading retail ecosystem.’ Electricals and white goods could become key components of Frasers’ expansion plans. 

LOOKERS PLC 

Canada’s Alpha Auto Group is acquiring British used car dealers Lookers (LSE:LOOK) for about £465.4 million in cash. This values Lookers at 120p per share, representing a 35.3% premium to Monday’s close. As a result, shares in Lookers have surged by around a third following the announcement, pricing in the deal.  

The acquisition will provide privately-owned AAG, which currently has just 22 sites in the US and Canada, with an attractive opportunity to enter into the UK market. For Lookers, the more than 35en% premium represents an irrefusable offer for shareholders. The UK autos retailer is in a strong position financially, having raised its 2023 profit forecast in April, partly thanks to higher average selling prices for new vehicles. However, it is still grappling with the pressures from inflation and rising interest rates.