Week in Review: FTSE 100 plunges 1% on stumbling economic growth

FTSE news

The FTSE 100 index of stocks fell 1% on Thursday (9 September) on the back of renewed fears of slowing economic growth in the face of supply issues and the delta variant of COVID. The index plunged in early trading and finished the day on 7,024.21.

• On Monday (13 September) IHS/Markit release their latest regional PMI looking at business activity across the regions of the UK.
• The Office for National Statistics (ONS) reveals the latest UK monthly employment data on Tuesday (14 September).
• This is followed on Wednesday (15 September) with the ONS’s latest inflation figures for the UK.
• On Thursday (15 September) UK Finance releases its latest card spending statistics, a useful barometer of consumer confidence.
• The ONS ends the week on Friday (17 September) with the latest retail sales figures.

Sector in focus

Airlines have been one of the biggest casualties of the pandemic with a variety going bust and many more returning huge profit falls in the past 18 months.

The sector is now ripe for some overhaul, as Thursday’s news on a proposed EasyJet (EZJ) takeover bid from rival Wizz Air (WIZZ) suggests. EasyJet has rejected the bid from its short-haul rival according to Bloomberg, but this doesn’t necessarily mean there is no further deal to be had.

It has however refused to rule out other takeover bids, suggesting it may not be unhappy in the targets of a private equity or other buyer. The firm is still looking to raise £1.2 billion from shareholders to fund its recovery, having lost nearly £2 billion during the pandemic.

It is not alone in looking at restructuring as airline schedules ramp pack up. British Airways and Iberia owner International Consolidated Airlines Group (IAG) recently announced it intended to launch a spin-off subsidiary to consolidate its short-haul flight capacity.

What has been dubbed ‘BA Lite’ would take care of all the airlines short-haul routes for European and domestic flights out of Gatwick airport. The move is seen to be an attempt to take on other low-cost airlines – which often have cheaper and more efficient cost bases.

The firm would mirror similar efforts by IAG’s Spanish flag carrier Iberia, which already operates a low-cost subsidiary named Iberia Express.

Economic update

This week Prime Minister Boris Johnson announced a hike in taxes for the UK’s working population. The so-called 1.25% health and social care levy will add hundreds of pounds to the annual tax bills of all workers.

Less mentioned is the fact that the levy will also affect businesses – ultimately meaning the total cost for workers will sit around 2.5%.

In its own cost benefit analysis the government has warned that the tax could have an effect on businesses, wage bills and recruitment – essentially disincentivising new hires thanks to higher costs for companies. It could also lead to redundancies or wage freezes to meet the extra costs.

This is not good news for the economy when it bounces back, amid supply shortages and delta variant worries, is fragile at best. With inflation soaring too, the impact on households and therefore the wider economy could soon bear down.

Other gripes have been made about the impact on certain groups the tax will have. Young graduates for example, with student loans factor in, now face marginal tax rates of up to 52% of income as a result of the new levy.

Fund watch

Much is made about US investment markets and whether its companies are historically overpriced. But its top indices march on regardless. If you’re keen to have a stake in that growth, a fund such as Artemis US Select I Acc GBP (GB00BMMV5105) could be a good option. The actively managed fund seeks to invest in a selection of top US firms, but diverges heavily away from the S&P 500 index. The fund has returned 137% in five years and charges an OCF of 0.85%.

ETF watch

If you’re looking to invest in US companies at a cheaper pricing point, then HSBC MSCI USA ETF (HMUS) could be a good option. The ETF tracks the performance of the MSCI USA index while charging an OCF of just 0.3%. It has returned 119% in five years.

Company announcements

15 September – Soft drinks maker Fevertree (FEVR) delivers its interim results on Wednesday (15 September). The tonic water maker has had a spectacular rise and fall (in stock market terms) in the last five years, with its share price peaking above £3,800 in late 2018. It has traded much lower since then as competitors catch up with its premium products model. The firm warned earlier in the year of supply constraints, something of a common gripe at the moment among businesses. Investors will be looking at whether the firm will be able to deliver ahead of its sales guidance as this will boost its growth prospects for the future.

17 September – On Friday (17 September) Superdry (SDRY) delivers its full-year results. The clothing company has very much been a loser in the race to deliver affordable fashion to the high street, with more agile online competitors such as Boohoo (BOO) and ASOS (ASC) storming ahead. The firm’s share price is trading a long way from its all-time high of £2,074 in early 2018. Down some 85% since then, the share price has however seen a relative resurgence thanks to better-than expected results earlier in the year. Investors will be watching to see if it can maintain that trend and improve its earnings in the face of stiff competition.