Stalling auto stocks and a weak travel and leisure sector weighed on Britain’s FTSE, while updates from Carpetright and Debenhams gave conflicting pictures of the health of British consumers as inflationary pressures start to bite. The FTSE 100 was down 0.4 percent by 0820 GMT, erasing all the previous session’s gains, with the top weights GKN, Marks & Spencer and TUI. A profit warning by German’s Schaeffler, which sent its shares spiralling down 12 percent, also weighed on British car parts supplier GKN, as carmakers across Europe slid 1.5 percent.
“While we were braced for GKN to have a tougher second quarter after a strong first quarter, we suspect Schaeffler’s mention of pricing pressure will still send a shiver down the spine of most observers,” say Jefferies analysts. They added, however, that they hesitated to make a direct read-across to GKN.
Travel and leisure stocks were among the worst performers, with tour operator TUI down 2.3 percent after Barclays cut its target price on the stock. A downgrade to sell from Investec weighed on gambling company William Hill on the mid-caps as well. Strength among miners lent the FTSE a helping hand, pushing it slightly ahead of European peers.
Anglo American, Rio Tinto, Antofagasta , BHP Billiton and Glencore were the top gainers. Updates from small-caps Debenhams and Carpetright provided further pieces of the puzzle as investors continued to seek clarity on the resilience of the UK consumer.
“Both Debenhams and Carpetright are heavily dependent on the health of the UK consumer,” said Edward Park, investment director at Brooks Macdonald. “With wage growth softening at the same time as inflation is beating expectations, there is a real wage growth squeeze on individuals.”
“Additionally, savings levels are low which means consumers have less slack to bear these reductions in purchasing power,” he added. Against this tense backdrop, there was relief as a positive trading update from Carpetright sent the carpet provider’s shares up 11 percent.
It had suffered a sharp fall in late April after nudging its profit forecast down, indicating consumers were cutting back on spending on larger-ticket items related to home renovation. Its shares were on track for their best day in five months, but their value had still eroded 25 percent from their levels prior to the forecast trimming.
Debenhams, however, fell 3.4 percent to an eight-year low after it flagged a more volatile trading environment and said sales slid. Its 2017 profit could land towards the lower end of expectations if conditions did not improve, Chief Executive Sergio Bucher said.
“Debenhams is particularly at risk from a slowing UK macro environment given its low margins,” say Jefferies analysts. Marks & Spencer, which sells clothes and home items alongside food, fell 1.9 percent, weighed down by Debenhams.