The promise of a quick return to form at fast-fashion chain Primark saw investors pile into owner Associated British Foods (ABF) in early trading on Tuesday, but FTSE 100 gains were capped by weakness in UK banks.

Barclays (BARC), HSBC (HSBA), Lloyds (LLOY) and NatWest (NWG) were all off by varying degrees.

Leading shares have indeed made an underwhelming start as the downbeat mood of the week continues. At 9am, the benchmark FTSE 100 had managed a modest single-digit point rise to 7,308.24 as investors took note of the US Federal Reserve’ overnight warning that a rise in risky asset prices this year could see them dropping sharply if the economic recovery turns sour.

‘Prices of risky assets generally increased since the previous report, and, in some markets, prices are high compared with expected cash flows,’ the Fed said.

An additional warning also came from Morgan Stanley’s wealth management chief that the risks of a ‘market bubble are growing,’ with valuations ‘stretched’ with investors ‘putting stock in the Fed’s patience with interest rate hikes.’

Even so, all three major Wall Street markets set more record highs overnight, albeit, inching rather than racing to new records. The Dow Jones climbed 0.3% while the S&P 500 and Nasdaq each nudged 0.1% higher.

SHARP RECOVERY PROMISED AT PRIMARK

The standout stock story came at AB Foods, which jumped 6.5% to £19.80 to top the FTSE leader board after the company said it expected ‘significant progress’ in profits in the coming months as its retail business Primark rebounds strongly.

The fast-fashion firm is estimated to claw back at least the estimated £2 billion of sales lost due to store closures last financial year, unless Covid-19 restrictions are imposed again. This should lead to a sharp improvement in Primark’s adjusted operating margin, recovering to above 10%, the company promised.

UK grocery sales fell back in the last 12 weeks, as shoppers saw prices continue to rise. Sales dropped by 1.9% year on year in the 12 weeks to 31 October 2021, according to the latest figures from Kantar, but are still higher than before the pandemic, up 7.3% compared with 2019.

Like-for-like grocery price inflation stood at 2.1% in the latest four weeks, its highest level since August 2020. In the latest 12 weeks, inflation is 1.5%.

Prices are rising fastest in markets such as savoury snacks, canned colas and crisps while falling in fresh bacon, vegetables and cat and dog treats.

Tesco (TSCO), up 0.27% at 275.58p, was the only retailer to achieve year-on-year growth with sales rising by 0.3% over the 12 weeks to 31 October. Sainsbury (SBRY) saw sales fall 2.8%, while the recently taken over Morrisons dropped 4.3% and Ocado (OCDO) lost 2.1%.

BEST OF THE REST WRAP

Engineering group Rolls-Royce (RR.) rallied nearly 5% to 148p after announcing the launch of a mini nuclear reactor business, having secured £195 million of equity funding plus £210 million of UK government grant support.

Rolls-Royce said the £195 million would be provided by it and partners BNF Resources UK and Exelon Generation across a period of around three years.

Luxury-watch retailer Watches of Switzerland (WOSG:AIM) jumped 12% to £12.74 having upgraded its annual outlook after notching a better-than-expected performance in the first half.

Watches of Switzerland upgraded its full-year revenue guidance to £1.15 billion to £1.2 billion, up from previous guidance £1.05 billion to £1.1 billion, and also upped its margin guidance.

Building materials group Grafton (GFTU) eased back 0.2% to £13.59 even as it raised its full-year profit outlook after experiencing stronger-than-expected growth in July to October.

Grafton’s full-year adjusted operating profit was now expected to be in the range of £265 million to £270 million, compared to the current consensus forecast of £256 million.

Science and medical kit supplier Oxford Instruments (OXIG) firmed 1.3% to £24.30 as it booked a 5.9% rise in first-half profit on the back of higher sales and fatter margins. Its adjusted profit jumped 27%.

Oxford Instruments declared an interim dividend of 4.4p per share, up 7.3% year-on-year.

Estate agent Savills (SVS) gained 1.3% to £14.39 having upgraded its annual earnings guidance, citing particularly strong trading in the UK and Asia Pacific region.

Savills said its profits for 2021 were expected to be ‘materially ahead’ of those achieved back in 2019, before a resumption of ‘more normalised’ trading and cost dynamics in 2022.

Insurance company Direct Line (DLG) fell 1.3% to 284.6p after it reported a modest 0.7% rise in third-quarter premium revenue. Strong growth in the commercial and green flag rescue divisions were offset by lower premiums in motor and travel, Direct Line said.

Africa-focused fuel retailer Vivo Energy (VVO) added 0.4% to 106.4p following news chief executive Christian Chammas would retire from the role in 2022. He will be succeeded by Stanislas Mittelman, currently Africa head at TotalEnergies Marketing & Services.

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Issue Date: 09 Nov 2021