Susannah Streeter, Chief Investment Strategist, Wealth Club: “Investors are in a wary mood, with London's FTSE slipping into the red in early trade, as fresh jitters of worry about the ongoing energy crunch hit sentiment. Brent crude has barrelled above $97, heading towards the $100 mark, as escalating Middle East tensions raise the risk of deeper supply disruptions and threats to vital energy arteries including the Strait of Hormuz.
Iran appears to have pulled the Houthis back into the toxic geopolitical mix, with the Iran-backed group claiming it attacked two Saudi oil tankers in the Red Sea with drones and missiles. The strikes, if confirmed, would mark the first since the Houthis announced a maritime embargo against Saudi Arabia, opening another potential front in the conflict. It comes as the US carried out its 12th consecutive night of strikes on Iranian targets, while President Trump warned Washington would target Iranian infrastructure if ships were attacked in the Strait of Hormuz.
With both the Strait of Hormuz and the Red Sea now under increasing pressure, markets are bracing for the possibility that the conflict could disrupt key energy routes, keep oil prices elevated, and the prospect of interest rate hikes in focus.
easyJet has flown through some fierce turbulence with profits taking a nosedive, but shares are cruising higher today as investors spy resilience, amid the ongoing takeover story. Third-quarter profits plunged 70% to £85 million as the Middle East conflict sent fuel costs soaring and knocked travellers' confidence, but demand didn't disappear, it simply arrived later, with holidaymakers waiting until closer to departure to book, lured by attractive fares.
Investors also seem to be encouraged by the continued momentum in easyJet Holidays, which is proving to be much more than a useful sidekick to the airline. Customer numbers grew 8%, and profits rose 7% on a constant currency basis. It's increasingly becoming the group's profit engine, delivering higher-margin revenues at a time when the core flying business is battling volatile fuel costs and geopolitical disruption. As more travellers opt for package holidays, easyJet is earning a bigger slice of customers' travel budgets, helping smooth some of the bumps that have traditionally made airline earnings so unpredictable. And the company has big ambitions for this part of the business, targeting £590 million in pre-tax profit by 2030.
Above all of this looms the bid for the airline by private equity giant Apollo, and investors may be buying into the possibility that there could be another chapter to the takeover story. Apollo's interest has highlighted the airline's strategic value, and although tougher EU scrutiny over foreign ownership clouds the path to a deal, investors don't appear to be ruling out another twist, and potentially another approach from rival bidder Castlelake. Until there's greater clarity on whether Apollo can navigate the regulatory turbulence, or whether another bidder could emerge, takeover speculation and the prospect of further corporate interest still appear to be providing investors with a fresh tailwind.
Shares in pub operators haven't benefited from a Burnham bounce, despite the Prime Minister's announcement of a 20% cut to business rates for night-time hospitality businesses. Wetherspoon's shares continued their descent, with investors still reeling from yesterday's downbeat update. Fresh clouds have also scuttled over the sector after Mitchells & Butlers, the owner of brands including Harvester, Toby Carvery, All Bar One and Miller & Carter, warned that the recent heatwave dented food sales. The hot weather has been a bittersweet brew, filling beer gardens but emptying dining tables, with customers choosing another round rather than another course. While that kept drinks sales flowing, it was a less profitable sales mix as food serves up the fatter margins.
Given operators had been calling for much steeper relief, such as a cut in VAT from 20% to 9%, bringing the UK more into line with European peers, today's measures look more like a small top-up than a game-changing pint of support. Investors are also mindful that hospitality businesses continue to grapple with higher wage bills, elevated National Insurance contributions and stubborn input costs, all of which continue to squeeze margins. Another headache is brewing with crude oil prices climbing again, raising the prospect of higher transport, logistics and energy costs filtering through supply chains in the months ahead. That threatens to pile further pressure on margins at a time when operators are already finding it difficult to pass higher costs on to increasingly value-conscious consumers. So, while the business rates cut is a welcome gesture, it's not enough to dispel concerns about the sector's longer-term profitability. Far from providing bubbles of cheer, today's announcement has had a flat response.
Wall Street is set to open lower, as tense geopolitics and inflation worries collide with concerns that the AI spending boom could be running way ahead of returns. Alphabet’s results highlighted the vast infrastructure race under way, with the Google owner lifting its 2026 capital expenditure plans to as much as $205bn as it pours money into data centres and AI capacity.
The company’s results highlighted that AI remains a huge growth opportunity but also increasingly a source of investor anxiety. Google Cloud revenue surged 82% year-on-year, but investors baulked at the sheer scale of the spending required to stay ahead in the AI arms race, with shares slipping in after-hours trading. There are growing concerns that the returns from these vast investments won’t arrive quickly enough, or be large enough, to justify the eye-watering costs.”
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