The FTSE 100 fell to its lowest level in a week after varying headwinds culminated to get the better of investors looking to bank some profits from the recent rally. A sharper than expected fall in Chinese exports (-10%) and Chinese imports back in contractionary territory set Europe away on the back foot. The Fed released minutes from the FOMC September meeting last night, which showed their willingness to raise rates in the short term, the disagreement marmite be around the timing of such a move. The less Doveish tone has left many expecting a hike before Christmas now, the stronger dollar as a result just the PG Tip of the currency conundrum iceberg. At the close the FTSE was 0.66% down, just below the 7,000 mark and as we write US markets have also dropped, the Dow just above 18,000 (-0.7%) and the S&P 500 down 0.66% also.
Following the Brexit one of the only certain things was uncertainty. The subsequent devaluation in the pound has on one side of the coin benefitted those London listed companies making the majority of their revenues outside the UK. This is behind the surprising rally that has seen the FTSE 100 hit new highs. On the flip side, those with exposure to overseas costs and sterling denominated revenues have equally been hit hard. This aside, the comfort so far has been the fact that consumers have felt relatively little direct impact, that is until now. Brace yourselves; Tesco has stopped selling various products due to an ongoing dispute with its biggest supplier, Unilever. Now, you may not think this is that bad but…. Unilever supply a huge amount of household brands, let’s be honest some substitutes are fine. But you can’t just start taking players like Messi and Ronaldo off your shelves and expect people to deal with it. We are also getting a glimmer of what post-Brexit life is like, higher prices are of course going to happen, when and to what extent remains to be seen. The dispute surrounds the fact that Unilever are effectively paying more for their products made outside the UK now, and to offset this are looking to pass the cost onto their customers, amongst many one being Tesco. The supermarket has resisted but both parties seem confident the issue will be resolved quickly. Shares of both companies fell today, Tesco by almost 3% and Unilever’s suffered a near 3.5% drop. To add, Unilever is around 20% of Tesco’s UK sales but Tesco is only 1-2% of Unilever’s, that’s a little Unileverage.
Leading on, one post-Brexit positive has been the short term demand pull for tourists looking to shop in the UK. Due to the fact that now tourists can get more bang for their buck, literally, goods are effectively cheaper in the UK. Over half the country’s luxury goods market is made up from tourists, and in July visitor numbers were up 2% compared to the same period in 2015, with a cumulative spend of £2.5bn. The fact is it isn’t as easy to increase luxury goods prices without completely scaring everyone off.
The annual Chinese rich list compiled by Huran, likened to Forbes, has shown once again the country has more dollar billionaires that the US, with the gap widening. Now the country has 594 billionaires, with the US only managing a measly 535 billionaires. Times are hard. But even with all that money, they still couldn’t buy Pot Noodles in Tesco today, although it’s highly unlikely they tried.