Markets Today: Inflation wobble vs travel optimism

Markets are strange beasts. For months and months exuberant growth has seemed completely dissociated from economic reality. Investors have ploughed into stocks of all shapes and sizes - seemingly under the firm belief that technology will continue to dominate, but ‘old-world’ industries will bounce back to the same (and sometimes greater) extent than they were before. 

We now know that the British economy is almost 9 per cent smaller than it was pre-pandemic and fell 1.5 per cent in the first quarter of 2020 as Brits were shut indoors and unable to spend. But in that time, the FTSE All Share rose 3 per cent and has leapt even further since then as the country has begun to open up. 

There are, undoubtedly, reasons to be optimistic. Travel company Tui (TUI) has said this morning that Brits’ appetite for travel next summer is up almost 300 per cent compared with the same measure in 2019; Diageo (DGE) has updated its guidance for 2021, thanks in part to the re-opening of on-trade channels in parts of Europe. And there is a feeling of optimism in and around the City - some of us are now back in the office and hugely enjoying the novelty of in-person meetings. 

But are we spending like we used to? For many, the biggest benefit of not travelling into work is the financial saving: cheaper lunches, no post-work beers, or train fares. What does that mean for the likes of Greggs (GRG) (which will provide an update on its trading tomorrow), National Express (NEX) (which has said this morning that revenue remains at 75 per cent of 2019 levels), or the local pubs? And Tui may be basking in the glory of a sudden surge in demand, but that comes off the back of a year where revenue fell 89 per cent. Exuberant, short-term post-pandemic spending is not enough to enable a long-term economic recovery following a truly damaging year.

And the biggest economic pressures may be still to come. Rising prices are not a good thing for all those Brits who have squirrelled their money away during lockdown - inflation will mean it can buy you less stuff. And so the obvious answer is to increase interest rates - making it less attractive for Brits to spend and improve the returns for savers. But problems await there as well, not least for the stock markets whose companies will find it harder to invest in future growth. As the world looks ahead to official inflation figures, stock markets have begun to tumble and look set to continue doing so today. 

National Express launches cornish pasty sweets as it bets on staycation boom

Tui (TUI: Hold, 13 Aug 2020) and National Express (NEX: Hold, 18 March 2021) both expressed optimism that the easing of travel restrictions would help their businesses rebound this summer, after the coronavirus pandemic devastated demand for holidays last year.

But the travel companies revealed diverging opinions about where Brits will be taking their summer vacations.

Fritz Joussen, CEO of Tui, Europe’s largest touring operator, said today that holidays were now “at the top of Europeans' wish lists”, adding that the prospect of England relaxing international travel restrictions was particularly encouraging. The company said in a half-year update that a pick-up in bookings had been “clearly evident” in recent weeks.

Costa-del-Cornwall

Coach operator National Express, meanwhile, appears to be counting on a boom in staycations this summer, as ongoing health concerns discourage Brits from travelling abroad. Yesterday it launched “Tastes of Normal”, a range of sweets with an “unexpected range of flavours” inspired by dishes associated with different British locations, including fish and chips, cornish pasties and Wensleydale cheese.

“We hope the tastes will take people to a place they’ve missed and can now happily and safely return to with National Express,” said managing director Chris Hardy.

Will more Brits head to Cyprus or Cornwall this summer? Most are more likely to opt for the latter, which could also benefit ticketing site Trainline (TRN: Sell, 7 May 2021), as Oliver Telling wrote recently. OT

BP and Shell not serious about net zero: Sarasin

Activist fund Sarasin & Partners has said BP (BP.) and Royal Dutch Shell (RDSB) are still working on unrealistic price and demand forecasts for oil and gas, leaving investors at risk from their current strategies. 

BP faces a shareholder vote today, with a resolution by Follow This calling for Paris Agreement-aligned strategies to be adopted, including scope 1, 2 and 3 emissions targets. The board has recommended shareholders vote against this. 

The same resolution is up for a vote at Shell’s meeting next week, while the major is also asking shareholders to vote for or against its existing strategy.  

Sarasin head of stewardship Natasha Landell-Mills said neither major was close to shifting their business models from extracting oil and gas. 

“We do not believe BP or Shell can be serious about getting to net zero until their accounts and capex plans are aligned with that goal,” she said. AH 

Further reading: 

Activists gear up for greenwashing fight at AGMs

Shell profits soar after bumper Q1

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