Focus on US debt, M&S fashion sales rebound as Next roundup Made.com

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  • The US debt ceiling looms as political stalemate is expected after the midterm elections.
  • Ron DeSantis wins by a wide margin and focuses on the race for Republican candidates for president
  • Inflation remains at the center of investors’ concerns ahead of Thursday’s US CPI reading.
  • China’s inflation rate falls sharper than expected as economy falters
  • Marks and Spencer shows resilience as fashion sales rebound despite falling first-half profits
  • Next reclaims Made.com name as furniture retailer falls into administration

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Q3 2022 Hedge Fund Letters, Talks & More

A looming debt ceiling crisis

America has decided, and as the electorate waits for the final result, it seems increasingly likely that Republicans will take control of the House of Representatives, which could cause a political stalemate in this vast country.

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With key Senate races still very close, there is a chance that the legislative arm could also turn red, while the executive branch remains blue, which is likely to thwart any major new legislation, which could be welcomed by the financial markets.

Inflation is still seen as the big threat, and Biden’s huge stimulus packages, designed to ease voters in the pain of the pandemic, and repairing crumbling infrastructure, have contributed to spiraling prices despite their contribution to maintaining economic resilience.

However, with defiant Republicans determined to see no tax increases or more government borrowing at high interest levels, a debt ceiling crisis could be looming. Biden is already considering various strategies to raise the current limits, to try to avoid a deadlock, which could further shake the financial markets.

We been here before in the Obama years, and, although the United States has never defaulted on its debts, even the risk of that happening could lead to a spike in US Treasury yields, making the financial situation the government faces even more onerous. .

Victory for Ron DeSantis

As investors wait for the dust to settle on this latest political fight at the ballot box, many will have their eyes on the battle that is already erupting for the Republican presidential bid. Ron DeSantis has made huge strides on his planned nomination bid, securing a second term as governor of Florida by a wide margin.

His popularity has already provoked the ire of Donald Trump who warned him, run for the presidency of the White House. DeSantis would benefit from low taxes, small government and a tough immigration platform, but, even as he basks in election glory, he’s likely to keep his powder dry , careful not to be seen as a Trump usurper, among MAGA supporters.

The upward price spiral has been a key issue in the US election, steering US voters away from Democrats in crucial congressional seats. Investors should remain nervous ahead of Thursday’s CPI release, hoping it will show signs that interest rate hikes are taking more effect, allowing the Fed to ease monetary tightening.

Falling inflation rate in China

In China, inflation fell sharply, indicating the economy’s struggles amid heavy Covid restrictions and weakening global demand for goods. The annual inflation rate fell from 2.8% to 2.1% in October, a much larger drop than expected, given expectations of 2.4% for the month.

This is the lowest figure since May, as declines in food prices and housing costs take their toll. It comes as the nation gears up for the final Singles Day promotion frenzy with deals set to arrive quickly at the end of the week.

The Double 11 event officially ends at midnight on Friday and there are high hopes that it could cross the RMB 1 trillion mark in revenue. But with consumers tightening their belts, amid a deteriorating outlook, spending could disappoint as they seek value and prioritize essential purchases.

Marks and Spencer shows resilience

In the UK, a cost of living crisis may be raging, but the update from Marks and Spencer Group Plc (LON: MKS) shows that many buyers are still very resilient and can be persuaded to part ways of their money if the offer is correct. M&S has done a valiant job of keeping the checkouts dynamic and the virtual shopping carts filled with the right mix of products, offering intertwining value ranges of treats.

However, rising labor and energy costs, exiting Russia, and comparing to the same period a year ago when it received corporate rate relief in pandemic, led to a 24% decline in first-half earnings.

Its partnership with Ocado Retail is also under pressure, with a loss of £0.7million, as demand for home-delivered groceries declines, at a time when capacity had increased.

But its overall recovery strategy is making great strides. The gold star must go to apparel and home with sales up 14%, a remarkable turnaround given it’s an area where Marks has really struggled in recent years but is now showing signs to reclaim its fashion credentials.

Its strategy of closing underperforming department stores and focusing on outlets in more popular retail parks, where food is prioritized with click and collect services, appears to be paying off and it is not surprising to see this restructuring accelerating.

At a time when shoppers are so mindful of what to put in their carts, the 5.6% rise in food sales shows resilience and is a sign that its customers can replace expensive restaurant meals with delicacies to eat at home.

However, there have been signs over the past four weeks that demand is weakening, as cost of living headwinds rise and costs are expected to remain elevated, it is clear that next year will be challenging.

Next retrieves the Made.com name

NEXT plc’s (LON:NXT) strategy of reclaiming once sought-after brands, which have struggled as the retail environment has become more challenging, has continued with its purchase of the intellectual property and by the name of Made.com.

The final page in the furniture retailer’s tale of misfortune was turned when it fell into administration, after being hit by falling customer demand for big-ticket items amid a drastic belt-tightening. There had been high hopes that the good times would keep rolling and that the surge in sofa sales during the pandemic would continue to happen again.

This miscalculation proved to be the downfall of Made.com, which went from a just-in-time model of making furniture on demand to building large inventory, which it found extremely difficult to move to as the cost of living crisis took hold. .

Article by Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown

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