UK Stocks Under Pressure Ahead of Key Earnings

Three important UK businesses report this week, with the premier UK market opening under pressure on Monday as traders assess the impact of the latest escalation in the Middle East.

What's Moving the Markets

• UK stocks seen under pressure amid global tech sell-off and renewed Middle East tensions.
• Sainsbury's trading update to provide insight into UK consumer behaviour amid higher energy prices.
• AB Foods is in focus as it struggles to regain investor confidence after the Primark demerger.
• Currys is expected to affirm solid growth and provide optimistic guidance.

Defensive UK Stocks Gain Investor Support

UK stocks were already trending lower heading into the weekend, even before the latest flare-up in the Middle East. On Friday, risk appetite came under pressure amid a broad sell-off in tech stocks, prompting a rotation into defensive sectors like tobacco and consumer staples. Homebuilders were under particular pressure amid reports that presumptive new PM Andy Burnham was looking to overhaul the property tax system. Lower crude prices also weighed on major oil producers, contributing to a broad-based decline in the index.

Risk assets came under renewed pressure on Monday after Iran carried out strikes on Bahrain and Kuwait on Sunday. The incident marked an escalation in tit-for-tat strikes between the US and Iran after the IRGC attacked a ship in Omani waters as part of an effort to assert control over the Strait of Hormuz. The incident threatened to undermine the fragile peace deal as US President Donald Trump threatened to resume strikes on Iran if it did not allow free passage through the Strait. It also highlighted a rift within Iranian authorities, as the civilian government appears amenable to maintaining the peace deal with the IRGC, which reports only to Supreme Leader Mojtaba Khamenei, while the latter appears to disagree. Iran has attacked two ships in the Strait since the deal to open the passage was signed, generating considerable uncertainty about the viability of transit through the contested waterway. Even without the threat of attacks, analysts contend that the narrow corridors cleared will allow only about half of pre-war traffic, and it could be several months before demining operations can clear the Strait. As markets opened under pressure, three notable UK firms are expected to update investors this week:

Can Sainsbury's Beat the Bar?

The focus will likely be on Tuesday's release of Sainsbury's Q1 trading update, as traders look to the UK's second-largest grocer for insight into consumer spending habits and their implications for the economy. The company's full-year results in April were a disappointment, falling short of particularly high expectations. However, the company's fiscal year ended before the start of the war in Iran and the bump up in energy costs in the UK. Traders will be closely watching for any change in the company's outlook, ensuring that guidance at least matches the consensus, with EPS expected to rise to 23.5p from 21.9p last year.

Primark Demerger: The Focus for AB Foods

Associated British Foods will issue its third-quarter trading update on Wednesday, with the market likely to focus on the impact of its Primark spin-off. As higher prices pinch Britons' pockets, the clothing market is under increased pressure as consumers focus on groceries and other essentials. The company's stock has been underperforming since it said it would sell its revenue "crown jewel", and investors will be looking at executive commentary to see what measures are being taken to reassure markets.

Currys To Beat Its Own Guidance

The retailer has scheduled its full-year results for Thursday and is expected to report in line with its late-May trading update, which saw continued strong performance. The company anticipated that its pretax earnings would rise 18% to £191 million, beating the top end of its guidance range of £180-190 million. However, Chief Executive Alex Baldock cautioned at the time that he hadn't yet seen the impact of the conflict in the Middle East. Traders will look to the company's guidance for the new year to see whether the strong performance continues.