Author: Fiona Craig

UBS has downgraded British bakery chain Greggs PLC (LSE:GRG) from Buy to Neutral, citing valuation concerns following a 26% increase in the company’s share price since the beginning of 2026.

The investment bank maintained its price target of 2,200 pence, indicating that its revised recommendation reflects the stock’s valuation rather than a deterioration in its earnings outlook.

According to UBS, Greggs’ recent share price performance has already incorporated much of the improvement in its trading prospects, including stronger third-quarter sales growth, cost-saving initiatives and an upgraded profit outlook.

The downgrade comes despite continued progress in the company’s operational performance and its longer-term expansion strategy.

Greggs Valuation Returns to Historical Levels

UBS highlighted the bakery chain’s valuation as the principal reason for changing its investment recommendation.

Following the 26% year-to-date share price increase, Greggs trades at approximately 17 times estimated earnings for fiscal 2026.

This compares with the company’s long-term average price-to-earnings multiple of around 16 times, excluding the periods affected by the COVID-19 pandemic.

At the beginning of 2026, the stock traded at approximately 14 times forward earnings.

UBS said the subsequent increase in the valuation multiple largely reflects growing confidence in Greggs’ business outlook.

The bank believes that the improvement in investor expectations is now substantially reflected in the share price, reducing the potential for further valuation-driven gains.

Although the recommendation has been lowered, UBS has not changed its earnings forecasts for the company.

Third-Quarter Sales Growth Supported by Higher Volumes

Greggs reported an acceleration in like-for-like sales growth during the third quarter, supported by improvements in customer volumes.

The stronger performance addressed one of the main concerns previously raised by investors about the bakery chain’s trading momentum.

Like-for-like sales measure revenue growth at comparable existing locations, providing an indication of underlying business performance without the contribution from newly opened stores.

For Greggs, the improvement suggests that customer demand strengthened during the quarter.

The company also upgraded its profit outlook, supported by a combination of sales performance, menu innovation and continued operational discipline.

UBS acknowledged these developments as positive factors but indicated that the market had already responded to the improving trading environment.

The bank’s decision to move to Neutral therefore reflects a reassessment of the balance between the company’s operating prospects and its current valuation.

Cost Savings Remain Central to Profitability Plans

Greggs continues to focus on controlling operating expenditure and improving efficiency across its business.

The company is targeting £11 million in cost savings during fiscal 2026, compared with £13 million achieved or targeted for fiscal 2025, according to the figures cited by UBS.

These initiatives form part of the bakery chain’s efforts to support profitability while continuing to invest in its store network and manufacturing infrastructure.

Menu innovation is another component of the strategy, with the company seeking to maintain customer interest and support sales growth through product development.

UBS identified these operational measures as contributors to the company’s improved earnings outlook.

However, the bank did not revise its existing earnings estimates following its latest assessment.

Manufacturing Consolidation Expected to Deliver £20 Million in Savings

Greggs is also pursuing longer-term efficiency improvements through the consolidation of its manufacturing operations.

The company expects the programme to generate approximately £20 million in annualised savings across fiscal 2028 and 2029.

Manufacturing consolidation is intended to improve the efficiency of the production network and support the bakery chain’s wider operational requirements.

The projected savings could provide an additional contribution to profitability as the programme progresses.

However, the anticipated benefits remain subject to successful implementation and the company’s ability to achieve the targeted efficiencies.

The savings programme forms part of Greggs’ broader strategy to strengthen its cost structure while expanding its national presence.

Greggs Maintains Long-Term Target of 3,500 Stores

Alongside its cost-reduction initiatives, Greggs continues to identify opportunities to expand its retail network.

The company maintains a long-term ambition of operating approximately 3,500 stores across the UK.

This target represents a potential opportunity for further growth through new store openings and an expanded customer base.

The strategy is supported by investment in manufacturing capacity, distribution infrastructure and operational efficiency.

UBS continues to recognise the company’s expansion potential, although its revised rating suggests that the current share price already reflects a significant portion of the expected improvement.

The investment bank did not identify any change to Greggs’ long-term store opportunity in its latest assessment.

Investor Positioning Becomes More Balanced

UBS also pointed to changes in investor positioning as a factor in its revised view of the stock.

The bank said positioning in Greggs shares is now broadly neutral, while short interest has declined from previously elevated levels.

Short selling involves investors taking positions that may benefit if a company’s share price falls.

A reduction in short interest can indicate that fewer investors are positioning for a decline in the stock.

However, it can also mean there is less potential for additional buying pressure from investors closing bearish positions.

UBS indicated that the change in positioning, alongside the share price rally and higher valuation, has reduced the attractiveness of the stock at current levels.

UBS Maintains Earnings Forecasts Despite Rating Change

The downgrade to Neutral does not reflect a reduction in UBS’s expectations for Greggs’ financial performance.

The bank retained its existing earnings estimates and maintained its 2,200p price target.

Its assessment acknowledges the company’s improving sales momentum, upgraded profit outlook, operational savings and long-term expansion plans.

However, with the shares having gained 26% since the start of the year and the valuation returning to approximately its historical average, UBS believes the investment case is now more balanced.

For investors, the key developments to monitor will include the sustainability of like-for-like sales growth, delivery of planned cost savings and progress towards the company’s long-term store expansion target.

The latest rating change highlights the distinction between an improving business outlook and the valuation investors are being asked to pay for that growth.

European luxury stocks moved lower on Tuesday after LVMH (EU:MC) reported a sharper-than-expected decline in sales at its fashion and leather goods division, raising concerns about the pace of recovery in the luxury goods sector, particularly in China.

By 09:09 GMT, LVMH shares had fallen 1.6%, while Hermès (EU:RMS) declined 2.4% and Kering (EU:KER) lost 2%. Moncler (BIT:MONC) dropped 1.5%, Dior (EU:CDI) retreated 1.4% and Richemont (TG:RITN) weakened 1.1%.

The broad decline followed LVMH’s third-quarter trading update, which highlighted continued pressure on demand for Louis Vuitton products in China and slower growth in its watches and jewellery business.

LVMH Fashion Division Records Larger-Than-Expected Sales Decline

LVMH reported a 5% organic decline in sales at its fashion and leather goods division, compared with the 1.8% contraction expected by analysts surveyed by Visible Alpha.

The division, which accounts for nearly half of the group’s revenue, includes Louis Vuitton and other major luxury fashion brands.

The company attributed part of the weakness to a “less favourable trading environment” in China, where demand for high-end products has remained subdued.

Group organic revenue increased 1% in the third quarter to €18.5 billion ($20.68 billion), excluding currency movements. The result was below market expectations for growth of 1.3%.

For the first nine months of the year, LVMH generated revenue of €57.1 billion, representing a reported decline of 2% but organic growth of 2%.

The difference between reported and organic performance reflected the impact of currency movements and other adjustments included in the company’s organic growth measure.

The weaker fashion performance renewed concerns about the ability of European luxury companies to restore growth following an extended period of slower consumer spending.

Louis Vuitton Recovery Expected to Take Time

LVMH’s management indicated that an improvement in demand for Louis Vuitton products may be gradual rather than immediate.

Asked about the brand’s recovery prospects, Chief Financial Officer Cécile Cabanis said: “Recovery takes time, and I do not believe there are many shortcuts.”

Her comments suggested that the company does not expect a rapid improvement in trading conditions.

The outlook for Louis Vuitton is particularly important because the brand is a major contributor to LVMH’s fashion and leather goods division.

Weakness in Chinese consumer spending has remained a significant challenge for luxury manufacturers, with the country’s demand influencing the performance of leading European brands.

The latest figures indicated that the sector’s recovery remains uneven, despite stronger results in some other business categories.

Watches and Jewellery Growth Slows

LVMH’s watches and jewellery division, which includes Bulgari and Tiffany, also recorded slower growth during the third quarter.

Organic sales increased 6%, compared with growth of 9% during the first half of the year.

The moderation was notable because watches and jewellery had been among the stronger categories within the luxury market.

Although the division continued to expand, the slowdown suggested that demand conditions were becoming less supportive across additional product segments.

The result added to concerns about the durability of the broader luxury sector’s recovery.

Sephora Leads Growth Across LVMH Divisions

Despite weakness in fashion and slower growth in jewellery, several LVMH businesses reported positive trading performances.

Selective retailing was the group’s strongest division, generating organic revenue growth of 8%.

Beauty retailer Sephora continued gaining market share in several countries, supported by exclusive product introductions, including launches associated with Rhode.

The business also expanded its international presence by entering Belgium and Croatia.

LVMH’s wines and spirits division recorded organic growth of 6%, benefiting from an ongoing recovery in champagne sales, particularly in Europe.

Hennessy cognac also delivered positive momentum in Asian markets.

Meanwhile, perfumes and cosmetics revenue increased 1%, supported by new product introductions, including Dior’s J’adore Intense and Sauvage Extrait fragrances.

The differing performances across divisions highlighted the uneven nature of consumer demand within the luxury industry.

Luxury Sector Faces Continued Valuation Pressure

European luxury companies have experienced a prolonged slowdown over the past three years, with weaker demand and uncertainty surrounding Chinese consumer spending weighing on investor sentiment.

The sector’s leading groups have collectively lost approximately €330 billion in market value since the beginning of the year.

LVMH alone has recorded a decline of roughly 40% over that period.

The scale of the losses reflects concerns about the sector’s earnings outlook and the pace at which demand for high-end fashion and accessories may recover.

Tuesday’s share price declines demonstrated how disappointing results from a major industry participant can affect valuations across the wider luxury market.

Investors will continue monitoring Chinese consumer demand, brand-level sales trends and the performance of other European luxury companies for evidence of a more sustained recovery.

Gold prices edged higher on Tuesday as softer crude oil prices and a weaker US dollar supported demand for precious metals ahead of closely watched American inflation data.

Spot gold (XAU/USD) rose 0.4% to $4,189.12 an ounce at 04:47 ET (08:47 GMT), while gold futures advanced 0.5% to $4,213.25 an ounce.

The gains followed a decline in oil prices after Russia indicated that diesel exports could exceed the quantities previously outlined in a supply agreement with the United States.

Although the prospect of additional fuel supplies helped ease some inflation concerns, oil prices remained elevated amid continuing geopolitical tensions in the Middle East.

Recent attacks attributed to Iran-backed Houthi forces against Saudi Arabia’s international airport in Riyadh have reinforced concerns about the security of regional energy infrastructure and shipping routes.

These developments have left gold investors balancing the potential benefits of geopolitical uncertainty against the risk that higher energy prices could prolong inflation and encourage further interest-rate increases.

Energy Market Volatility Complicates Gold’s Safe-Haven Appeal

Gold has traditionally attracted interest during periods of political instability and financial uncertainty, but its performance during the Middle East conflict has reflected the competing effects of geopolitical risk and monetary policy expectations.

According to the reported market figures, bullion has fallen approximately 20% since the United States and Israel launched a joint military operation against Iran in late February.

The decline has been associated with concerns that higher oil prices could increase inflation and prompt the Federal Reserve to maintain restrictive borrowing conditions.

Gold does not provide interest payments, meaning its relative appeal can diminish when yields on government bonds and other interest-bearing investments increase.

As a result, expectations for additional monetary tightening can outweigh some of the support normally provided by geopolitical uncertainty.

Tuesday’s decline in crude oil offered temporary relief by reducing immediate concerns about the effect of energy prices on inflation.

However, risks to oil shipments from the Gulf remain elevated, particularly following attacks affecting Saudi Arabia and concerns about regional transport routes.

The possibility of increased Russian diesel exports could help ease global fuel market pressures, although uncertainty surrounding the conflict continues to influence energy prices.

For gold investors, the key issue is whether inflationary pressures begin to moderate or remain sufficiently persistent to require further action from central banks.

Central Bank Reserve Diversification Supports Bullion Demand

Despite recent market weakness, central bank purchases continue to provide an important source of longer-term demand for gold.

Analysts at The Gold Bullion Company noted that monetary authorities have continued expanding their gold reserves as part of broader efforts to diversify international holdings.

The strategy is intended to reduce dependence on individual reserve assets and limit exposure to changes in the value of major currencies.

According to the analysts, central banks are seeking to “spread their reserves across different assets and reduce reliance on any single reserve holding”, including the US dollar.

Gold remains an established component of official reserves because of its international marketability and its role in diversifying currency-related exposures.

Continued institutional buying may help support demand over longer periods, even when short-term prices are affected by higher interest rates or movements in the dollar.

However, reserve purchases do not eliminate the metal’s sensitivity to changes in monetary policy expectations.

US Consumer Price Report Takes Centre Stage

Investors were looking ahead to Wednesday’s US consumer price inflation report, which could influence expectations for the Federal Reserve’s next policy decisions.

The central bank increased interest rates in September for the first time since 2023, citing the need to contain inflation.

Nevertheless, financial markets have increasingly anticipated that policymakers will leave rates unchanged at their October meeting.

Interest-rate swaps suggested an approximately 20% probability of another increase during the October gathering.

Markets continued to price in one additional rate rise before the end of 2026.

The inflation figures will be particularly important given the recent increase in energy prices, which could contribute to broader consumer price pressures.

An unexpectedly strong inflation reading could strengthen expectations for further monetary tightening and weigh on non-yielding assets such as gold.

Alternatively, evidence that inflation is moderating could reduce expectations for additional rate increases, potentially providing support for bullion.

Federal Reserve Bank of Cleveland President Beth Hammack said on Monday that smaller and more frequent adjustments to monetary policy could help prevent inflation expectations from becoming unanchored.

She did not, however, explicitly advocate raising interest rates at the central bank’s October meeting.

Her remarks reinforced the importance of incoming economic indicators as policymakers consider how to balance inflation risks against broader economic conditions.

Silver and Platinum Rise Alongside Gold

Other precious metals also strengthened during Tuesday’s trading session.

Spot silver gained 0.3% to $60.4830 an ounce, while spot platinum climbed 0.7% to $1,704.03 an ounce.

The advances coincided with weakness in the US currency.

The US Dollar Index, which measures the greenback against a basket of major currencies, declined 0.3% to 102.33.

Because precious metals are generally priced in dollars, a decline in the currency can make them less expensive for buyers holding other currencies.

This relationship can support international demand, although actual price movements also depend on investment flows, interest rates and broader market conditions.

Dollar weakness therefore provided an additional source of support for precious metals during the session.

Inflation Outlook Remains Central to Gold Prices

Gold’s modest recovery reflected improving sentiment following the decline in oil prices, together with a weaker dollar and continued demand for precious metals.

Nevertheless, the outlook remains complicated by the interaction between geopolitical developments and monetary policy.

Further disruption to Middle Eastern energy supplies could increase inflation risks, potentially strengthening expectations for additional Federal Reserve tightening.

At the same time, geopolitical uncertainty may continue to encourage some investors to maintain exposure to gold as a defensive asset.

Wednesday’s US inflation report will provide a clearer indication of whether recent energy market developments are contributing to persistent price pressures.

Investors will also be monitoring Federal Reserve commentary, movements in government bond yields and central bank gold purchases for further signals about the metal’s near-term and longer-term prospects.

Oil futures moved lower on Tuesday as the prospect of additional Russian diesel exports weighed on prices, partially offsetting concerns about attacks on shipping routes and energy infrastructure in the Middle East.

Brent crude declined $1.62, or 1.52%, to $105.03 a barrel by 08:20 GMT. US West Texas Intermediate (WTI) fell $1.66, equivalent to 1.77%, to $92.08 a barrel.

Both benchmarks had risen by almost $2 a barrel on Monday, with Brent recording its highest settlement since 15 September.

The reversal followed an announcement from US President Donald Trump concerning Russian fuel supplies, raising expectations that more diesel could become available to international buyers.

However, uncertainty surrounding Russia’s refining capacity and continuing geopolitical risks limited confidence in a sustained improvement in supply conditions.

Russian Fuel Agreement Faces Production and Political Obstacles

Trump said Russia had agreed to provide diesel to global markets after his administration temporarily relaxed US sanctions affecting Russian fuel.

The sanctions were intended to restrict Moscow’s energy revenues during its military campaign against Ukraine.

Additional Russian exports could help ease shortages in international fuel markets, potentially reducing pressure on refined product prices and the broader crude oil market.

Nevertheless, analysts questioned whether Russia would be capable of delivering the proposed volumes.

Tamas Varga, an associate analyst at PVM Oil, highlighted the difficulties facing the country’s refining industry.

“Russia is unlikely to meet its pledge to supply 3 million to 3.5 million tonnes a month by year-end, given the serious problems affecting its refining sector,” Varga said.

The assessment suggests that operational constraints could limit the amount of diesel Russia can supply, regardless of changes to sanctions or export arrangements.

Political opposition in Washington has introduced another complication.

Lawmakers from both major US parties criticised the agreement between Trump and Russian President Vladimir Putin, arguing that it appeared inconsistent with legislation restricting Russian energy imports until Moscow ends its aggression against Ukraine.

The dispute raises questions about the legal and practical implementation of the arrangement.

Investors will therefore be monitoring whether the agreement results in actual increases in fuel shipments rather than relying solely on announced export targets.

Gulf Shipping Attacks Sustain Geopolitical Risk Premium

The potential expansion of Russian supply comes at a time when energy markets remain concerned about security conditions in the Middle East.

Iran-aligned Houthi forces reportedly struck Riyadh’s international airport over the weekend, while attacks involving tankers were also reported near the Strait of Hormuz.

The incidents heightened concerns about the vulnerability of energy infrastructure and maritime transport routes across the Gulf region.

The Strait of Hormuz is a major passage for international oil shipments, and disruptions can affect the movement of crude oil and refined products to global consumers.

Security threats can also increase shipping insurance premiums, freight charges and delivery times.

Varga said the absence of meaningful progress towards reducing tensions in Eastern Europe and the Middle East was keeping the geopolitical risk premium in crude oil prices elevated.

He also warned that increased attacks on commercial tankers and continuing tensions between Houthi forces and Saudi Arabia could prevent regional exports from returning to September’s elevated levels.

These risks complicate the outlook for global oil availability, particularly when shipping constraints prevent producers from delivering their output efficiently.

Transport and Insurance Expenses Reach Exceptional Levels

Ministers representing OPEC and non-OPEC producers involved in the Declaration of Cooperation reported a substantial increase in shipping and insurance costs.

According to the ministers, combined expenses have risen to unprecedented levels exceeding one-third of the value of the oil and petroleum products being transported.

The increase has created additional difficulties for the international movement of crude and refined fuels.

Even when producers have sufficient volumes available for export, high transportation costs can make shipments more expensive and reduce the efficiency of supply chains.

Importers may face higher delivered fuel costs despite declines in benchmark oil prices.

The pressure is particularly significant for routes exposed to military activity, attacks on commercial vessels or other security threats.

The situation demonstrates how maritime disruption can affect international energy prices independently of production levels.

OPEC Slashes Oil Demand Growth Estimate

In addition to supply developments, traders are assessing a weaker outlook for global oil consumption.

OPEC has lowered its forecast for demand growth this year to 400,000 barrels per day, compared with 1.4 million barrels per day at the beginning of the year.

Secretary General Haitham Al Ghais said on Monday that the reduction reflected developments throughout the year.

The revised estimate represents a decrease of one million barrels per day in anticipated demand growth.

Slower consumption growth could reduce upward pressure on oil prices, particularly if Russian diesel exports increase or other producers maintain sufficient supply.

However, the effect will depend on actual export volumes and the extent of any disruptions affecting energy shipments from the Middle East.

The downgrade also adds uncertainty to the outlook for producers seeking to balance supply against changing global demand conditions.

Oil Market Faces Competing Supply and Demand Pressures

Tuesday’s price decline highlighted the competing forces influencing international energy markets.

Expectations of additional Russian diesel exports offered some relief from concerns about tight fuel supplies, but doubts over refining capacity and political opposition in the United States remain unresolved.

Meanwhile, attacks on maritime transport and energy infrastructure in the Middle East continue to threaten the reliability of regional exports.

Higher shipping and insurance expenses could also restrict the movement of petroleum products, even where physical production remains available.

OPEC’s lower demand growth forecast adds a potentially bearish influence, suggesting that global consumption may expand more slowly than previously expected.

The direction of crude prices will depend on whether additional Russian supplies materialise, how security conditions develop around the Strait of Hormuz and whether global oil demand continues to weaken.

For now, the market remains exposed to rapid changes in supply expectations, geopolitical developments and international shipping conditions.

Eurozone government bond yields were broadly stable on Tuesday, remaining close to multi-year highs as investors assessed France’s fiscal outlook, elevated energy prices and increased competition from corporate debt issuance linked to artificial intelligence infrastructure investment.

Germany’s benchmark 10-year government bond yield was little changed at approximately 3.477%, while the two-year Bund yield edged lower to 3.099%.

French government bonds continued to face pressure, with the benchmark 10-year OAT yield trading near 4.888%, reflecting investor concerns about the country’s public finances and political uncertainty.

The difference between French and German borrowing costs remained a focus for fixed-income investors, as markets assessed the additional risk associated with holding French sovereign debt.

France’s public debt is approaching 120% of gross domestic product, while its projected budget deficit stands at approximately 5.4% of GDP.

The fiscal position has raised questions about the government’s ability to reduce borrowing requirements while maintaining political support for spending reforms.

Prime Minister Sébastien Lecornu faces challenges in securing parliamentary approval for approximately €54 billion in proposed budget reductions.

Political divisions within the National Assembly have complicated the outlook for fiscal consolidation, particularly ahead of France’s presidential election in 2027.

Investors are monitoring whether the government can implement the proposed measures and establish a credible path towards reducing the deficit.

Uncertainty over the budget could continue to influence demand for French government bonds and the premium investors require relative to German debt.

Energy markets have added another source of pressure for European fixed-income markets.

Crude oil and European natural gas futures remained close to two-week highs, raising concerns about the potential effect of energy costs on inflation.

Higher energy prices can contribute to consumer price pressures and influence expectations for monetary policy across the eurozone.

For the European Central Bank, persistent inflation risks could limit the scope for substantial interest rate reductions in the coming months.

Government bond yields are sensitive to these expectations, particularly when investors anticipate that borrowing costs may remain elevated for longer.

Alongside fiscal and monetary policy developments, eurozone sovereign debt markets are facing increased competition from corporate bond issuance.

Large US technology companies and semiconductor infrastructure businesses have been raising capital to finance substantial investment programmes associated with artificial intelligence.

These projects include data centres, computing infrastructure and networks required to support increasingly demanding AI applications.

Some companies have accessed euro-denominated debt markets through so-called reverse-Yankee bond issuance, allowing US borrowers to raise financing from European investors.

The additional supply of corporate bonds has increased competition for institutional investment capital, particularly among investors allocating funds across government and corporate fixed-income securities.

As the volume of available debt increases, investors may require higher yields to absorb new issuance.

This can influence borrowing costs across bond markets, although the effect depends on investor demand, credit quality and broader monetary conditions.

The expansion of AI-related capital expenditure has therefore become an additional factor for fixed-income markets, alongside traditional influences such as inflation, government borrowing and central bank policy.

For European government bonds, the combination of elevated sovereign debt issuance and substantial corporate financing requirements could maintain pressure on yields.

France remains particularly exposed to investor scrutiny because of its fiscal position and uncertainty surrounding proposed budget measures.

Germany’s government bonds continue to serve as the principal eurozone benchmark, with movements in Bund yields influencing pricing across other sovereign markets.

Tuesday’s relatively stable trading suggests investors are assessing these competing pressures rather than making substantial changes to their bond holdings.

Looking ahead, developments in French budget negotiations, energy prices, ECB policy expectations and corporate debt issuance will remain important influences on eurozone borrowing costs.