• 14th July 2017

    Economics

    Week in Perspective - 14 July 2017

    Market Roundup

    UK blue-chip shares made a positive start to the week with the FTSE 100 index gaining 0.3% on Monday. Schroders led the risers, up 2.2%. But drug giant Shire was down 3.2% amid fears of competition from a Roche haemophilia therapy.

    The FTSE 100 was down 0.6% on Tuesday. Marks & Spencer lost 4.7% after an unexpected fall in like-for-like food sales in the first quarter.

    Pearson (Company Focus below) also dropped 5.1%. However, HSBC hit a four-year high on a broker upgrade.

    On Wednesday, the FTSE 100 posted its biggest daily gain since April, adding 1.2% after Federal Reserve chair Janet Yellen said US interest rates “won’t have to rise all that much further” to reach a “neutral” level. Meanwhile, Bank of England deputy governor Ben Broadbent said he was “not ready” to raise UK rates.

    Burberry was up 3.2% after quarterly sales beat expectations, but software group Micro Focus dived 8.1% after a drop in licence sales.

    Thursday saw global shares touch a new high amid optimism for US monetary policy.

    In the UK, BT was up 4% after regulator Ofcom said it would approve the partial separation of its Openreach business. But AstraZeneca dropped 3.5% on a rumour that chief executive Pascal Soriot would leave to join Teva Pharmaceuticals of Israel.

    UK shares were down in early trading on Friday ahead of earnings’ announcements from major US banks.

    Construction and support services company Carillion issued a very disappointing trading statement on Monday. The shares closed down 70% on the week and its chief executive has stepped down.

     

    Company Focus: Pearson

     

    Pearson announced on Tuesday that it had sold a significant stake in publisher Penguin Random House (PRH).

    The group had already announced that it planned to sell down its 47% stake in PRH. This week it offloaded 22% to Germany’s Bertelsmann for $968m.

    Pearson chief executive John Fallon said the deal would help accelerate the group’s transition to a digital education company. The sale will also strengthen Pearson’s balance sheet. It intends to return £300m of surplus capital to shareholders via a share buyback.

    The shares dropped 5.1% on Tuesday, making Pearson the FTSE 100’s biggest faller, as questionmarks were raised over the company’s future dividend policy. Given that the PRH stake contributed around 15p of earnings, the concern is that dividend could fall to between 16p and 17p – resulting in a yield of around 2.5%.

    Pearson shares fell another 4.7% on Wednesday..

    Economic Roundup

    Household spending declined at its steepest rate for four years in the second quarter of 2017, according to a report by Visa. Spending was 0.3% lower than in the same period last year, after taking inflation into account.

    Kevin Jenkins, Visa's UK & Ireland managing director, said: “June’s data provides further evidence that an increase in the cost of living, coupled with slowing wage growth, are beginning to squeeze household disposable income".

    Meanwhile, ratings agency Standard & Poor's said it expects UK economic growth to slow to 1.4% this year and 0.9% in 2018. In addition, it thinks the Bank of England is unlikely to raise interest rates until mid-2019.

    Rival Moody’s also warned of slower growth to 1.5% in 2017 and 1% in 2018.

    According to the monthly British Retail Consortium/KPMG sales monitor, June’s hot weather produced a bigger-than-expected pick-up retail sales. Like-for-like sales were 1.2% higher than in June last year, following a 0.4% fall in May.

     

    The UK is close to full employment, it was confirmed on Wednesday, with the unemployment rate falling to its lowest level since 1975.

    The Office for National Statistics (ONS) said that the unemployment rate had fallen to 4.5% in the three months to May, down from the previous reading of 4.6%. The number of people in work rose above 32m.

    However, average wage growth slowed to 1.8%, well below the headline rate of inflation of 2.6%. This means falling wages in real terms – a trend that is likely to continue throughout the year.

     

    Elsewhere, the Bank of England’s credit conditions survey showed that banks and other lenders are cutting back on credit card and other unsecured lending to households. The reduction reflects caution over the UK’s economic prospects.

    Worryingly, the survey showed that default rates on unsecured lending to households “increased significantly” in the second quarter of the year.

    Government finances also came under scrutiny in a report from the Office for Budget Responsibility (OBR). The independent fiscal watchdog said that the government’s finances would fail the “stress test” it applies to banks by a wide margin.

    Weaker growth, the likelihood of a future recession, higher interest rates and inflation threatened to put the public finances on an “unsustainable path”, it said.

    It warned that new unfunded “giveaways” would take the government further away from its objective to balance the books in the next parliament.

     

    Company announcements that caught our attention this week

    11/07/2017  Amec Foster Wheeler The Serious Fraud Office (SFO) has opened an investigation into Amec Foster Wheeler, the FTSE-250 listed services company. The investigation relates to the criminal probe already underway into the Monaco-based consultancy Unaoil. There is no official timeline for the SFO investigation, which also involves Petrofac. Amec said it would not affect the timing of its planned merger with Wood Group. The merger prospectus had already warned that Amec could become involved in the investigation into bribery and third-party payments. However, Wood Group’s takeover of Amec was expected to be completed in the fourth quarter of 2017. A short comment made by Wood Group following the SFO announcement did not say anything about completion in the fourth quarter.
         
    12/07/2017 Barratt Developments Barratt Developments, the UK’s largest housebuilder, announced that over the last year it has had its highest level of completions for nine years. In a trading update for the year ended 30 June, Barratt said it had completed 17,395 new homes, 0.4% more than the previous year. The company met its 20% gross margin target, despite management cautioning earlier in the year that the difficult London market might make it hard to achieve. When the group’s annual results are published on 6 September, pre-tax profits are expected to be around £765m, some way ahead of consensus estimates. Looking forward, Barratt said that the number of home completions in the upcoming year will be constrained by the availability of labour, and there will only be modest growth.

       

    Key company diary dates

    Mon 17 July Rio Tinto Trading update
    Tue 18 July Royal Mail Trading update
    Wed 19 July
    Drax Half-year results
    Thu 20 July Unilever Quarterly results
    Fri 21 July
    Vodafone
    Trading update

    Economic highlights over the next week

    Tue 18 July Inflation
    Consumer (CPI) inflation jumped to 2.9% in May, its highest level for four years. Many economists expect further increases in coming months.
       
    Thu 20 July
    Retail sales The ONS data for retail activity in June follows a positive report from the British Retail Consortium (BRC) and KPMG which showed retail sales picking up last month.
       
    Thu 20 July Eurozone interest rates Some economists argue that, with economic growth in the eurozone picking up, the time is right to start “normalising” - raising - interest rates. Will the European Central Bank respond?

    Index movements*

    Index Value % change
    FTSE 100 7,413.44
    1.04
    FTSE 250 19,418.34 0.25
    AIM 956.81 0.08
    Dow Jones 21,553.09 1.09
    S&P 500 2,447.83 1.58
    Hang Seng

    26,346.17

    3.46
    Nikkei 225 20,099.81
    0.53

    Currency movements*

    Currency Pair Value % change
    £:$ 1.29 0.00
    £:€ 1.13 0.00
    £:¥ 146.67 0.00

    Best & worst performing sectors (rel. to FTSE 350)*

    Sector % Change
    Basic Resources 2.2
    Telecoms 1.5
    Personal & Household Goods 1.2
    Media -2.7
    Retail -1.7
    Technology -1.6

    Best & worst performing stocks*

     Company  % Change
    Worldpay Group 16.79
    Glencore 6.41
    BT 5.06
    Marks & Spencer -4.28
    Micro Focus International -4.46
    Pearson -4.80

     * Weekly movements up until close of business Thursday.

     

    Important Notes:

    Main source of information: Company Report and Accounts, Bloomberg

    The value of investments can fall and you may get back less than you invested. No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For further information, please refer to our conflicts policy. If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset. The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

    Brewin Dolphin Ltd, a member of the London Stock Exchange, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Smithfield Street London EC1A 9BD. Registered in England and Wales no 215876.

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    Economics

    Autumn Statement 2016: What you need to know

    Chancellor Philip Hammond stepped up today to present what will be his first - and last - Autumn Statement to the House of Commons. As expected he promised to boost government spending on infrastructure, including investment in roads, rail, housing and broadband, as part of a commitment to “build a country that works for everyone”. Other predicted measures such as a fuel duty freeze, and a widely-trailed crackdown on letting agents’ fees also made the cut. However, the Chancellor also found time to deliver some surprises.

  • 1st July 2016

    Economics

    Week in Perspective - 01 July 2016

    A round up of the week's economic and market news and a look forward to the week ahead from our award-winning research team.

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