• 17th March 2017

    Economics

    Week in Perspective - 17 March 2017

    Market Roundup

    UK shares started the week cautiously amid ongoing political uncertainties and with a US interest rate decision looming.

    Miners helped the FTSE 100 index to a gain of 0.3% on Monday, with Fresnillo up 5.6% and both Anglo American and Rio Tinto adding 4%.

    Tuesday saw energy stocks down as oil hit a three-month low on news that Saudi Arabia had increased production. Royal Dutch Shell fell 1.7% while BP was down 1.4%. The FTSE 100 slipped 0.1%.

    Builders’ merchant Wolseley hit a 10-year high on Wednesday on hopes for its upcoming results. The shares added 2%, while the wider market was up 0.2% ahead of the expected interest rate rise in the US.

    Lloyds Banking Group gained after the government reduced its stake to less than 3%.

    But AstraZeneca was lower despite issuing an apparently positive update on the Phase 3 trial of its ovarian cancer treatment Lynparza.

    House builders including Persimmon were also under the cosh after a warning that the UK could lose 200,000 European construction workers if it did not retain single-market access.

    The FTSE 100 hit a record high of 7,415 on Thursday, led by miners as a weaker dollar boosted metal prices.

    Anglo American climbed 8.6% while Vedanta Resources added 8.3%. The FTSE 100 gained 0.6%.

    UK shares were little changed in early trading on Friday.

    Company Focus:J Sainsbury

     

    Sainsbury’s reported a decline in supermarket sales since January, but strong growth at newly-acquired Argos.

    In a trading statement for the nine weeks to 11 March, the retailer said like-for-like supermarket sales were 0.5% lower compared with the same period last year. The group attributed most of the negative performance to Easter and Mother’s Day being later this year.

    However, Argos posted 4.3% growth in like-for-like sales, well ahead of forecasts of 1.9% and helping the group to a 0.3% sales increase overall.

    Chief executive Mike Coupe said the group continues to invest in digital and has introduced enhancements to the Argos website and app. There was a 7% rise in online grocery sales.

    “Online participation is growing, driven by mobile and Fast Track delivery, and customers are responding well to new ranges.”

    But, he added: “The market remains very competitive and the impact of cost pressures remains uncertain.” 

     

     

    Economic Roundup

     

    Home-moving activity in the UK appears to be in “secular decline”, the Council of Mortgage Lenders said, as it reported a 28% fall in borrowing by homebuyers in January compared to December.

    Compared with a year ago, borrowing by homebuyers was flat overall, though for first-time buyers it was up 9%.

    "January gives the impression of a flattish market overall, albeit one with a resurgent remortgage sector,” said Paul Smee, director general of the CML. “We expect a seasonal dip in activity in the winter months and this appears to be the case in January. However, the lull in moving activity appears stubbornly persistent, and we have commissioned research on the reasons why the number of transactions seems in secular decline."

     

    Unemployment has fallen to its lowest level since 1975, but wage growth has slowed. The unemployment rate fell to 4.7% for the three months to January, from 4.8% previously, said the Office for National Statistics (ONS).

    The number of people in work increased by 92,000 to 31.85m. But the so-called wageless recovery continued, with the increase in average earnings slowing to 2.2%, from 2.6% previously.

    IHS Markit economist Howard Archer said: "The labour market has been helped by the economy's extended resilience since June's Brexit vote, but mounting signs that consumers are starting to limit their spending fuels belief that 2017 will become increasingly difficult for the economy and for the jobs market."

    The US Federal Reserve raised interest rates by 0.25% on Wednesday to a new range of 0.75%-1%. But Fed chair Janet Yellen calmed the nerves of those fearing an aggressive series of hikes, saying “we have plenty of time to see what happens”.

    Donald Trump released an outline of his first budget, including a 10% increase in military spending next year, and funds to help deport more illegal immigrants and build his wall on the Mexico border. He is also fulfilling his campaign pledge to leave social security and Medicare funding – more than 40% of federal spending – untouched. His spending plans are to be funded in part by downsizing government.

    The Bank of England voted to keep interest rates unchanged at 0.25%. But for the first time in eight months the decision was split, with one member of the bank’s Monetary Policy Committee voting to raise rates.

    Research by the ONS confirmed that housing is less affordable than ever, with the average property in England and Wales costing 7.72 times earnings.

    The so-called “affordability ratio” of house prices to earnings is up from 7.52 in 2015 and has more than doubled since 1997. House prices increased by an average of 5.4% in 2016, while average earnings were up only 2.4%. Since 1997, average prices have risen 258%, compared to a 68% increase in earnings.

     

     

     

    Company announcements that caught our attention this week

    14/3/2017  Prudential Prudential reported record annual profits helped by booming business in Hong Kong and China. Operating profits increased to £4.26bn from £3.97bn the previous year. Pre-tax profits were up 28% in Asia, offsetting a 32% decline in operating profit in the UK. Chief executive Mike Wells said: “Our performance has been driven by Asia, which has delivered a seventh consecutive year of double-digit growth in new business profit, IFRS operating profit and capital generation.” UK performance was impacted by negative fund flows at M&G and the group’s withdrawal from the UK bulk annuity market. The dividend is increased 12% to 43.5p per share.
         
    15/3/2017 Close Brothers Close Brothers increased profits by 21% to £134.2m in the six months to 31 January, helped by a better than expected performance at its market-maker business Winterflood. The group said its asset management business also made good progress, delivering an 8% increase in adjusted operating profit to £9.1m. Close’s banking division posted a 13% rise in adjusted operating profit to £122.7m, driven by lower than expected loan provisions. Its loan book grew by only 1.7% over the six months. The group increased its interim dividend by 5% to 20p a share. It also announced that Mike Biggs has been appointed to succeed Strone Macpherson as chairman. Biggs is also chairman of Direct Line.

       

    Key company diary dates

    Mon 20 Mar

    John Laing Infrastructure Fund

    Full-year results
    Wed 22 Mar
    Kingfisher Full-year results
    Thu 23 Mar
    Next Full-year results
    Thu 23 Mar Kier Group Interim results
    Fri 24 Mar Smiths Group Interim results

    Economic highlights over the next week

    Tue 21 Mar UK inflation Consumer price inflation was 1.8% in January, up from 1.6% the previous month and the highest since 2014. The CPI rate was boosted by the rising cost of fuel and, to a lesser extent, food.
         
    Thu 23 Mar
    UK retail sales

    Retail sales in January, as measured by the Office for National Statistics, were 1.5% higher than a year ago - the lowest growth since 2013. The underlying three-monthly trend showed sales down 0.4%.

         
    Fri 24 Mar US manufactured goods New orders for manufactured durable goods were 1.8% higher in January following a 0.8% drop in December, according to the US Census Bureau.

    Index movements*

    Index Value % change
    FTSE 100 7,415.95
    1.38
    FTSE 250 19,027.02 0.72
    AIM 925.26
    1.29
    Dow Jones 20,934.55
    0.37
    S&P 500 2,381.38 0.70
    Hang Seng 24,288.28 3.35
    Nikkei 225 19,590.14
    1.41

    Currency movements*

    Currency Pair Value % change
    £:$ 1.24 1.80
    £:€ 1.15 0.33
    £:¥ 139.79 0.19

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

    Sector % change
    Basic Resources 7.3
    Telecoms 0.7
    Industrial Goods & Services 0.3
    Construction & Materials -1.7
    Technology -2.0
    Media -2.5

    Best & worst performing stocks*

    Company % change
    Anglo American

    12.9

    Antofagasta 11.9
    Fresnillo 11.4
    Pearson -2.8
    Centrica -3.0
    Standard Life -5.3

     

     

    * 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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