March 27, 2018

Pegler’s market report – 27.03.18: Growth reported online but the high street is still suffering

by David Pegler

in Includes Press Releases

As published in the Brighton Argus (27.03.18) Business section under the title Pegler’s Market Report:

Growth reported online but the high street is still suffering

It is still a very difficult time on the high street. Despite reporting growth online and in the US, shares in Ted Baker slumped heavily after its results failed to meet analysts’ forecasts. A cautious outlook over tough global trading sent the stock lower, even as it reported a 12pc rise in revenues.

Beleaguered retailer Next has described 2017 as the most challenging year it has faced for “25 years”. It posted an 8.1pc fall in annual pre-tax profits to £726 million and warned that 2018 would be another “challenging year”. Total sales fell 0.5pc to £4.1 billion as its high-street stores came under pressure. Revenue at Next’s bricks and mortar outlets slumped 7.9pc to £2.1 billion. Following the trend, online sales fared better, rising 9.2pc to £1.88 billion.

Shares in B&Q and Screwfix owner Kingfisher also fell sharply after the group said adjusted pre-tax profit fell by 8.1pc to £683m. In fairness, the group’s profits were expected to fall this year. Indeed, on the face of it the results were slightly ahead of expectations. Kingfisher reported underlying earnings per share of 25.5p, versus consensus forecasts of 23.7p. The dividend was increased by 4pc to 10.8p per share, ahead of a predicted payout of 10.6p. Most analysts believe that the weaker sales were the main reason for the recent sell-off.

For all the good that Donald Trump is said to have done for the equity markets since his election win, his rather scatter gun approach to everything from trade wars to national security are proving a tough pill for investors to swallow. Trying to dish out some pain on the likes of China, who are rather more thoughtful and prepared looks like a game he has lost before it has begun.

The 1974 trade law that authorised an investigation into China’s alleged theft of US intellectual property allows Mr Trump to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies. It is likely that this spat is going to weigh on investor sentiment for a while yet. With the UK and Russia in an all out war of words, the last thing the world needs is a US-China economic cold war.

After the markdowns in global stock values over the last week, export sensitive indices such as the German DAX and the French CAC are among those with the biggest falls. Autos and parts, basic resources and bank stocks prices are under pressure amid poor sentiment and the rising cost of dollar funding. In Asia, the yen piled pressure on Japan’s Nikkei index which is also dominated by exporting names.

As expected, the Fed raised its baseline US interest rate by 0.25%, to 1.5%-1.75%. There were no real surprises in the FOMC statement, which offered a slight downgrade to the economic assessment, but an upbeat view of the labour market alongside economic activity that has been rising at a moderate rate.

By David Pegler, Brighton Capital Management