October 2, 2018

Pegler’s market report – 02.10.18: Trouble in Europe but not Brexit this time

As published in the Brighton Argus (02.10.18) Business section under the title Pegler’s Market Report:

Trouble in Europe but not Brexit this time

Italian markets were rocked last week by the populists trying to push through their proposed spending spree. Investors have grown increasingly concerned about Italy’s debt burden and the wider implications for the eurozone bloc. Spending plans unveiled by the government are now heightening fears that Italian debt could spiral out of control in order to fund a lower retirement age, citizens’ income, and lower taxation. The European Commission is likely to press Italy to rethink its 2019 budget, which will most likely lead to more uncertainty on financial markets.

Across the water in the US there was no sign of any economic wobbles as officials increased the target for the bank’s benchmark rate by yet another 0.25pc, to a range of 2pc-2.25pc. The move marks the bank’s eighth rate rise since 2015, continuing its policy of gradual rate rises.

A majority of members said they expect possibly one more rise before the end of the year and further rises in 2019/20. Price inflation, which had been sluggish, has started to pick up, hitting the Fed’s 2pc target – and exceeding it by some measures. Fed officials now expect the US economy to grow by 3.1pc this year – faster than the 2.8pc forecast in March, according to projections released after the meeting.

Meanwhile back at home UK consumer confidence dropped in September amid Brexit fears, according to one recent survey. Investors worry that falling sentiment about household finances could herald a slowdown in consumer spending ahead of the Brexit deadline in March 2019. The UK manufacturing sector continues to suffer and orders have fallen to a four-month low, according to data released by the Confederation of British Industry (CBI).

On UK politics, Labour promised to nationalise water companies at its annual conference and said that company bosses would have to reapply for their jobs at a maximum of 20 times the salary of the lowest paid workers. John McDonnell, shadow chancellor, said that he also wanted to put workers on the boards of big firms and give workers equity in their companies.

Tesla shares have plummeted after Wall Street regulators charged boss Elon Musk with making “false and misleading” statements about plans to take the electric car maker private and claiming that he had secured funding for a buyout. Musk’s position is now increasingly under threat, after the SEC lawsuit which could potentially unseat him as a company director. There are now growing questions over what the future may hold for Tesla – and who might succeed him if he is kicked out.

Finally, a couple of companies had some security scares last week, which is unfortunately becoming more common place. Bupa were fined after an employee put details of half a million customers up for sale on the dark web and Facebook claimed 50 million users were affected by a security breach which potentially enabled hackers to take over people’s accounts.

By David Pegler, Brighton Capital Management