June 5, 2018

Pegler’s market report – 05.06.18: What has he gone and done now?

As published in the Brighton Argus (05.06.18) Business section under the title Pegler’s Market Report:

What has he gone and done now?

Last week ended with a bit of a storm after President Trump announced that he would introduce 25pc tariffs on steel imports from the EU, Canada and Mexico, along with 10pc tariffs on aluminium imports. All parties have said they will take retaliatory measures, with the EU already saying it will place tariffs on US products such as motorcycles, food and drink.

Global markets took the news in its stride mainly because commentators believed such a move has been on Trump’s agenda for some time. Also, positive manufacturing output data in the UK helped to boost sentiment, while Italy’s M5S and League parties agreeing to form a government buoyed markets in Europe.

US hiring rose more than expected in May and wages picked up, while the unemployment rate matched the lowest in almost five decades. Payrolls increased 223,000 following a revised 159,000 gain and average hourly earnings increased 2.7pc from a year earlier, which was more than forecast. The jobless rate fell to 3.8pc from 3.9pc, matching the figure for April 2000 as the lowest since 1969.

The UK services sector, which accounts for over 70pc of the economy, has seen growth among its various sub sectors diverge, according to the latest data from the Confederation of British Industry (CBI). Its latest quarterly service sector survey showed that business and professional services companies, such as accountancy firms, lawyers and PR and marketing companies, all saw their business volumes grow at the fastest pace since 2015. They also expect the expansion to continue into the next three months as their optimism rose at its fastest pace for 12 months.

Conversely, the consumer services companies, such as hotels, bars and restaurants, sales volumes fell in the three months to May and optimism deteriorated, although the majority expect a rebound in volumes over the next quarter. Profitability rose in professional services – again at its strongest pace for three years, but in consumer services, rising costs and falling sales volumes meant profits dropped.

UK consumer credit rose by £1.8billion in April, a vast improvement on March’s figure of just £0.4billion, according to the Bank of England. While lending for mortgages remained relatively weak, the consumer lending figures add weight to the argument that optimism may be picking up in the second quarter.

Other consumer confidence barometers showed a sentiment rise in May largely due to an improvement in personal finances. Wages beginning to outpace inflation and continued low interest rates helped lift sentiment on the one hand, but consumers were still pessimistic about the outlook for the economy.

In company news, FirstGroup has announced that its chief executive is stepping down with immediate effect as weary shareholders were presented with full-year results that indicated the company’s latest turnaround plan has failed to deliver.

The company, which owns Great Western Railway (GWR) and South Western Railway, disclosed a loss in the year to March 2018 of £327m before tax, down from a profit of £152m last year.

By David Pegler, Brighton Capital Management