July 11, 2017

Pegler’s market report – 11.07.17: A raft of economic data

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (11.07.17) Business section under the title Pegler’s Market Report:

A raft of economic data

Official data showed that UK industrial output had an unexpected fall in May, dragged down by a drop in car production that will add to questions about the economic outlook going into the second half of 2017. Other data highlighted Britain’s goods trade deficit increased to £11.9bn in May from £10.6bn in April, wider than forecasts predicted.

Further UK data indicated that rising prices forced down living standards last year as wages failed to keep up with costs, giving households the tightest financial squeeze since 2011. Disposable incomes fell by 2pc in 2016 after accounting for inflation, the Office for National Statistics said. Wages were up by 1.7pc on the year but prices increased by 1.8pc. A fall in benefits and property income and a rise in tax payments added to the squeeze.

Finally, fresh housing data from the Halifax showed that house price growth has flattened in the last three months as household finances have become increasingly crunched. The annual rate of growth over a three-month average has slumped to 2.6pc, down from 3.3pc in May and the lowest rate since May 2013.

Despite this recent disappointing data on the UK economy, many industry commentators still believe that falling uncertainty (despite Brexit and a minority government), lower borrowing rates, rising profits, stronger balance sheets and upbeat global growth mean that the investment outlook is looking more promising.

Non-farm payroll data from the US released on Friday showed that 222,000 jobs were added to the economy in June. The result was a welcomed increase on May’s figures, when only 138,000 more jobs entered the US labour market, and the figure was generally around 50,000 more than what the market expected. Although more jobs were added to the US workforce, the unemployment in the US has risen to 4.4pc, up 0.1 percentage point, as more people were looking for work.

Dunelm shares rose after the homewares retailer posted its best sales performance this year. However, the company warned that profits will be slightly lower than expected due to sluggish trading over Easter weekend. Recent trading has been more encouraging with sales in the 13 weeks to July rising by 17.7pc to £240m, boosted by its newly acquired online retailer Worldstores, which includes Kiddicare.

Shares in Bovis dipped after it had earmarked an additional £3.5m to fix problems related to its homes. It was earlier revealed the company was rushing the completion of its homes, and offering customers incentives to move into unfinished properties, some of which had electrical and plumbing problems. Bovis has now set aside more money to compensate for poor quality homes it built in a scandal that cost the company its chief executive and resulted in a profit warning. This brings the total amount to fix faults in some of its properties to £10.5m.

By David Pegler, Brighton Capital Management