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June 12, 2018

Pegler’s market report – 12.06.18: The ‘slow death’ of the high street


in Insights Press Releases

As published in the Brighton Argus (12.06.18) Business section under the title Pegler’s Market Report:

The ‘slow death’ of the high street

Barely a week goes by without another crisis on the high street. Last week brought news of 6,000 jobs under threat at House of Fraser, which wants to close half its store estate (31 stores under threat), and 5,000 jobs on the line at Poundworld, which is close to calling in the administrators.

House of Fraser’s plan to use a company voluntary arrangement (CVA) has been well-trailed but is no less ugly and reinforces the apparent ‘slow-death’ of the high street. The chain, founded in 1849, has come unstuck in several ways, having failed to invest in its stores and its online offer.

Meanwhile, UK retail sales did actually recover in May, with the highest growth figures in four years, according to the British Retail Consortium. Two bank holidays, the start of summer and preparations for a royal wedding encouraged Britons to spend in May, boosting the high street, garden centres and entertainment venues.

The Royal Bank of Scotland (RBS) share price has bounced back from its slump after the EU referendum, but the taxpayer is still going to be significantly out of pocket as the government sells down its stake. Few argue the RBS bailout was necessary to maintain financial stability, but the cost of that intervention is now starting to emerge. In August 2015 the government sold 5.4pc of the bank at £3.30 per share, which the National Audit Office estimated crystallised a loss of £1.1 billion, or £1.9 billion if you include the cost of financing.

RBS has cleared several obstacles which have now unblocked the road to re-privatisation, in particular settling claims for mis-selling mortgage-backed securities in the US. The recent share sale is good news for private investors in RBS because it is a step towards becoming a normal bank again, though government sales may put downward pressure on the share price in the near term. As a business RBS remains a work in progress, and possibly more of an investment for recovery investors with a long-term investment horizon.

Trump has added further spice to the G7 meeting, declaring that Canada, the EU and Mexico all treat America very badly when it comes to trade, meaning we can dial down expectations for a successful G7 even lower. The G7 meeting has become more like a G6+1, with Trump choosing to isolate the US on a number of issues from trade to Iran and climate change. America’s increased isolation on the world stage is beginning to worry traders.

The US president is due to leave Quebec early, meaning he will miss the summit’s second day. Trump is flying to Singapore for his historic meeting with North Korea’s Kim Jong-un. The talks could lead to a thawing of tensions between the two countries; but with such unpredictable leaders, anything is possible.

This week investors will have a firm eye on the UK inflation numbers – Consumer (CPI) inflation edged down to 2.4pc in April. We also have a decision on US interest rates – in its May meeting, the Federal Reserve left its target range for the federal funds rate steady at 1.5pc to 1.75pc.

By David Pegler, Brighton Capital Management

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