Pegler’s market report – 12.07.16: Better news from the other side of the water

As published in the Brighton Argus (12.07.16) Business on page 21 under the title Pegler’s Market Report:

Better news from the other side of the water

US jobs growth surged in June as manufacturing employment (so called non-farm payrolls) increased by 287,000 jobs last month, its biggest gain since last October, and above forecasts of 175,000. Although the report shows signs of economic strength, it will probably not impact the near-term outlook on US rate rises as the Fed moves to assess the damage the Brexit vote may cause.

One of the more successful retailers on the high street warned that the post-Brexit sterling slump could become a major problem for next year. Department store chain, John Lewis, has hedged against currency moves for the rest of 2016 and the beginning of next year, but further downward movements in sterling could cause higher import costs for the retailer. Around two-thirds of John Lewis goods are imported, with around half paid for in dollars.

Some analysts think the post Brexit 40pc share price fall for a number of the housing/building stocks has been overdone. Compared to the global financial crisis in 2008, UBS said the sector is in “a fundamentally different position”, as balance sheets are stronger and there are no visible signs of “distress” in the financial system.

Other news in the sector came from a high number of real estate funds and investment trusts that have bolted its gates to investors wanting to cash out. The decision to lock-in investors and prevent an unnecessary ‘fire sale’ comes in response to rising demands to abandon bricks-and-mortar with investors fearful of the Brexit impact on the UK’s precious property market.

Credit rating agency Moody’s has reduced its expectation for the growth in the UK to 1.5% this year and 1.2% in 2017, down from 1.8% and 2.1%, respectively. It thinks political contagion across the EU is the greatest Brexit risk.

It is not all bad news out there – shares in pest control and hygiene company Rentokil Initial rallied to a 13-year high after it said the plunge in the pound following the Brexit-vote would add around £25 to £30m to its earnings this year.

By David Pegler, Brighton Capital Management