December 12, 2017

Pegler’s market report – 12.12.17: Finally some progress on Brexit

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (12.12.17) Business section under the title Pegler’s Market Report:

Finally some progress on Brexit

Britain finally reached a deal on its EU exit terms, with compromise over the Northern Ireland border and a €40bn-€60bn divorce bill to pay. The agreement at least clears the way for trade talks next year.

The EU’s chief Brexit negotiator Michel Barnier has reiterated that the EU will look to create a trade deal with the UK similar to the one it has with Canada. However, he is expected to face opposition from Theresa May’s Government if the EU pursues a Canada-style deal with the prime minister previously indicating that she wants a broader deal.

The CBI, the UK’s biggest business organisation, has put the rights of EU and UK citizens working abroad and confidence-building assurances over the transition period on the top of its Brexit wish list now that talks have taken a major step forward.

Despite Black Friday efforts to attract shoppers, retail sales only rose 0.6% in November compared with the previous year, according to the British Retail Consortium/KPMG Retail Sales Monitor. All the growth came from food purchases, underlining how cautious consumers are about discretionary spending amid rising inflation and flat wage growth.

Meanwhile, on the other side of the pond, US non-farm payrolls beat expectations in November with 228,000 jobs added to the US economy but October’s figure was revised down from 261,000 to 244,000. Elsewhere, wage growth nudged up to 2.5pc but came in below economists’ expectations and October’s reading was also revised down to 2.3pc. This new data doesn’t provide traders any more clues to whether the Federal Reserve will signal a quickening pace to rate rises next year.

Housebuilding shares climbed on a read across from Berkeley lifting its profit forecasts while the banking sector was on the rise after the Basel IV deal ruled that capital requirements levels do not need to significantly increase.

Over-50s specialist Saga dived as it issued a profit warning for its holiday division following the collapse of Monarch Airlines.

There was better news for Whitbread, owner of Premier Inns and Costa Coffee, which jumped amid renewed speculation the group could be broken up. Ladbrokes shares also soared on news of further talks about being taken over by GVC.

Corporate activity news also hit the property sector as Hammerson launched an offer for Intu Properties. Hammerson, the UK’s largest shopping centre owner, is to acquire smaller rival Intu Properties for £3.4bn, creating Britain’s largest listed property group. The deal was not unexpected as Intu’s share price had fallen to a discount of more than 50% of net asset value. Intu’s slump in market value reflected concerns about the prospects for UK retail property as consumers abandon stores in favour of online shopping. Some 400 shops have been flagged for closure in recent weeks as more customers move online, according to the Financial Times.

By David Pegler, Brighton Capital Management