February 13, 2018

Pegler’s market report – 13.02.18: What a week for the markets – ‘Volatility’ is back!

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (13.02.18) Business section under the title Pegler’s Market Report:

What a week for the markets – ‘Volatility’ is back!

Last week was one of the worst trading sessions since the 2008 financial crisis, and it is all the more remarkable since it came off the back of one of the quietest periods in market history.

The sell-off was sparked last Friday week by wage growth in the US jumping to 2.9pc, suggesting that inflation will soon follow and prompt the central bank to remove monetary stimulus. This news was exacerbated by the Bank of England (BoE) teeing up a second-rate hike in May and Chinese trade data indicating that the Asian powerhouse’s economy is strengthening. Fears of higher government spending in the US as policymakers in Washington attempt to end the government shutdown have also pushed up bond yields and dragged down stocks.

The BoE tried to make sense of it all highlighting that markets had risen off the back of economic growth without “pricing in” the inflationary pressures and interest hikes that would follow. However, rather than a repeat of the 2007 crash, these corrections had simply placed the US market “back where we were a couple of months ago”.

Ben Broadbent from the BoE went on to say: “If you look at what happened last year, particularly in the US but also in other equity markets, there was extremely strong growth, big rises in prices, as people gradually realised how the strong the growth in the global economy was. It went a long way”.

The BoE left interest rates unchanged at 0.5% this month but said it was likely to raise rates faster than previously indicated. The bank also increased its forecast for UK economic growth to 1.8% for 2018. Industry experts expect a rate rise as soon as the MPC’s meeting in May, with another rise later this year.

The housing market continues to slow, according to two surveys out last week. Halifax’s House Price Index showed annual price growth had declined to 2.2%, with prices down by 0.6% in January. Monthly research from the Royal Institution of Chartered Surveyors also suggested a flattening market. While more surveyors reported house prices had risen over the past three months, new buyer enquiries remain weak.

Despite this new data, housebuilder Bellway said market conditions remain favourable and it expects revenues to have increased by more than 14% in the six months to January 2018. In a trading update, the company said it expects around £1.3bn of revenue for the six-month period. Average selling prices rose by almost 7.8% to £276,000.

Newspaper publisher Trinity Mirror has agreed a near-£200m deal to buy a string of competitor’s titles including the Daily Express, Daily Star and three celebrity magazines OK!, New! and Star.

Some good news to end with – fast-growing ‘challenger’ bank Metro is to create 900 new jobs. At least 100 of those will be apprentices. It’s also expanding its Metro Bank University, which offers accredited courses.

By David Pegler, Brighton Capital Management