December 13, 2016

Pegler’s market report – 13.12.16: Hope for a Santa Rally

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (13.12.16) Business on page 23 under the title Pegler’s Market Report:

Hope for a Santa Rally

Equities have rallied and investors are hoping for a ‘Santa Rally’ – factors such as a continued highly accommodative monetary policy (measured FED hike rates, ECB stimulus for longer), diminished fears about Italian banks, together with Trump-inspired fiscal stimulus ideas may all help to add some Christmas cheer.

President of the European Central Bank, Mario Draghi, had centre stage this week when he announced that the financial markets had proved “more resilient” to Brexit, the US election and the Italian referendum than expected, but warns that the impact of these developments – positive or negative – will be felt long-term. Speaking at a conference in Frankfurt, Mr Draghi said the decision to extend quantitative easing for a further nine months until December 2017 resulted from a “very broad consensus”. He also called on European governments to “intensify” their efforts to stimulate the economy, while remaining compliant with the EU’s stability and growth pact.

Spread betting firms have had a torrid week as both UK and German financial regulators have unveiled various clamp-down on their business activities including restrictions to market, distribute and sell ‘Contracts-for-difference’ to private investors.

In similar fashion, shares in bookies William Hill and Ladbrokes Coral were sent tumbling, after a cross-party committee of MPs concluded that fixed-odds terminals are highly addictive and should have their stakes reduced. The committee’s recommendation is that the maximum stake should be drastically slashed from £100 to £2, as they presented their findings to the Government. These recommendations followed warnings issued by UK charities rallying against gambling addiction, which claimed that the machines enable gamblers to lose hundreds of pounds in under a minute.

Shareholders in support services group Capita were disappointed after its 2016 pre-close trading update included an unwelcome early Christmas present; another full-year profits warning. The company said last month that a Brexit inspired slowdown meant it needed to simplify the group to ensure organic growth and improved financial performance, to stem share price declines triggered by an end-Sept profits warning that saw its market cap plunge. While a flat 2016 dividend is not the end of the world, mere ‘hopes’ that it can be maintained in 2017 is not exactly inspiring for those shareholders requiring income and/or sitting on big capital losses.

Sports Direct also struggled, posting a 25pc tumble in profits as the Mike Ashley-owned giant wrestled to restore a battered reputation and apparently transform itself into the “Selfridges of sportswear”. The company, which has been under fire for the past year for the poor treatment of its warehouse staff and a lack of corporate governance, is expected to divide views on its progress after sealing another deal with a member of Mr Ashley’s family and spending £40m on a new corporate plane.

By David Pegler, Brighton Capital Management