February 16, 2016

Pegler’s market report – 16.02.16

As published in the Brighton Argus (16.02.16) Business on page 21 under the title Pegler’s Market Report:

A crisis of confidence, spreading from emerging markets and commodities, now to the banking sector

In a further crisis of confidence panic-stricken investors sought out the shelter of safe haven assets as world markets were gripped by continued volatility.

Money poured into the safest government debt, pushing down borrowing costs in Britain close to their lowest recorded levels, and sparking demand for gold as global equities finished in the red for most of last week.

Analysts are increasingly concerned that the world’s central banks are losing their fight against insipid inflation despite resorting to an eight-year stretch of unprecedented stimulus measures.

These fears were crystallised by the Swedish central bank’s shock move to slash its main interest rate to -0.5% last Thursday. Previous similar moves by Japan have not helped either the country’s currency or stock market.

France’s Societe Generale and Germany’s Deutsche Bank were some of the biggest casualties last week, highlighting the threat of negative interest rates crimping bank profitability, as lenders are penalised for parking reserves at the central banks.

Amid the stock rout, gold continued its rally nearing the technical definition of a bull market, having risen by nearly 20% since hitting lows in 2014, making it the best performing commodity of the year.

The UK’s largest retailers were also able to buck the miserable trend. News from the British Retail Consortium that consumer spending had rebounded after a soggy winter trading season was enough to propel many retailers towards the top of the weekly FTSE 100 table.

The data showed that non-food stores had been especially strong. Clothes chain Next moved higher closely followed by DIY chain operator Kingfisher and Costa Coffee-owner Whitbread.

Shares in Rolls-Royce jumped back above 600p last Friday as it bolstered finances by slashing its dividend in the face of tough market conditions. Investors were relieved the struggling engineering company did not issue a further profit downgrade. This time last year the share price was over 900p.

Finally, housebuilder and construction company, Countryside Properties, which has a number of new developments in Sussex, listed its shares on the stock market, giving the company a value of £1.01 bn.

By David Pegler, Brighton Capital Management