October 16, 2018

Pegler’s market report – 16.10.18: Further stock market jitters

As published in the Brighton Argus (16.10.18) Business section under the title Pegler’s Market Report:

Further stock market jitters

Global stock markets have taken a battering over recent days as investors worry about signs of slowing growth, rising trade tensions and higher interest rates.

President Donald Trump has blamed an “out of control” Federal Reserve for sharp drops on global stock exchanges and said he was “disappointed” with the central bank’s chair, Jerome Powell.

Despite a great run for US markets, investors have suffered their biggest losses since February which have escalated tensions between Trump and Powell. Powell, who took the Fed’s top job in February, has presided over a series of interest rate rises which have attracted Trump’s criticism.

UK shares officially entered correction territory, defined as a drop of 10pc or more from a previous 52-week high. The leading index of UK shares fell below the psychological 7,000 level on Friday, compared to its record high of 7,903 in May.

Struggling cafe chain Patisserie Valerie has raised £15.7m from investors in an effort to stave off collapse after its finance director was arrested by police on suspicion of fraud. Chairman and largest shareholder Luke Johnson (also owner of Brighton Pier) has committed to provide a further £10m in finance to help pay off urgent tax bills and support the company over the next three years.

In a trading update Patisserie Valerie said it expects its revenue for the year ending Sept 30 to be approximately £120m while its earnings before interest, tax and other items would be £12m. However, it cautioned these figures “cannot be verified until there has been further work including the re-audit of the company’s financial statements”.

Another high-profile high-street name having a bit of a crisis is Pret a Manger, where a number of scandals have emerged in respect to incorrect food labelling. There is certainly a lot of love for the Pret brand, which investors doubt can be evaporated overnight, but what these recent tragic cases have done is exposed slack procedures and possibly weaknesses in Pret’s business model and processes.

UK businesses are becoming increasingly nervous about Brexit, according to a survey by the British Chamber of Commerce (BCC). Its quarterly survey of 5,600 firms found that the proportion of services companies trying to recruit is at its lowest for 25 years, and those that were hiring were finding it difficult.

Brexit worries are also being blamed for a continued downwards trend in the property market. A survey by the Royal Institution of Chartered Surveyors (RICS), showed that prices are falling, buyer enquiries are at a record low and sales are taking an average of 19 weeks to complete – the longest since the RICS began collecting the data. Although London was worst hit, the falling prices in the capital were now expanding out to other areas such as the South East and East Anglia.

By David Pegler, Brighton Capital Management