June 19, 2018

Pegler’s market report – 19.06.18: Likely follow through with tariff threats

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (19.06.18) Business section under the title Pegler’s Market Report:

Likely follow through with tariff threats

Markets took a turn for the worse at the end of last week as Donald Trump followed through with his threat to impose $50bn of tariffs on Chinese goods and warned Beijing that he will announce further measures if it retaliates.

Mr Trump said he was implementing the 25pc import taxes, which will come into effect on hundreds of Chinese products on July 6, to prevent “further unfair transfers of American technology and intellectual property to China, which will protect American jobs”.

China has vowed to respond with tariffs of a similar size and scale. Chinese commerce ministry officials said Beijing was left with “no choice but to strongly oppose” the measures.

Profits at Iceland have dropped by nearly a quarter after the supermarket chain was hit by supply chain problems during Christmas and a hefty interest charge.

The retailer’s pre-tax profits fell 23pc to £55.7m for the year to March 24, driven by a £10.7m increase in interest charges when the company redeemed a number of bonds.

Govia Thameslink boss Charles Horton has quit in the wake of last month’s calamitous rail timetable shake-up, admitting that passengers had been left “hugely frustrated” by cancellations and delays.

Commuters faced chaos when the new timetable was introduced on May 20 with up to half of the trains operated by GTR cancelled or severely delayed in the weeks that followed. Shares in Go-Ahead Group, Govia’s owner, were largely unaffected by the announcement.

Tesco’s acquisition of Booker helped boost its overall sales at the start of the year, offsetting a slight slowdown in its UK supermarkets, which were affected by the snowy weather. Group like-for-like sales at Tesco, which strip out new shops, rose 1.8pc in the 13 weeks to May 26, marking a 10th consecutive quarter of growth, and came despite falling sales in Asia and Europe.

Booker, the wholesaler and distributor Tesco bought last year, reported growth of 14.3pc, partly on the back of new business wins.

Rolls-Royce has set out its stall for the future, explaining how it plans to turbo-charge its financial performance after revealing it would let go of 4,600 staff, two-thirds of them in the UK, the engineering giant told investors it is “well-placed” to hit senior management’s target of generating free cash flow of £1bn a year by 2020.

Bank of England officials have previously made a case for raising interest rates on the basis that accelerating wage growth could feed through into rising inflation. The latest data appear to undermine this case.  As well as slower wage growth and unchanged inflation, official figures showed a sharp fall in the output of the UK’s manufacturing industries, with production falling at the fastest rate since 2012 during April.

On a final note, sunshine and royal wedding celebrations brought relief to Britain’s struggling retail sector. Retail sales volumes increased by 1.3pc compared with April, the ONS said. The May increase follows April’s 1.6pc rise and suggests that consumers opened their wallets following a period of belt tightening and poor weather in the first quarter of the year.

By David Pegler, Brighton Capital Management