September 19, 2017

Pegler’s market report – 19.09.17: Pound soars to highest post-EU referendum level as dovish Bank of England policymaker backs rate hike hopes

As published in the Brighton Argus (19.09.17) Business section under the title Pegler’s Market Report:

Pound soars to highest post-EU referendum level as dovish Bank of England policymaker backs rate hike hopes

There has been a clear communication shift from the Bank of England governor Mark Carney and the Monetary Policy Committee (MPC) and while there has not been a rate rise following their most recent discussions, over the next 12-24 months it is now considered much more likely that UK rates will rise higher and faster than market expectations.

The central bank said that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months” to bring inflation back down to its 2pc target and ease the pressure on consumer spending.

Essentially, the shift has come because the MPC has seen wage growth picking up and consumption showing signs of rising again.

Generally, this will be good news for those seeking annuity income or with cash savings and bad news for mortgage holders. Sterling immediately strengthened on the news and the leading index of UK companies came under pressure, given that a large percentage of their revenue comes from non-sterling revenue.

Mining stocks added to the downside pressure as concerns of an economic slowdown in China were reignited by stuttering industrial production in the Asian powerhouse. Industrial output growth, which underpins demand for base metal and their prices, slowed in August to 6pc, far weaker than expected and a drop from July’s already sluggish figures.

London’s miners reliant on a strong Chinese economy slumped alongside metal prices as the joint-worst industrial output figure in 20 months played into fears that economic activity in the world’s second largest economy is decelerating. A marked slowdown in infrastructure investment was the main culprit for the slowdown.

Experian shares have dived on a read across from troubled US rival Equifax as Democratic senator Mark Warner asked the Federal Trade Commission to investigate the credit-reporting agencies’ cybersecurity defences. The probe into the huge data leak at Equifax, which included details on 143m Americans, was widened to include Experian yesterday afternoon with Republican Carolyn Maloney sending a letter to the company asking what steps it had taken to protect consumers’ data.

Spire Healthcare shares were struck a double blow as the private hospitals group highlighted NHS referrals were down and £27m had to be set aside for compensating victims of rogue breast cancer surgeon Ian Paterson. The UK’s second largest private healthcare provider said the drop in July and August had led to “significantly lower than anticipated revenues” and now expects second half revenues to be flat on the previous year, while margins are forecast to be as much as 0.7pc lower at around 16.1pc.

Retailer Next was a rare bright spot in London, moving higher on a brighter outlook following a challenging first half of 2017, pulling up peers Marks & Spencer and Debenhams.

By David Pegler, Brighton Capital Management