December 19, 2017

Pegler’s market report – 19.12.17: Inflation at its highest level since early 2012

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (19.12.17) Business section under the title Pegler’s Market Report:

Inflation at its highest level since early 2012

The governor of the Bank of England Mark Carney will be forced to write a letter of explanation to Chancellor Philip Hammond explaining why the central bank has missed its inflation target, after the rate hit 3.1% in November, its highest level since early 2012.

The Monetary Policy Committee (MPC) said that ‘Inflation is likely to be close to its peak’, as it kept interest rates on hold at its December meeting. However, ‘further modest increases’ in interest rates are likely, as it seeks to bring inflation down to its 2% target in the next few years.

Wage growth picked up slightly, with average weekly earnings excluding bonuses rising by an annualised 2.3%, up from 2.2% in the three months to September. Including bonuses, wage growth was 2.5%. However, with inflation above 3%, pay is still falling in real terms.

The US Federal Reserve raised interest rates by 0.25%, the third increase in 2017. The US central bank said the move, which was widely expected, underscored solid gains in the US economy. Officials also boosted their economic forecasts, projecting 2.5% growth in GDP in 2017 and 2018 due, in part, to planned tax cuts. The Fed said it anticipates three further increases in rates next year, unchanged from its previous forecast.

Theresa May suffered her first major legislative defeat, after pro-European Tories backed a move insisting that parliament have a full vote on any Brexit deal before ministers begin implementing it. On Friday, the EU was expected to agree to move onto the second stage of talks, which should start in March.

After much media speculation, The Walt Disney Company officially announced a $52bn deal to take over the entertainment assets of Rupert Murdoch’s Twenty-First Century Fox. Disney will consolidate its position as the world’s largest media company if the deal is cleared. The company also committed to continuing the bid for the stake in pay TV group Sky that it does not own.

Sky and BT Group announced plans to make each other’s content available over their rival’s TV platforms, which was positive for their share prices.

Online grocer Ocado reported another quarter of double-digit sales growth, but warned a shortage of delivery drivers was hurting sales. Average orders per week rose 11.1% to 280,000 over the latest quarter, while average order value grew 0.3% to £106.11.

Carpetright said profits for the next six months are likely to be at the bottom end of market expectations. “Consumer confidence remains fragile and we continue to manage the impact of intensified competition,” the company said.

Dixons-Carphone shares rose after management said it would take action to improve its mobile phone operation.

Elsewhere, Sports Direct shares slipped after the company reported a sharp fall in profits and a slight decline in UK retail revenues.

By David Pegler, Brighton Capital Management