June 20, 2017

Pegler’s market report – 20.06.17: Fed-up?

by David Pegler

in Insights Press Releases

As published in the Brighton Argus (20.06.17) Business section under the title Pegler’s Market Report:

Fed-up?

The Federal Reserve did what almost everyone expected last week, raising the target range for the US federal funds rate by 25 basis points to 1.00% – 1.25%.

Three Bank of England officials have called for UK interest rates to rise in a surprise move that signals policymakers are becoming more concerned about higher inflation even as the economy slows. Bank policymakers voted 5-3 to keep UK interest rates on hold at a record low of 0.25pc. The last time there were three dissenting votes to tighten policy was May 2011.

Next, the UK’s most successful clothing chain in recent years, is one of a number of companies to feel the impact of a squeeze on consumer spending as inflation bites. Next was little helped by official UK retail sales data, which showed a sharper than forecast slide in volumes in May as a jump in inflation and low wage growth weighed on consumers.

Over in Luxembourg, Chancellor Philip Hammond has said that the UK should prioritise jobs and prosperity in the Brexit talks, which are due to start next week. Elsewhere Euro zone finance ministers agreed to extend Greece a further €8.5bn in support, which generally helped market sentiment following the more bearish tones from the Federal Reserve and the Bank of England earlier in the week.

Back in the UK, Tesco reported its strongest quarterly sales performance for its home market in seven years. The supermarket giant said it had seen particularly strong growth in fresh produce as it enjoyed like-for-like sales growth of 2.7pc in food, compared to the same time last year. However, investors may now fear that Amazon could knock Tesco off its perch as Britain’s number one supermarket. Amazon’s $13.7bn purchase of US natural food store Whole Foods marks the entrance of a major new player into the supermarket space.

Given Amazon’s spending power and already large footprint in the UK, the Whole Foods purchase probably increases the odds of an acquisition of the online grocer Ocado. Amazon had already shown interest in the UK food supermarket industry through its partnership with Morrisons. Its relationship with Amazon has helped Morrisons’ shares outperform those of Tesco and Sainsbury’s. Morrisons may have also moved up the table of possible takeover targets now that Amazon has officially entered the supermarket sector.

Recent data has confirmed tourist numbers are up in the UK. Britain’s shops, hotels and tourist attractions are benefiting from a serious spending spree as foreign visitors to the country make the most of the weak pound. Overseas residents made 3.7m visits to the UK in April, a jump of 19pc compared with the same month of 2016 and spent £2bn in Britain in the month, soaring by 20pc on the year.

By David Pegler, Brighton Capital Management