March 21, 2017

Pegler’s market report – 21.03.17: Markets continue to record highs after interest rate news

As published in the Brighton Argus (21.03.17) Business under the title Pegler’s Market Report:

Markets continue to record highs after interest rate news

Markets continued notching up record gains as the Fed raised rates for only the third time since the financial crisis and the Dutch centre-right prime minister Mark Rutte won the election in the Netherlands.

The pound soared after outgoing Bank of England policymaker Kirsten Forbes unexpectedly voted for a rise in interest rates at the bank’s March meeting. It represents the first split on the Monetary Policy Committee (MPC) since July of last year. The other eight members of the MPC opted to keep rates at 0.25pc. The emergence of the hawkish dissent this month is slightly surprising, given that the January’s CPI inflation rate of 1.8pc undershot the Committee’s expectation by one-tenth, wage growth has slowed and activity indicators like the PMIs have edged down. Ms Forbes is leaving the MPC in June, and it is not uncommon for outbound members to strike out against the consensus. The MPC’s decision is last before Article 50 is triggered later this month.

Sterling also likely benefited from Theresa May’s repeated statement that ‘now is not the time’ for a second referendum on Scottish independence, with the Prime Minister keen to put another roadblock in the way of Nicola Sturgeon’s planned vote.

Despite the move up in US interest rates the Fed signalled a more gradual pace of rate hikes this year than previously expected. The cautious tone from the Fed weighed heavily on the dollar, which helped the mining and commodity sectors a little.

In company news, Balfour Beatty swung back into profit as the construction firm’s turnaround continued to pick up pace, buoyed by Donald Trump’s promise to invest $1trillion in infrastructure projects. The company, which is helping build Crossrail, HS2 and Hinkley Point, made £8m in pre-tax profits last year, from a loss of £199m in 2015. Its order book increased 15pc to £12.7bn, due to a 21pc boost to construction contracts.

Sainsbury’s raised the prospect of a squeeze on household budgets, saying it had been forced to raise prices for the first time in two and a half years. Supermarkets have been paying higher import costs since sterling fell after the Brexit vote last June. Sainsbury’s reported a slight reduction in sales however, the company received a boost from its recent acquisition of Argos, where sales growth is stronger.

Elsewhere, the owner of British Airways is entering the low-cost long-haul market with a new airline to be named Level in a bid to take the wind out of rivals such as Norwegian and WestJet. International Airlines Group said Level will launch in June with an initial two new Airbus A330 aircraft flying from Barcelona to Los Angeles, San Francisco, Buenos Aires and Punta Cana, in the Dominican Republic.

By David Pegler, Brighton Capital Management