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January 24, 2017

Pegler’s market report – 24.01.17: Investors re-evaluate changing financial landscape


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As published in the Brighton Argus (24.01.17) Business on page 21 under the title Pegler’s Market Report:

Investors re-evaluate changing financial landscape

In a week of the US President’s inauguration, talk of ‘Hard Brexit’ and important comments about inflation from senior European officials global markets have taken a step back from the recent record highs as investors start to consider all the consequences and changing financial landscape ahead.

Mark Carney has suggested UK interest rates could go up or down as the Bank of England strikes a difficult balance between supporting growth and managing inflation. The central bank governor also claimed that the Monetary Policy Committee’s (MPC) actions after the EU referendum had saved hundreds of thousands of jobs. He went on to say that, had the MPC not responded to Brexit by cutting interest rates and further quantitative easing, a quarter of a million jobs would have been lost.

He also admitted that growth, consumer demand and the housing market had remained more resilient than expected over the autumn, but warned that this would ultimately come to an end over the next few months as inflation begins to weigh on household incomes and wages, leading to slowdown in consumption and greater uncertainty.

It comes as the UK’s savings rate has fallen towards pre-crisis lows, and consumer borrowing has accelerated since the June referendum.

While markets are decidedly cautious about Trump’s inauguration and early days in power, the world’s top bankers are rather excited about a Trump presidency. Speaking in Davos, a panel of bank chief executives said that Trump could herald the start of a new era of economic growth driven by a booming banking industry for the first time in nearly a decade.

Switching to company news, Royal Mail’s shares struggled on the back of a disappointing nine-month trading update, which pointed to further weakness at its UK letters business. Analysts are concerned about the economic growth forecast slowing over the next 12 months and believe that Royal Mail needs to find new ways of supporting revenue, either through higher price increases than are currently assumed or through new campaigns and products.

On the mid-cap index, enjoyed an ‘epic’ trading session, surging to an 11-month high, on better-than-expected fourth quarter and full-year revenues. Its insurance business grew 30pc in the fourth quarter compared with the previous year despite fierce competition.

The growing cost of car insurance has helped to send more customers to the price comparison site. Apparently, the annual price of insuring the average car has risen £95 in the last year to £767, reversing several years of falling costs.

Finally, troubled education giant Pearson cut its profit guidance for the next two years, lowered its 2017 dividend and said it may sell its stake in Penguin Random House to help battle “unprecedented” changes hitting its key markets.

By David Pegler, Brighton Capital Management

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