July 24, 2018

Pegler’s market report – 24.07.18: Here he goes again

As published in the Brighton Argus (24.07.18) Business section under the title Pegler’s Market Report:

Here he goes again

Any hopes of a calmer week of trading on the world stock markets was dashed by the US president yet again. Mr Trump not only took to Twitter to accuse China and the EU of manipulating their currencies to edge ahead in global trade but then broke presidential convention by slamming the Federal Reserve’s rate rises. He finished by reiterating his earlier threats to hit a further $500bn of Chinese goods with tariffs.

The list of goods in the firing line could include the hugely popular Apple Watch, which may face a 10pc tariff under an obscure tax code as part of a growing trade war. While smartphones and laptops have so far been spared, smartwatch devices assembled in China, such as the original Apple Watch and many Fitbit models could all be hit by the increase.

The Government’s current budget deficit, which covers the day-to-day spending of public services, is currently in surplus by £1.3bn. If continued, this would be the first budget surplus since 2002, meaning that the Government is borrowing only to invest in infrastructure. UK Government net borrowing inched up to £5.4bn in June but remained at its lowest level since 2007, bolstering the chancellor’s Brexit war chest.

UK retail sales volumes dropped unexpectedly in June, according to official figures, with a 0.5pc monthly decline after growing 1.4pc in May and 1.3pc in April. Supermarkets and off-licences benefited from the warm weather and World Cup in June, but this was offset by lower sales in non-food stores, accord to the Office for National Statistics (ONS).

June’s decline followed wage and inflation data which suggested that the economy was not generating as much inflationary pressure as the Bank of England had forecast – raising questions about the probability of an interest rate rise in August.

While UK employment rose by 137,000 in the three months to May and unemployment remained at a low of 4.2pc, average weekly earnings growth slowed to 2.5pc.

UK inflation rate also came in lower than expected at 2.4pc in June. Rising energy costs were offset by falling prices for clothes and recreation.

Official data also showed house prices rising at their slowest pace since 2013. The ONS said that UK price growth had slowed to an annual rate of 3pc in May from 3.5pc in April. London prices were down by an annual 0.4pc, compared with rises of 6.3pc in the east Midlands and 5pc in the west Midlands.

In company news, steak restaurant chain Gaucho has gone into administration, with all 22 of the group’s Cau restaurants to close leading to the loss of 540 jobs. One of the administrators at Deloitte, said: “Unfortunately the Cau brand has struggled in the oversupplied casual dining sector with rapid overexpansion, poor site selection, onerous lease arrangements and a fundamentally poor guest proposition all being factors in its underperformance”.

The restaurant group has 1,305 employees in total: 540 at Cau, 714 at Gaucho and 51 at the company’s head office. Gaucho is still trading well and has strong customer loyalty.

By David Pegler, Brighton Capital Management