September 25, 2018

Pegler’s market report – 25.09.18: No deal better than bad deal

As published in the Brighton Argus (25.09.18) Business section under the title Pegler’s Market Report:

No deal better than bad deal

The pound has suffered another significant drop after Theresa May’s speech stoked fears in the City of a no deal Brexit. She reiterated that “no deal is better than a bad deal” and insisted that she would not agree a deal that would break up the UK or disregard the referendum result.

EU leaders firmly rejected the Chequers plan in Salzburg leaving the UK only two options. The first suggests that the UK abides by all EU rules, which would make a mockery of the referendum. The second option proposed a free trade agreement but the prime minister will not accept a border down the Irish Sea.

Sterling’s slump helped the main UK market end positively last week. The currency drop boosted the international-focused firms that convert overseas earnings back into sterling. UK-exposed housebuilders, Barratt Developments, Persimmon and Taylor Wimpey, were some of the casualties that didn’t do so well and bore the brunt of no deal Brexit fears on London’s stock market.

Elsewhere global markets mostly advanced over the last week after another widely expected round of tariffs between the US and China was less severe than first feared, igniting hopes that the world’s two largest economies will eventually strike a deal on trade.

The cost of living in Britain has jumped, as consumers pay more for clothing, transport and recreation costs. The Consumer Prices Index (CPI) rose by 2.7pc year-on-year in August, up from 2.5pc in July. The City had expected a drop to 2.4pc. It means inflation is now rising faster than total pay again, highlighting the threat of a cost of living squeeze, which still looms over the UK economy.

Moss Bros shares lost nearly a third of their value after the company swung into a loss and warned profits this year would fall short of market expectations. Stock shortages led to supply chain issues in the first quarter, while the retailer blamed the hot summer weather and focus on the football World Cup for keeping customers away. Footfall in its stores was 7pc lower on average, with some shops reporting a 14pc drop in customer numbers.

Tesco has launched a new initiative in its battle to win back shoppers from Aldi and Lidl with the opening of a new discount chain Jack’s that promises to be the “cheapest in town”. A typical large Tesco supermarket sells more than 25,000 products but Jack’s will stock only 2,600 products – about the same as Aldi and Lidl. Nearly 70pc of the products, from milk to eggs, bread and fresh meat are branded as Jack’s but the stores will also sell 700 big-name branded lines including Coca-Cola, Bovril and Lea & Perrins Worcestershire sauce. The store’s focus on British products is designed to differentiate it from Aldi and Lidl, which stock hundreds of lesser-known European brands. The group plans to open 10-15 Jack’s stores over the next six months, the first in Cambridgeshire and Lincolnshire.

By David Pegler, Brighton Capital Management