July 26, 2016

Pegler’s market report – 26.07.16: Poor UK data prompting likelihood of intervention to stimulate economy

As published in the Brighton Argus (26.07.16) Business on page 21 under the title Pegler’s Market Report:

Poor UK data prompting likelihood of intervention to stimulate economy

UK PMI (Purchasing Managers Index) data came in a little disappointing with Manufacturing, Services and Composite readings all in contraction territory, albeit Manufacturing did beat consensus. The market didn’t take it too badly with increased hopes the Bank of England will now have to stimulate the economy in August via an interest rate cut, more quantitative easing or another extension of the FLS (Funding for Lending Scheme). Or all three.

It wasn’t a great week for the airline stocks: Lufthansa triggered a severe bout of turbulence in the sector when it told the market that its forward bookings had declined significantly due to terrorist attacks and greater economic uncertainty. EasyJet also highlighted security concerns and weaker consumer confidence as major factors for putting a dampener on its summer season.

On the mid-cap index, investors cheered the news that William Hill’s chief executive had been ousted from the bookmaker as it seeks to revive online growth. Some financial companies were also more upbeat providing comfort to investors that there has been little direct impact to business post-Brexit.

Unfortunately, this has not been the experience for the advertising and property markets with increased uncertainty hitting trading. The Daily Mail and General media group, which produces the Mail newspapers and freesheet Metro, reported a decline in circulation sales, thanks to lower volumes. Advertising revenues across DMG media were 10pc lower against a year ago, though the company said the drop in newspaper advert sales was partly offset by stronger demand online.

Aberdeen Asset Management has increased the value of its property fund two weeks after it slashed 17pc off its value, in a move that indicates some confidence is returning to the commercial property market. Aberdeen made the decision to write down the fund’s value on the back of what it called “rapidly changing commercial property market conditions” in the wake of the vote to leave the European Union. Investors had rushed to redeem money from the funds, and the discount was intended to stem the tide while the fund improved its cash position, potentially by selling assets.

By David Pegler, Brighton Capital Management