March 28, 2017

Pegler’s market report – 28.03.17: Market volatility on delayed US healthcare vote

As published in the Brighton Argus (28.03.17) Business under the title Pegler’s Market Report:

Market volatility on delayed US healthcare vote

It was a more volatile week for stock markets as fears increased failure to pass the US healthcare bill would derail the US President’s plans. Many economists believe that the US healthcare vote doesn’t really matter in the long-term, and its overall impact on the US economy is likely to be relatively minor. However, in the short-term this is a major risk event for US markets, as it is considered a test of Trump’s ability to get his legislative agenda, including tax cuts and fiscal spending, through Congress.

Fortunately, UK markets didn’t react too negatively to concerns about the recent terror attacks in Westminster.

UK Inflation rose above the Bank of England’s 2% target for the first time in three years, according to the Office for National Statistics. The consumer prices index increased to 2.3% in February from 1.8% in January, above the consensus forecast for a rise of 2.1%. While the news adds pressure on the Bank of England to consider increasing interest rates, governor Mark Carney played down the significance of the rise highlighting that his team is unlikely to overreact to a single data point.

Apparently, one recent survey revealed that nearly 60% of UK households expect the Bank of England to raise interest rates in the next 12 month, while a third of respondents expect a base rate rise in the next six months.

High street retailer Next, was back in fashion, despite reporting a drop in underlying profits. However, it held its forecasts and investors jumped aboard in relief, despite the company warning of another tough year on expectations inflation will squeeze consumer spending.

Elsewhere in the retail sector, B&Q owner, Kingfisher, signalled a cautious outlook following solid full-year results.

Airline operators climbed higher as concerns about Brexit meant they could lose the ability to fly freely between European destinations once Britain leaves the bloc eased. Travel group TUI rose as did EasyJet and British Airway-owner IAG.

The Co-operative Bank has insisted that it has several credible suitors and dismissed speculation that bidders face a looming deadline to make initial offers for the troubled lender. The loss-making bank put itself up for sale last month amid mounting concern about its deteriorating capital position.

There are growing fears, however, that there are few bidders for the lender after a host of potential buyers, including TSB’s Spanish owner Sabadell, Secure Trust and Metro Bank, all publicly ruled themselves out in recent days.

If it cannot secure a rescue, the Bank of England will be forced to step in and wind the business up, marking the first intervention at a financial institution since the failure of Dunfermline Building Society in 2009.

By David Pegler, Brighton Capital Management