UK Companies defy gloomy outlook to post positive updates

Despite the pessimism surrounding the UK, a wide range of companies have delivered positive trading updates. Centrica has reaped the benefit of recent skyhigh gas prices as it reported half-year profits have risen by almost 10 times to £969m. Shares in Rolls Royce surged after it said its turnaround plan is working well and it continues to benefit from the resumption of air travel following Covid.

Companies including BT, Moneysupermarket, Lloyds, Barclays, GlaxoSmithKline, Unilever, Reckitt Benckiser, Foxtons and Frasers Group all reported revenue and profits above forecast. Rising rates have raised bank profits, while the rising cost of living has increased the use of comparison websites. Rising London rents means revenues from Foxton’s rental division have offset the drop in sales. Even companies without favourable trading conditions are beating expectations. Frasers (the owner of Sports Direct and Evans Cycles) reported annual profits are up 40% as younger consumers are happy to pay for premium brands.

For the following stories, please click on this link*

• UK: Improved inflation welcomed by markets, but it is too early to say it is under control
• CHINA: Slowdown adds to speculation of additional stimulus
• Commodities: Russian aggression still has potential to drive prices

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

UK: Positive inflation update lifts markets

Financial markets received a boost as UK inflation fell faster than expected. The Consumer Prices Index slowed from 8.7% to 7.9%, the biggest improvement in two years, as petrol and diesel prices fell. Core inflation also slowed, but this was less dramatic as inflation excluding volatile energy and food prices fell from 7.1% to 6.9%. Food inflation appears to have passed its peak. Research agency Kantar reported food inflation has fallen for four months in a row to 14.9% down from 17.5% in March.

The positive news on inflation helped lift government bonds. Slowing inflation means markets now see rates peaking below 6% and the yield on benchmark 10-year gilts fell to 4.2%, down from 4.7% two weeks ago. UK equities also rallied strongly led by housebuilders and property developers. A lower peak for interest rates should reduce the cost of mortgage borrowing, reduce the debt burden for commercial landlords and support higher valuations. Sterling gave up some of its recent gains against the dollar. 

For the following stories, please click on this link*

• UK: Improved inflation welcomed by markets, but it is too early to say it is under control
• CHINA: Slowdown adds to speculation of additional stimulus
• Commodities: Russian aggression still has potential to drive prices

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

Equity and Bond markets benefit as US inflation drops to its lowest in 2 years

This week brought a significant shift in the narrative surrounding inflation. US headline inflation dropped to 3% in June. Core inflation has been more resilient than the headline rate but it also fell. Despite the Federal Reserve expected to keep hiking in the very short term, the speed of the decline was enough to buoy financial markets around the world as investors look forward to the end of US interest rate hikes and a weaker dollar. Government bonds rallied strongly, and equity markets also looked to the positive.

A soft landing remains a realistic outcome in the US and economically-sensitive equities saw some of the biggest gains. But the reaction in the UK appears optimistic in the face of otherwise gloomy updates. The Bank of England now expects average mortgage payments to go up by £3,000 a year, and potential buyers are being put off by high borrowing costs. Company insolvencies are expected to keep rising and unemployment is also up, despite more than 1 million vacancies still open. In the face of these headwinds, the BoE can only to look to the US with envy. 

For the following stories, please click on this link*

• US: Markets welcome news of rapidly cooling inflation
• UK: GDP contracts in May as rising rates take effect
• Markets: Defence sector benefits as security gains importance

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

 

Volatility returns to equity markets

This week government bonds took another leg down and volatility returned to previously bullish equity markets. The outbreak of pessimism was due to a combination of another strong reading for US Core PCE inflation, the Fed’s most keenly watched measure of inflation, and surprisingly strong employment data. In addition, the Fed appears much keener to return to rate hikes than previously appreciated. The minutes of the Federal Open Markets Committee are usually dry affairs but the account from last month showed most members are in favour of further hikes.

For most of this year, equity markets have remained unmoved by the difficulties seen in bond markets. However, this week concerns cut through as the good news is bad news theme from 2022 returned. Strong job creation and expansion in service industries would usually be welcomed. But by forcing banks to keep hiking, markets have returned to concerns that rates are going to go high enough to engineer a recession. Bond and equity markets appear to be on the same page for the first time in a while. Unfortunately, this chapter does not make for enjoyable reading.

For the following stories, please click on this link*

• US: Bond yields rise as Fed says further hikes are likely
• UK: Signs of consumer stress as savings habits change
• Markets: EV car makers benefit from record sales

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)

 

Governments told to align Fiscal and Monetary policies to control inflation

This week it was the Bank for International Settlements’ turn on the subject of inflation. Aside from encouraging central banks to stay the course, the BIS pointed out that getting inflation down is made harder when fiscal policy is running counter to monetary policy. The BIS’s solution is to encourage developed governments where inflation is a problem to raise taxes or curb spending as the fastest way to end the inflation problem.

By coincidence, Joe Biden effectively launched his re-election campaign and the topic he is keen to focus on is his Bidenomics stimulus programme. Biden’s poll ratings are not great and his advisers think he’s not getting the credit he is due from his stimulus. Although he is restricted by a Republican controlled lower chamber of Congress, the temptation for some form of extra stimulus in advance of next year’s elections must be great. Rishi Sunak and Jeremy Hunt face an even thornier dilemma in the UK. High inflation means further stimulus makes even less sense here, but a tax cut in advance of the next general election is one of the few options left to address the Conservatives’ terrible polling numbers. 

For the following stories, please click on this link*

• US: Strong economic data complicates fight against inflation
• Banks: Largest US banks pass annual stress test
• Markets: Global equities shrug off concerns of recession

(*Please note, The contents of this e-shot been prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. FE Research is a division of Financial Express Investments Ltd, registration number 03110696, which is authorised and regulated by the Financial Conduct Authority (FRN 209967). For our full disclaimer please visit www.financialexpress.net/uk/disclaimer. Data Sourced from FE Analytics, and Bloomberg Finance LP.)