CPI Index rises 0.5% in June 2016
The Consumer Price Index (CPI) today released its official monthly report announcing that UK inflation rates have risen 0.5% up from 0.3% in May 2016.
The Office of National statistics states, that although the June figure increased month-on-month, it is still ‘relatively low historically’.
The recent EURO 2016 tournament could be a leading factor in the results as the popular tournament caused a rise in air travel fares and prices for fuel on top of high consumer spend.
The main points from the report show that transport prices grew by 1.1% from May this year compared to a rise of 0.2% in the previous year. As with Air travel, the rise is due to a 10.9% growth in fares which was its largest movement between the months May and June on record. Petrol (111p June) and diesel (112.1p June) prices also increased by 2.3p and 2.6p per litre.
Other smaller upward trends consisted of a 0.6% rise in Recreation and Culture compared to a fall of 0.1% in 2015 as well as a rise in communication as telephone equipment and services had a 0.6% rise between May and June in contrast to a 0.2% fall in the same period last year.
Household maintenance, equipment and furniture prices overall dropped 0.3% compared to a 0.3% rise in 2015. The fall is considered to be due to a downward trend in furniture and kitchen unit prices.
Following the recent sharp drop in the pound, it is thought that inflation prices may increase as imports into the UK will become more expensive. The Office of National statistics however have said that it is still too early to see the impact on inflation and the drop in the value of the pound following the EU Referendum vote.
19/07/2016
Royal Mail revenue grows only 1% in ‘Quiet period’
The Royal Mail (LSE:RMG) today released its latest trading update covering the three months ended 26 June 2016.
The report announced that while this time of the year is traditionally seen as a quiet period, group revenue increased only marginally by 1%. UK revenue, however, had a 1% fall.
The UK postal and parcel service also announced that parcel volumes were up 2% alongside a 2% rise in parcel revenue due to international imports including a 13% growth in European parcels network GLS.
The group faces increasing threats of lower economic growth which could heavily hinder the delivery service following Britain’s decision to leave the EU.
Moya Greene, Chief Executive Officer, Royal Mail plc, said:
“In what is traditionally a quieter trading period for the business, we saw no material change in overall trends. Group revenue was up 1% while in the UK revenue was down 1%. In Europe, GLS continued to perform well.
“We continue to face the challenges caused by the current low inflationary environment and our highly competitive markets. We remain, however, very focused on operational and financial efficiency and delivering a high quality service for all our customers.”
In reaction to the announcement, shares in the Royal Mail dropped 2p 0.4% down to 500p in early morning trading.
At 10:09am BST Royal Mail PLC traded at 503.10 +1.10 (0.22%)
19/07/2016
Wells Fargo buys new London headquarters
Despite London commercial real estate markets being hard hit by Brexit, US Bank Wells Fargo has just decided to invest around £300million in a new office block in the British capital.
Wells Fargo, the US third biggest bank by assets came to an agreement with the Slovak housing developer HB Reavis. The bank will buy a new 225,000 square meter office block in London close to the Bank of England. An official statement of the exact value of the deal has not been published. However, sources close to the deal have quoted a figure close to £300million according to Reuters reports.
The building is supposed to be finished in autumn 2017. Wells Fargo is set to relocate their London headquarters there by 2018.
Frank Prizzo, Wells Fargo’s regional president for Europe, Middle East and Africa has stated that the move to the new building will is possible for the bank to “more efficiently and effectively manage our operations.”
The investment in London real estate comes as a welcomed surprise to many. The London property market and particularly commercial real estate has been a big concern post Brexit as many funds stopped withdrawals.
Housing prices have started to rise more slowly nearly everywhere in the UK post the Brexit vote. In London prices have even started to fall.
The new deal may be a first indication that major businesses are still interested in staying in the UK and will invest in properties even after an exit from the European Union.
There are worries that London may lose its position as the financial capital of Europe after a loss of the easy access to all European Financial markets its European Union Membership currently provides.
After striking the deal with Wells Fargo, Marian Herman, chief financial officer of HB Reavis, has given optimistic comments on the future of the London housing market. She said the deal shows resilience “even under seemingly challenging market conditions.”
Concerns in markets for travel firms after Turkey’s failed coup
Political turmoil in Turkey following the coup attempt on Friday initially impacted markets negatively. The market is however optimistic most sectors as well as the Turkish Lira will rebound. However, travel companies may have reason for concern if we see prolonged political unrest.
In a move to crack down on the perpetrators, the number of people incarcerated for connections to the attempt has risen to 6,000. President Erdogan has promised to “purge state bodies of the virus that caused the revolt”.
The number of casualties has risen to close to 300.
Accusations of incitement have been directed towards Fethullah Gulen, head of the Hizmet movement. He is supported by many military officials in Turkey.
To counteract allegations Mr. Gulen, who has been living in the United States for 15 years, he suggested that President Erdogan may have staged the coup himself in an effort to better his political position.
A Turkish minister has accused the United States of taking part in supporting the plot against the government.
In midst of the turmoil the Turkish Borsa Istanbul 100 Index went down nearly 5 percent. Turkish bonds have fallen, with 10-year yields rising as much as 9.64 percent. The Turkish Lira tumbled to its lowest in eight years, losing 4.6 percent.
After plunging on Friday evening, the Lira has retraced 50 percent of its losses. Other affected emerging market currencies such as the South African Rand and the Mexican peso, which dropped initially after the coup attempt, have rebounded 1.7 percent and 0.7 percent respectively.
Experts, such as Head of EM Asset Allocation at UBS, Michael Bolliger, are confident that Turkey will manage a full recovery and markets will not be hit too hard by the political uncertainty.
It is clear that the situation is fragile as Turkey is greatly dependent on foreign investment to run its consistent current account deficit. But Bolliger told Bloomberg TV this morning that he does not expect a massive outflow of foreign capital.
The Borsa Istanbul 100 gained 15.5 percent so far this year, outperforming the broader MSCI Emerging markets index by 4.5 percent and the last time the military openly involved itself in Turkey’s domestic politics in 1997 the Index only dropped by 15 percentage points, starting its’ recovery after only three trading days and closing on a 254 percentage gain that year.
Bolliger also stated that the future movements in the markets will depend greatly on actions taken by the government to provide liquidity, ensure investor confidence and reinstall the presidential system.
The Turkish Prime Minister convened with his cabinet this morning at 9 am to discuss fiscal measures. The Finance Minister has reached out in a 2 hour long conference call to international investors expressing there is no need to panic. The Central Bank has promised unlimited liquidity to banks in order to ensure confidence.
But President Erdogan is seemingly not ready to reconcile with the parties of the failed coup and looks to strengthen his grip on power. In an address to a crowd of his followers, he stated that he is thinking of reinstating the death penalty which Turkey abolished in 2004 as part of their bid to join the European Union. Erdogan reportedly told the people that those that launched a coup have to pay the price for it. This stance may prolong political instability and violence in Turkey and have negative effects on the markets.
Trouble for travel firms
The real worry at the moment lies however with the travel sector. Turkey is one of the most popular travel destinations for many Europeans and especially British holidaymakers. The Foreign Office has issued a strong warning to tourists: “We strongly advise you to stay indoors, avoid public places, in particular demonstrations, and remain vigilant.” British Airways have cancelled all flights between the UK and all Turkish destinations. Thomas Cook as well as Thompson are offering refunds and cancelations to their customers. In the aftermath of the event on Friday Turkish Airlines tumbled 6.5 percent. Malaysia Airports Holdings Bhd., who owns Istanbul’s second largest airport, has dropped 5 percent. Shares of travel agency Tui have fallen 4 percent on the FTSE 100. Thomas Cook dropped as much as 5 percent on the FTSE 250. This comes only months after Thomas Cook and other companies, whose most popular holiday destination last year was Turkey, saw their share prices drop as much as 19 percent after having to report a 5 percent decrease in summer bookings due to the rising levels of terror threat in Turkey. While the Lira may be on its’ way to recovery and markets have generally shrugged off the failed coup attempt in Turkey, travel agencies and airlines are likely to feel the negative impact of the events for a while to come.ARM Holdings up 44% in takeover deal
ARM Holdings plc (LON:ARM) has soared 43% after the company announced it was subject to a takeover deal with SoftBank Group Corp in a deal worth up to $32 billion.
The 1700p offer represents a premium of 43% of ARM’s closing price of 1189p per share on Friday 15 July, as investors in the company are also entitled to receive an interim dividend of 3.78p per share to be paid on 10 October.
The 1700p offer also represents a 69.3% premium of the volume weighted average closing price of 1004p per ARM share over the past three months.
The deal to buy the UK based chip-designer is a significant move that see’s the Japanese tech giant advance its position into the mobile industry. ARM had become attractive buy for oversea investors as the weakening of the pound has made such a takeover more feasible.
ARM has the highest market value for a technology company in London due to wide use of its chip technology by both Apple and Samsung.
SoftBank have stated that the transition will see the number of employees in ARM in the UK double and the business will continue to be based in Cambridge under individual management.
Chairman and CEO of SoftBank, Masayoshi Son said:
“We have long admired ARM as a world renowned and highly respected Technology Company that is by some distance the market-leader in its field. ARM will be an excellent strategic fit within the SoftBank group as we invest to capture the very significant opportunities provided by the “Internet of Things”
“This investment also marks our strong commitment to the UK and the competitive advantage provided by the deep pool of science and technology talent in Cambridge. As an integral part of the transaction, we intend to at least double the number of employees employed by ARM in the UK over the next five years.
18/07/2016
Travel stocks fall after Nice Terror attack
Shares in the European markets fell this morning with travel stocks taking a hit following the tragic terror attack in Nice last night.
FTSE 100 Companies such as IAG, the owner of British Airways, easyJet and Flybe all fell up to 3% as soon as trading started this morning.
Other companies such as Thomas Cook fell by 2.1% alongside Air France KLM who have seen their shares fall by 1.6%. Popular hotel company Accor which holds many accommodation sites in the capital has seen its shares fall almost 3% as well as Belmond LTD who opened up down 2.5%.
The fall comes as up to 84 people have been killed and over 100 people injured as a terrorist drove a truck through crowds of people celebrating Bastille Day at a fireworks display along the famous promenade.
15/07/2015
RICS survey on housing market conveys long-term uncertainty
The RICS UK Residential Market Survey for June, published only hours before the Bank of England decision to hold off on new stimulating measures became public, was pessimistic about the UK’s housing market in the short term and conveyed long term post-Brexit uncertainty.
Commenting on the impact of Brexit, RICS Chief Economist Simon Rubinsohn said: “The RICS UK Residential Market Survey for June 2016 indicates uncertainty fuelled by the EU referendum has resulted in a marked drop in activity in the housing market.”
Both buyer inquiries and supply of property on the market have continued to fall over the past month, continuing the down trend which has been observed over the past three months. The most worrying development in recent activity is th sharp drop in buyer inquiries to the lowest since the financial crisis. Similarly, the 45% increase in surveyors reporting reductions in new instructions than the month before, represents the steepest fall ever recorded by RICS and therefore clearly extends former trends.
Recorded sales have also dropped continuously over the past 3 months and this trend is expected to continue over the coming months. While housing prices are still growing in most UK regions, price growth has slowed considerably. In London house prices continue to decrease on average. Most decreases are seen in Central London and prices are expected to be lowered further in the next months.
The report gives an outlook over the next 12 months still characterised by further drops in growth rates and even prices, while rents are expected to remain constituent. This can be attributed to post-Brexit uncertainty and market jitters, but also to the recent tax changes which affected London and Southern England the most.
Bank of England interest rates remain unchanged
In the Bank of England statement this noon, Mark Carney announced that the interest rates will remain unchanged.
This contrasts earlier speculations he may lower rates to 0.25% in the first reduction in over seven years.
The vote to leave interest rates at 0.5% came with an 8 to 1 decision by the MPC. While the committee did agree that the country’s economic performance and outlook post Brexit is likely to warrant a stimulus in the future, only Gertjan Vlieghe, a former hedge fund economist, thought an immediate stimulus was necessary. The rest of the committee agreed with Governor Mark Carney to leave interest rates unchanged until more data is collected and revise the decision next month.
The decision not to lower interest rates comes as a surprise and disappointment to many in the financial markets. It was considered that possible post-Brexit recessionary pressures will have to be addressed with stimulating monetary measures.
In the immediate aftermath of the decision, the pound jumped 200 points. The FTSE100 fell by over 70 points.
Further, the MPC unanimously voted to leave its’ quantitative easing program of £375bn. unchanged. The decision further reflects the current view to wait on more data and hold off on the implementation of new stimulating measures until at least next month.
The decisions on how to proceed next month will also be largely influenced by the next inflation report. The next report will become public at noon on the 4th August.
For a more detailed report on the meeting view the Bank of England’s Monetary Policy Summary and minutes of the Monetary Policy Committee meeting.
Theresa May’s new cabinet
Today’s updates
Over the course of this afternoon new appointments have become public, revealing a great number of changes throughout the cabinet while only a small amount of ministers stay in their current positions. Ministers staying in current positions Jeremy Hunt is one of the small amount of ministers who will stay on in their former positions. He is joined by Alun Cairns who will keep his role as Welsh Secretary, while David Mundell continues to be the Scottish Secretary. Lasty, the role of Gerneral Attorney will continue to be held by Jeremy Wright. Ministers taking on new roles Justine Greening will take over from Nicky Morgan as Secretary of State for Education and Minister for Women and Equalities. Liz Truss is leaving her role as Environment, Food & Rural Affairs Secretary to take over from Michael Gove as Lord Chancellor & Justice Secretary. The position as Chief Whip, formerly held by Mark Harper, was given to Gavin Williamson. Oliver Letwin is being replaced in his post as Chancellor of the Duchy of Lancaster by former Transport Secretary Patrick McLoughlin. Baroness Evans has been appointed as Leader of the House of Lords. The role of Transport Secretary has been given to Chris Grayling. Damian Green has been appointed the new Work and Pensions Secretary. Andrea Leadsom will take on the role as Environment, Food & Rural Affairs Secretary. The new Cultural Secretary is Karen Bradley. The position as International Development Secretary was filled with former employment minister Priti Patel. Greg Clark is the new Business and Energy Secretary. James Brokenshire has been appointed as Northern Ireland Secretary. Sajid Javid, former Business and Energy Secretary has been appointed Communities and Local Government Secretary. David Lidington has been promoted to the leader of the House of Commons, taking over from Chris Grayling. David Gauke is taking over from Greg Hands as Chief Secretary to the Treasury.So far, the public still awaits confirmed appointments on other cabinet roles, a full list given below.
Employment minister (Open due to promotion of Priti Patel) Small Business Minister (Currently held by Anna Soubry) Cabinet Office Minister and Paymaster General (Currently held by Matt Hancock) Minister without Portfolio (Currently held by Robert Halfon)Barrat Developments shares drop despite 20% rise in profits
Barratt Developments (LON:BDEV) today dropped 17p to 396.3p in early morning trading despite the group announcing a 20% rise in profits. The fall came as the developer warned it was too early to draw conclusions regarding market conditions after Brexit.
Barratt announced that profit before tax increased 20% from £565.5m to £680m as well as completion rates rising 5.3% to 17,319. The increase in profit was a result selling prices increasing by 10.6% from £235,000 to £260,000.
Wholly owned forward sales climbed 18.7% from £1.60bn with forward group sales including joint ventures rising 0.5% to £1.76bn.
The group’s year end net cash stood at £590m up from £186.5m in 2015.
Despite the group declaring that it is in a ‘good position’, the company’s share price plunged alongside the likes of Taylor Wimpy and Persimmon in the immediate aftermath of the EU referendum vote as the housing sector was rocked with the uncertainty of a UK recession.
David Thomas, Chief Executive said:
“We have delivered another strong performance for the year. The disciplined growth in completion volumes reflects the strength of our sector leading build and sales teams.
Following the EU referendum, it is too early to say what the impact of the uncertainty facing the UK economy will be. The sector continues to receive focused government support, mortgage availability is good and there remains an undersupply of new homes. With a strong balance sheet and forward order book, and industry leading quality and customer service, we remain confident in the positive fundamentals of both the housing sector and our business.”
The group further stated that they are mindful of the greater uncertainty the UK economy now faces and that contingency plans are now in place to take the appropriate action if needed and they will continue to monitor the market closely.
The company is due to release it’s annual results on Wednesday 7 September 2016
At 2:40pm London time Barratt Developments traded at 402.20p, down 2.2%.
13/07/2016