- Hunt and Sunak to consider review bodies’ pay proposals
- Barratt still on track to meet expectations
- UK GDP shrinks in May, but not by much
- Bob Iger given 2 more years at Disney
- Chinese exports slump 12.4%
- Markets rally on encouraging US inflation print
- Inventory build fails to dampen Brent crude prices
Hunt and Sunak Expected To Accept Pay-Rise Proposal
PM Rishi Sunak meets with Jeremy Hunt later today where they are expected to accept proposals for a 6% pay award this year for public sector workers. This mirrors recommendations by several review bodies including those that represent teachers, junior doctors and police.
The hope is that this will help put an end to the biggest series of public sector strikes in decades, but with the rate of increase still lagging the private sector, and indeed inflation, real incomes for key workers are still under pressure.
Nonetheless, with some six million people employed in UK public services, this move could take the edge off the braking effect of the highest interest in 15 years, and could add more weight to arguments presented by the more hawkish members of the Bank of England’s monetary policy committee.
UK GDP Shrinks In May
The same could be said of a better than expected UK GDP read out today which showed the economy shrank by 0.1% in May. This was against a forecasted decline of 0.3%. The figures were also impacted by the extra bank holiday in May. Nonetheless the UK is still hovering dangerously close to a recession.
Barratt Still On Track To Meet Expectations
Commenting on Barratt Developments’ (LON:BDEV) full year trading update Aarin Chiekrie, equity analyst at Hargreaves Lansdown commented:
“There were no big surprises in Barratt Developments’ full-year trading update. Its net private reservation rate fell 32% to 0.55 reflecting a cocktail of the higher mortgage rate environment, the close of the Help to Buy scheme, and a 49% decline in first-time buyer reservations.
Build cost inflation ran hot at 9-10% and coupled with the increased use of incentives, the group’s margins are likely to come under pressure when more detailed full-year results are released in September. These challenges are reflected in the value of Barratt’s forward sales, which have fallen around 39% to £2.0bn. However, the group remains on track to deliver on its previous guidance for full-year pre-tax profits to land at around £880.6m.
The recent hike in interest rates to 5.0% by the Bank of England is likely to make conditions tougher for Barratt moving forward. As inflation proves stickier than previously thought, interest rates are now expected to remain higher for longer, causing more challenges for buyers.”
Bob Iger Given 2 More Years At Disney
The Walt Disney Co (NYSE:DIS) has extended CEO Bob Iger’s contract by two years, following the septuagenarian’s return last November. This went some way to settle investor nerves with the shares up 1% in after-hours trading. Disney’s not without its challenges right now and Iger certainly has some work to do to earn the generous incentives on offer under the new and improved terms.
The box office performance of Pixar’s Elemental has been disappointing and revenues across its cable channels such as ESPN and ABC have been falling sharply. The main driver of market reactions will be the speed at which it can grow its streaming business Disney+.
As we’ve seen with recent results, the market will be quick to react to disappointing news on that front, following an unexpected dip in subscriber numbers in Q2. Disney’s targeting profitability for the division next year so its performance will be under more scrutiny than ever.”
Markets Rally On US Inflation News
Equity markets have responded positively to the news that US inflation figures of 3% for June came in a little lower than expected, bringing some hope that the Fed won’t have to continue raising rates aggressively to bring price increases under control, which in turn lowers the odds on a soft landing for the world’s largest economy.
But its too early to declare victory in the fight against inflation. A 25.5% fall in gas prices went some way to flatter the data, and core inflation, whilst also coming in lower than expected at 4.8%, was significantly higher than the headline rate.
Chinese Exports Slump
Both the tech-led NASDAQ composite and broader S&P 500 rose to levels not seen since April. US banks, both large and regional led the charge, suggesting an increasing level of confidence in the health of financial institutions.
European stocks also ended the day broadly higher with Asian markets following suit overnight. Holding on to some of those gains in far eastern markets may prove tricky following disappointing Chinese export figures, which sank 12.4% in June. The FTSE 100 has opened flat.
Rise In Oil Prices
Oil prices have ticked up again despite the announcement of a large increase in US crude inventories which expanded by 5.9m barrels last week. A barrel of Brent Crude now costs comfortably over $80, reflecting continuing supply pressure from a likely decline in Russian exports.
Article by Derren Nathan, head of equity research at Hargreaves Lansdown
