- The Federal Reserve has said it will continue to increase interest rates despite data showing inflation may be starting to slow.
- European rivers – drought puts $80bn of trade and energy at risk.
- UK housing – prices still rising but are the first cracks starting to appear?
- Market Opening – the FTSE is opening higher in response to Wall Street’s overnight strength with futures showing gains of up to 0.5% in European markets this morning.
Q2 2022 hedge fund letters, conferences and more
Inflation Starting To Slow
Steve Clayton, Fund Manager at HL Select:
“Wall Street raced higher yesterday evening after new inflation data showed a slower than expected pace of price increases. Investors took this as a sign that the scale of US interest rate rises could be less than first feared and bid stocks higher. By the close the S&P 500 index was 2.1% higher and the tech-heavy NASDAQ Composite had surged by 2.9%. Investors might have been cheered, but the Federal Reserve was keen to pour cold water over the markets’ ardour, with officials stressing that rates were going to keep on rising until the Fed was confident that inflation was heading back to its 2% target. Yesterday’s data showed the pace of price increases dropping back from July’s 9.1% level to 8.5%, still close to multi-decade highs.
The heatwave is coming on top of a long period of dry weather across much of Europe that has seen river flows fall to historic lows. The Rhine, which flows from Switzerland, through Germany and into the Netherlands, until it reaches the sea near Rotterdam is a key trade artery. Flows have dwindled to such a level that the river is at risk of being unnavigable, putting an estimated €80bn of trade at risk. Worse still, much of that trade consists of energy products like coal and oil en route to power stations. The war in Ukraine has already created extraordinary stress in energy markets and now the drought is threatening the ability of Germany to use alternatives to Russian gas.
The latest monthly survey by the Royal Institution of Chartered Surveyors (RICS) shows that estate agents’ expectations for future sales have dropped to the lowest level in almost two and a half years. Prices are still rising, driven by a shortage of properties for sale that is keeping buyers in competition with each other. Most of the data was collected before the recent half-point hike in rates by the Bank of England, but the RICS said that it was clear that the rising cost of living and higher interest rates were impacting on the market. Some survey respondents reported that lenders were taking a more cautious approach when making mortgage offers.
Company News
Savills, the leading real estate advisory service group alluded to much of what the RICS had earlier reported when they released interims this morning. The group said that while prime housing markets remained particularly robust, price growth has begun to moderate. The group sees scope for commercial real estate markets to turn down, but only after a period of exceptional strength. Savills reported 26% growth in their commercial transaction revenues, driving an overall 9% growth in turnover. Profits however fell back, with the group citing a shift toward lower margin commercial revenues and rising staff costs as the drivers for a 10% decline in underlying profits.
Entain, the betting group that owns brands from Ladbrokes to Coral, Sportingbet, PartyPoker and Bwin reported 18% revenue growth and 20% growth in underlying profits which reached £246.5m in the half-year. The group reported lower online revenues, citing consumers returning to work post-pandemic as the cause. The group announced a push into Central and Eastern Europe and the acquisition of SuperSport in Croatia."
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