This morning’s services PMI reading for the month of September completes a trio of positive data points for the UK this week, and further supports the argument that the economy has rebounded from the initial panic of the EU referendum result.
UK to avoid Brexit recession?
The second consecutive month of strong data from surveys in three key sectors of the UK economy suggests that forecasts for the country to fall into recession in the second half of 2016 were wide of the mark. Despite the impressive data, which will likely cause the Bank of England to refrain from further easing of monetary policy in the foreseeable future, the pound has failed to rally and remains languishing near historical lows against both the Euro and US dollar. It should be pointed out that all this week’s releases relate to last month, so were obviously recorded prior to the weekend’s developments. Now that Theresa May has gone on record to state there is a fixed date in which Article 50 needs to be triggered combined with a heightened chance of a “hard” Brexit, we could see weakness in economic indicators return with a vengeance in October.
FTSE just falls short of record high
The FTSE 100 came within a whisker of taking out its previous peak yesterday as the strong surge higher above 7000 just came up short of posting a record high. This morning the benchmark has pared the gains somewhat and is lower by around 25 points at the time of writing. Yesterday’s strong declines in the price of precious metals weighed on both Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) and the weakness has been carried over to today, with these two stocks the worst performing on the index. Tuesday saw Gold trade back down below the $1300/oz level and in doing so post its lowest close in over three months.
Tesco (LON:TSCO) rallies after returning to growth
Shares in supermarket Tesco have rallied strongly out the gate this morning and are higher by approximately 11% after the firm reported its latest trading update. Tesco still faces tough competition from budget retailers such as Aldi and Lidl, but the latest release shows some signs that Dave Lewis is slowly turning things around. Like-for-like sales in the UK rose by 0.6% and total group sales increased by 1% as the strategy of cutting prices appears to be attracting customers back. However, this increase in turnover has come at a cost with lower prices squeezing margins and causing statutory profits to fall by just over 28% to £71m. Despite the smaller margins, on the whole this is a positive release from the supermarket, with second quarter growth halting consecutive declines and whilst the bottom line remains far below its previous highs, the strategy seems to be gaining traction and investors can look forward in a more positive light than they have been able to for some time.