Markets are rebounding from a sharp sell-off at the start of the week. The rise is more a function of short-covering ahead of the Federal Reserve meeting than any sudden desire for risk-taking. The Rolls Royce (LON:RR) letter to employees highlights how Brexit is very much at the forefront of investment decisions right now.
Rolls Royce boss Warren East has said the referendum puts the decision to invest in the UK “on hold”, offering the example of a planned engine testbed facility. Mr East has said the “pause” will give American rivals like GE (NYSE:GE) an advantage. When Rolls Royce speaks Britain should listen; it’s our biggest engineering company and represents 2% of all British goods exports. Still, it’s doubtful that a long term project, involving the expertise of hundreds of British workers would be derailed by a few months of political uncertainty.
That’s backed up by the latest UK labour market statistics for May, which came in ahead of expectations. The unemployment rate fell to 5.0% from 5.1%. Average earnings growth saw a surprise jump to 2.3% y/y against expectations of a drop to 2.0% from 2.2% previously. The strong UK economic data should give investors, who have been piling into the perceived safety of government bonds ahead of the referendum, pause for thought.
Despite the grilling of former BHS-owner Sir Phillip Green by MPs, UK retail shares including Next (LON:NXT) and M&S (LON:MKS) are feeling some positive read-across from decent results from H&M and Inditex (MC:ITX). The gains are welcome after a warm winter and cold spring dampened clothing sales. These stronger retailer results may dampen the idea that consumers are shifting from “stuff” to “experience”. Still, the results confirm the trend for consumers shifting towards the ‘discount’ end of the clothing market.
Sir Phillip Green is primarily fielding questions over the pension deficit, the level of investment he made into the business and how that reconciles with dividend payments made to his family. Sir Philip Green appears to be stumbling around the thorny issues of the BHS pension. He accepts ultimate responsibility but is struggling to convince MPs how he could not be better aware of the rising pension deficit. Questions will likely eventually turn to the legitimacy of the sale of BHS to controversial figure Dominic Chappell for £1 and whether Sir Philip Green blocked a deal for BHS to be rescued by Sports Direct (LON:SPD).
US stocks look set for a higher start on the final day of the FOMC meeting, though major averages remain well below where they started the weak as anxiety over the pace of future rate hikes remains.
USA pre-opening levels
S&P 500: 4 points higher at 2,079
Dow Jones: 41 points higher at 17,715
Nasdaq 100: 12 points higher at 4,436
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.