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UK Inflation Undershoots Expectations In June, Sterling Slides

Published 18/07/2018, 09:46

It looks set to be a decent day for Easyjet after their latest trading update. The rise in crude oil prices over the past 12 months doesn’t appear to have hit margins at Easyjet, and while costs are rising the airline still posted Q3 numbers that came in better than expected. On all the main metrics the company saw decent improvements. Management were also optimistic about guidance saying it expected to grow full year capacity by 4.5%, while increasing profit guidance from £550m to £590m. Revenues in the latest quarter came in at £1.6bn, with revenue per seat rising 4.8%.

Despite getting a World Cup boost GVC, owner of Ladbrokes (LON:LCL) and Coral has seen its share price slip back in early trading. Revenues saw an increase of 11%, with the on-line operation boasting a 22% increase in income. Footfall on the high street was consistent with the overall retail theme this year of more on line activity and less turnover from high street outlets. Investor disappointment appears to be as a result of the decision to keep its guidance unchanged despite a better than expected first half of the year. This reluctance to up its guidance despite a better than expected first half would seem to suggest that management aren’t as optimistic about the second half of the year.

Medical devices company Smiths Group (LON:SMIN) has also stumbled today after reporting trading that it expected its full year results to take a hit from its medical devices division, and recent new EU regulation, which has resulted in the company having to suspend some of its products for use in Europe. While the rest of its business appears to be showing an upward improvement, the difficulties over the suspension has prompted management to downgrade its guidance for that part of the business over the full year.

The pound has remained under pressure after yesterday’s political shenanigans in Westminster as concerns rise over the government’s ability to deliver any meaningful and unified position on Brexit between now and October. While the government won last night’s important vote it was only as a result of the votes of 5 eurosceptic Labour MP’s.

The growing lack of trust within the governing party as well as the political splits across the UK parliament, are making it increasingly difficult for investors to ascertain a scenario where any agreement, even if one could be reached, would be acceptable to the EU. It is becoming increasingly apparent that the Prime Minister, having boxed herself in with her red lines will find it increasingly difficult to not only hold her party together, but even remain in place, as we head towards October, when some form of position will need to be agreed upon.

Today’s UK inflation numbers were expected to show a sharp upward lurch in June, as higher fuel prices and a lower pound fed through into an expected rise to 2.6%. This didn’t happen as prices remained unchanged at 2.4%, as cheaper clothes and computer games offset a sharp rise in fuel prices which rose to their highest level since September 2014. While this is welcome news, most people probably won’t feel the effects, particularly those ones who don’t play computer games. Core inflation also slipped back below 2% to 1.9% and its lowest level since March 2017. As a result the pound has continued to slide, worrying news for UK policymakers given that a lower pound exerts upward pressure on inflation. Despite the weak numbers they probably won’t dilute expectations of a possible Bank of England rate rise next month.

Alphabet (NASDAQ:GOOGL) shares are likely to be in focus on this morning’s news that the EU is lining up a record fine on Google for abusing its position with respect to its Android operating system which it says unfairly discriminates against third party software and apps on its architecture. The fine is expected to be much higher than the €2.4bn that the EU levied against Google last year, with some estimates in the region of €4.5bn expected. Google could also be asked to open up the architecture so that it is easier for third party apps to be installed in preference to Google’s own product suite.

Fed chair Jerome Powell’s second day of testimony is unlikely to provide too much in the way of surprises in the wake of yesterday’s positive comments, ahead of tonight’s June Beige Book.

Dow Jones is expected to open unchanged at 25,120

S&P500 is expected to open unchanged at 2,809

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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.

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