12 January 2018
Weak housebuilding and retail stocks helped limit gains for the FTSE 100 on Thursday (11 January). By the close the index of leading UK shares was up 14.43 points at 7,762.94.
There is a quiet start to next week as the US observes Martin Luther King Day. Next Tuesday (16 January) UK inflation figures are published. The market will be looking to see if the expected reduction in UK inflation from 3% has started to feed through. In the early hours of Thursday (17 January) morning China puts out releases on GDP growth and industrial production (see Economic update). Later the same day the US prints building permits figures which should offer an insight into the state of the countries housing market. US crude oil inventories data may also have a bearing on whether the rally in Brent crude, which has taken it within touching distance of $70 per barrel, will continue. Friday (18 January) sees the publication of official UK retail sales figures for the crucial month of December.
While retailers’ updates on festive trading have continued to flood out there has also been attention on another sector in the early days of 2018. The housebuilders have suffered a lukewarm reaction to a series of fairly solid trading statements, suggesting sentiment towards the sector may have shifted. On Tuesday (9 January) Persimmon (PSN) reported that the robust housing demand helped drive 2017 strong revenue growth and offered guidance for pre-tax profit to be slightly ahead of consensus expectations. However, the shares fell as the company sounded a cautious tone on the ‘market risks including those associated with the uncertainty arising from the UK leaving the EU’.
On Wednesday (10 January) the market was as underwhelmed by an update from housebuilder Taylor Wimpey (TW.) as it was by those of its peer 24 hours earlier, marking the shares lower as it followed suit in sounding a pretty cautious tone on ‘political and economic risks’. The order book fell year-on-year from £1.68 billion to £1.62 billion. A lack of guidance on margin performance in a trading update on Thursday (11 January) helped sink shares in the UK’s largest housebuilder Barratt Developments (BDEV). Its forward sales were up 2% at £2.38 billion, while net cash was down from £196.7 million to £165 million.
Data on GDP growth and industrial production in China released early Thursday (16 January) should reveal the footing the world’s second largest economy is on heading into the Year of the Dog which commences on 16 February (Chinese New Year).
Investors looking for low-cost exposure to Chinese economic growth could consider exchange-traded fund iShares Asia excluding Japan (CPJ1). The product offers exposure to companies within China and in other countries in its orbit for an ongoing charge of 0.2%.
15 January - A strong run in iron ore price since the fourth quarter of 2017 bodes well for Rio Tinto (RIO) heading into this trading update. Iron ore is the dominant commodity for the group in terms of contribution to earnings. However, the Australian government predicts a 20% drop in iron ore prices in 2018 because of rising global supply and moderating demand from China which is a major importer.
15 January - Student accommodation builder Watkin Jones (WJG:AIM) is expected to report satisfactory full year results, given it has already hinted at good progress in a trading update on 31 October 2017. Last week it said it had secured planning permissions on six new sites. The market is likely to focus on margin performance and guidance to see if the company is facing cost pressures seen in parts of the broader construction industry.
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