Financial market research and analysis

The Donald keeps investors at bay

It was a mixed bag in European markets on Monday with investors jostling for position ahead of a busy week of company earnings. Investment decisions have been tempered by (the now routine) uncertainty before Donald Trump’s speech to a joint session of Congress on Tuesday.

In UK markets, mostly well-received corporate earnings results were offset by disadvantageous court and regulator rulings. The FTSE 100 struggled for direction with a rise in oil company shares numbing the pain of a slide in the insurance sector and a drop in the shares of London Stock Exchange. Shares of homebuilder Persimmon gave up early gains on profit-taking after reporting strong results, but again cautioning on the future uncertainty of the business after Brexit.

FTSE unperturbed by business rates rise

Widespread concern about a rise in business rates didn’t appear to manifest in markets on Monday with retail company shares that have a presence on the high street generally higher on the day. The rise is expected to disproportionately hurt smaller businesses in prime property areas, though Prime Minister Theresa May has hinted the government could offer some relief. Shares of Next and WPP appeared to be catching some early interest ahead of earnings this week.

Insurance shares get injured

Shares of Direct Line tanked as much as 6%, while other insurers were in the red after a court ruling that will probably lead to customers paying higher premiums. The Ministry of Justice slashing the rate at which compensation payments are calculated in personal injury claims means bigger upfront costs to insurers, which they will duly pass on to customers. Higher prices can actually mean high margins for the insurers over the longer haul, but it will take some time for higher prices in new policies to offset the rise in personal injury claims costs.

Still no Brexit impact on Persimmon

Share of Persimmon gave up early gains on light profit-taking following a huge price-recovery since the lows post-Brexit. Housebuilders have been singing the same tune of solid trading results and Brexit-caution since the referendum vote was known. If the rate of house price growth is any guide, the multi-year rise in homebuilder profits still has some way to go.

Attractive mortgage rates and the government’s Help to Buy scheme continue to support housing demand in the context of a chronic housing shortage. It was worthy of note that 46% of the homes sold by Persimmon (6,970 out of 15,171) were via ‘Help to Buy’. There have been calls in some quarters to cancel the scheme to take the heat of the housing market. The risk of Help to Buy being cancelled is a small but very real risk to homebuilders. We can only assume it would be another Brexit-like move in Persimmon shares were it to happen.

Regulators save politicians a job on LSE

Share of LSE sunk on Monday as its merger with Deutsche Boerse took another, perhaps catastrophic blow. EU approval of the deal looks  to be on rocky ground after LSE took issue with the European Commission's order for it to sell its 60% stake in its fixed-income trading platform MTS. We always felt like this deal had a strong risk of failure given the political sensitivity of British and German firms trying to merge systematically-important infrastructure after the Brexit vote. Via a “disproportionate” request for asset disposals, it looks like regulators have saved politicians a job.

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