The FTSE 100 traded down on Thursday (17 June) as investors digested US Federal Reserve announcements around interest rates. The Fed said on Wednesday (16 June) that it was bringing forward its interest rate rise expectations by a year to 2023. The index ended the day down -0.44% at 7,153.43.
• On Monday (21 June), Rightmove reports its latest house price index for June, which looks at average asking prices for UK property.
• The Confederation of British Industry publishes its latest industrial trends survey on Tuesday (22 June) which will give an overview of manufacturing activity in the UK.
• On Wednesday (23 June) IHS/Markit releases its latest Flash UK PMI giving a snapshot of economic activity in the past month.
• The Bank of England announces its latest interest rate decision on Thursday (24 June).
• On Friday (25 June) GfK publishes its latest consumer confidence survey giving insights on demand from shoppers in the past month.
Boris Johnson announced on Monday (17 June) the extension of restrictions to supress the spread of the so-called Delta variant in the UK. While much of the economy is already back open, most likely to feel the added pain of further restrictions is the hospitality industry.
Vociferous protests from the industry followed the news with a host of business groups expressing their dismay. Industry body UKHospitality warned the cost to pubs hotels and restaurants could be the ‘final nail in the coffin for many.’
Pub chain Greene King warned it would cost the firm £250,000 a week in business rates as exemptions are set to expire from 1 July.
The British Beer and Pub Association warned it would cost around £400 million to fill the black hole left by lost business thanks to the continuation of restrictions.
Continued restrictions are not the only issue facing hospitality, the sector, when it can fully open, is also struggling to recruit. According to the latest figures from the Office for National Statistics (ONS) wages are rising by a bumper 5.6% year-on-year to accommodate high demand for staff.
With inflation back on the agenda in a meaningful way across the developed world, interest rates and monetary policy tightening are very much also in play.
The US Federal Reserve on Wednesday (16 June) announced it was bringing forward its interest rate rise expectations to 2023, a year earlier than previously indicated. This is largely thanks to a headline rate of inflation in America that now stands at 5%.
The UK is also experiencing rising inflation – albeit to a lesser degree than the US – with prices currently rising at 2.1% year-on-year in May, up from 1.5% the month before. While this is only just a touch above the BoE’s 2% target, analysts expecting further increases in the next few months.
The BoE will be discussing its outlook for interest rates and monetary policy – which includes quantitative easing – on Thursday (24 June). Any change of expectations could affect markets in similar ways to the reaction to the US Fed, which saw bond yields increase and stocks fall thanks to comments from Fed Chair Jerome Powell.
With inflation and interest rate rises looming, looking at alternative assets is a good idea to add diversifiers to a portfolio. First Sentier Glb Lstd Infra B GBP Inc (GB00B24HK556) invests principally in infrastructure which can provide a useful diversifier when equities and bonds stumble, as many infrastructure assets such as energy and toll roads have inflation-linked earnings. The fund has returned 54% in five years and charges an OCF of 0.8%.
Another classic alternative in a rising inflation environment is gold. iShares Physical Gold ETC GBP (SGLN) provides exposure to the metal in an affordable way. It has returned 40% over five years and charges an OCF of 0.15%.
22 June – Packaging firm DS Smith (SMDS) reports its final results on Tuesday (22 June). The firm has a mixed outlook with demand for packaging up 7% in the last year thanks to growth in the home delivery sector, but the costs associated with that increasing too, leaving tighter margins for the company to profit from. The firm is also on course to delivery on its promise to produce 100% recyclable packaging by 2023 – a key consideration for environmentally conscious investors.
23 June – Property builder Berkeley Group (BKG) reports its full-year results on Wednesday (23 June). Investors will be on the lookout for how building has progressed during the last year of Covid restrictions. The firm already reported flat profits in March as it missed out on the property boom – thanks to a heavy focus on London development projects.