Jeremy and Gareth are joined this week by Alastair Stewart, Progressive's Building and Construction analyst.
The main macro surprise this week has been some rapid and arguably extreme stimulus activities undertaken by the Chinese authorities...Jeremy points out that although this has been seen as something of a "sugar rush" of good news (Chinese equities rose by almost 4%) there may be a deeper concern over what the Chinese are seeing that requires such a major set of measures.
Commodities responded well to the anticipated boost to China's economy - except oil, which has been weak and where the Saudi abandonment of a $100 per barrel target could lead to further price declines.
In the UK, the Labour government is under orders to "cheer up" and the OECD is helpful with accepting more-lax borrowing rules to fund the Green Transition. Hopefully the bad news has been delivered up-front, and the Budget at the end of October may be less painful than we've been led to believed.
Alastair describes some recent caution he's seen in past weeks and months, with housing markets reflecting some of the doom-mongering talk, as confidence has perhaps ebbed, despite reducing rates. An unusually strong summer has been followed by a muted start to the usually-stronger autumn. ISG, a major contractor in the industry has collapsed into administration, with risk that Government projects especially in prisons and schools may be impacted. Exposure to bad debts so far seems contained (as many saw this coming) but could turn into a fast-breeder issue if other contractors are brought down.
UK company news has seen a flurry of reporting - Progressive clients ZOO Digital, Van Elle, IG Design Group, Tern and Oxford Metrics all with updates, and initiation of coverage on a new client, Nexus Infrastructure. Exposure to overseas markets (especially the USA) is proving problematic with a number of economies potentially slowing. There are also risks of disappointment as strong Sterling means companies translate overseas profits into less-favourable exchange rates for UK investors.
Next week sees more news from China with some PMI data which might drive sentiment, especially given this week's stimulus news. We also have inflation data from the EU, but the main event might be USA payroll figures, with a weak expectation (130k vs last month's 142k)...if the number is weaker than that, expectations on US interest rates might decline which could provide a boost to equities.
Weekly Call - China Crisis & UK Building & Construction