This has been as a busy week for headline UK economic data, with both the employment and inflation reports released. Inflation is still running hot, whilst the labour market seems robust, despite the interest rate hikes we have seen since December 2021.

The FTSE 100 has rebounded strongly over the past week, having built a base over the past 3-4 weeks, and technically the chart looks strong. We also focus on UK earnings releases with representations across key sections of the UK market. .

UK Data Sees Hot Inflation, But Robust Labour Market

UK inflation data was released earlier today (Wednesday 20^th July) and was running hotter than forecast, hitting yet another new multi-decade high. The YoY CPI number was forecast to be at 9.3%, but printed at 9.4%, up from 9.1% in May and at a forty-year high. The MoM number was also above expectations, coming in at 0.7%.

The employment report seen earlier on the week (on Tuesday) saw the Unemployment rate in line with expectations and the same as seen for the prior month at 3.8%. Clearly, the labour market remains robust, despite the inflationary pressures and increases in interest rates seen this year.

We have seen five successive rate hikes of 0.25% from the Bank of England, with Governor Bailey suggested in a speech this week that the next increase could be a 50-basis point rise.

Bailey stated, “From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997.”

FTSE Looks Strong On The Charts

The FTSE 100, the UK benchmark index has been in a sideways consolidation phase for the past 3-4 weeks, digesting losses seen in the first half of June. Gains this week, however, have reinforced the view from a technical analysis perspective, that the market is forming an intermediate-term basing pattern. We see a strong, asymmetrical risk that the FTSE 100 could revisit the highs for the year into the summer.

UK Earnings Focus

As earnings season is now in full swing, we turn our attention to the following listed companies with representations across key sectors of the UK market.  Along with investors sentiments, the combination of forecasts and already-released results for performances over the previous quarter should shed some light on the overall health of the UK economy under its current high inflationary environment.

Royal Mail Group (RMG) – British multinational postal service company initially established in 1516 as a government department.  Investors are pessimistic and are waiting for confirmation that Royal Mail’s Covid bounce is over.  Earnings released on Wednesday 20^th July indicated revenue down 11.5% YoY, with adjusted operating loss of £92M for the first quarter, April to June 2022.

Official RMG Announcement: https://www.royalmailgroup.com/media/11810/royal-mail-group-q1-trading-update-20-7-22.pdf

SSE (SSE) – A British renewable power generator and network operator which is part of the FTSE 100 Stock index and listed on the London Stock Exchange. SSE have recently agreed to enter a joint deal with Norwegian oil and gas company Equinor to buy UK-based Triton Power for £341 million.  The Scottish power company is set to report its first-quarter trading statement on Thursday 21^st

SSE Annual Report: https://www.sse.com/annualreport2022/

Ocado (OCDO) –  UK based company which licenses grocery technology. In corporate news, Melanie Smith, the chief executive of the joint venture between Ocado and Marks and Spencer and a key figure in its creation, will be leaving the business by the end of August.  Profits have been down by 60% of the year and no profits are expected until at least 2025.  Investors will be hoping that Thursday’s Ocado earnings update may reveal how the business can regain its pandemic-era form.

Ocado Group Annual Report: https://www.ocadogroup.com/media/qwlchfvz/ocado-group-annual-report-2021-full.pdf

Fidelity European Trust (FEV) – UK based investment company British investment trust, specialising in long term capital growth principally from the stock markets of continental Europe. On a rolling 12-month basis, the Trust recorded NAV and share

Fidelity Investment Trust Monthly Factsheet: https://www.fidelityinternational.com/FILPS/Documents/en/current/ret.en.xx.GB00BK1PKQ95.pdf

Key Takeaways

The UK stock market as reflected by the FTSE 100 has weathered the storm of higher interest rates and surging inflation, better than many European and US indices. Despite higher CPI numbers this week, and prospects for an even more aggressive stance from the Bank of England, the UK benchmark stock index look set to push back to multi-year highs. We are keenly watching the upcoming earnings reports to give us further insight into the state of the UK economy and corporates.

Author - Mr. Steve Miley  Sr. Investment Advisor