Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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January 17, 2024

China’s deflation, UK ceramics warn & Concurrent beats

Macro & Overnight

In Asia overnight, Chinese equities were weak again after sluggish GDP data and reports of an accelerated decline in residential property prices in tier 1 cities.

China exporting deflation in the form is helpful, but we must be careful what we wish for. If China’s housing market correction turns into a slump, this will have financial market ramifications for the rest of the world.

Morgan Stanley’s China Economist Robin Xi was quoted in Bloomberg, “This is the deepest and longest deflation in China since the 1998 Asian financial crisis.”

Today’s UK headline CPI data was higher than expected for December (4% vs 3.8%), which is likely to delay rather than remove the likelihood of lower rates. Interest rate markets are increasingly discounting cuts in H2.

UK companies continue to report the moderating impact of inflation, with wage growth trending lower. While headline inflation looks set to rise again in January, the outlook for March and April is for sharper falls due to base effects and Ofgem energy price cap falls. Capital Economics thinks these factors will take the UK’s CPI below 2% (1.7%) and lower than the US and Europe by April.

 

UK Company News

In the UK, we have had updates from two ceramics companies:

Churchill China, which serves worldwide hospitality markets, said margins have continued to improve, and profitability aligns with forecasts. But with a more challenging sales backdrop in H2 with challenges in the UK and Europe, it expects demand to remain weak for at least the first half of the year. Cost increases, including the national living wage, will impact margins in 2024.  

Portmeirion, which serves consumers, reported a reasonable Christmas trading period with performance in line with market expectations. However, it expects 2024 to be challenging due to ongoing macro uncertainty. In particular, customers remain cautious in the key US and Korean markets. 

Concurrent Technologies, the supplier of mission-critical computer solutions mainly for defence applications, expects to report revenues circa 5% ahead of market expectations and profit slightly ahead of expectations. It sees revenue over £30m compared to £18.3m in FY22. Concurrent continues to make significant investments in its cost base, and it is confident it now has the right team to increase the Group’s share of its addressable market in 2024 and beyond.

Concurrent suffered severe component shortages in 2022 but, importantly, did not lose any orders as a result. In 2023, it was playing catch up but concurrently investing and upgrading the business’s capacity to serve more customers with more complex needs. Given the market it mainly serves is defence, 2024 looks set to be another strong year of growth.  

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