UK fiscal and monetary standoff not a good look

Macro & Overnight

The looming gilt market cliff edge can be characterised by the government sitting across the table from the Bank of England, where there is a hand grenade with the pin removed, LDI pension assets. Both sides have issued an ultimatum. The Bank indicated he is not prepared to alter tight monetary policy beyond Friday by giving pension funds a three-day warning. Meanwhile, Liz Truss is now ruling out cuts in government spending, signalling that fiscal policy is not budging. This stand-off over budgetary and monetary policy is not a good look for UK markets.

However, against this backdrop, global currency and bond markets were all relatively subdued overnight. The main feature from Asia is the Yen which weakened to the level at which the BoJ last intervened with a $20bn support package. One wonders if they now think that was money well spent.

UK Companies

No significant headlines from UK corporates today, but in general, it seems to be a case of OK results and a more challenging outlook.

However, software vendor Wandisco and specialist materials supplier Zotefoams proved the exception to the general rule with good results and upgraded guidance, proving that businesses can prosper in these tougher times.

Easyjet issued guidance that their FY22 headline loss before tax expected of between £170m and £190m, a tad below consensus. For Q1 FY23, capacity is up and booked load factors are ahead of the same point in 2019, with robust yields. Most of their fuel is hedged for H1 FY23. Headwinds however are strengthening.

Games Workshop announced a decent dividend increase for a company that pays dividends from “truly surplus cash”. An encouraging sign. The hope is that hobbies prove recession resilient.

Oxford Instruments’ constant currency growth has been tempered in the first half by global supply chain challenges, as well as price rises not yet offsetting inflationary pressures and order book phasing. However, they signalled good visibility for an expected improvement in trading in the second half. Management reiterates that they are on track to meet FY expectations.

Work Space signalled challenges ahead in light of the broader economic issues and inflationary cost pressures. But they are confident in their ability to navigate successfully through them.

Recruiter Hays has started to see reduced activity in certain territories, notably the UK&I, ANZ and the USA.

In asset management, Polar Capital saw net outflows of £529m, continuing the trend reported in the last two quarters. While wealth manager Brookes MacDonald sees more resilience in the face of a challenging environment, lower market values have prompted downgrades.

Food flavourings business Treatt issued a FY update and confident outlook after a surprise warning a few weeks ago.

Learning Technologies has a CMD today.

PROGnosticator