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Congratulations to Leicester City and fans. Leicester City are now set for a potential £150m boost for winning the Premier League title according to some sport data and marketing agencies. This sum comprises Premier league prize money, champions League participation cash, and increases match day revenues from ticket and hospitality sales. The club should also be able to secure more lucrative sponsorship deals as its fan base grows internationally. Success will also have raised the profile of their sponsor ‘King’ Power International.
At the start of the season odds of 5000/1 were on offer for Leicester City to win the Premiership. You’d have had more chance of finding Elvis alive! (Interestingly, there is a guy down my chip shop who swears he’s Elvis).
The most amazing achievement for the ‘Foxes’ is that the club has been able to do this this with a fraction of the resources compared to the likes of Manchester City, Manchester United and Chelsea. Perhaps there is a lesson here for the stock market? It is not always the largest companies that perform the best. Many small and mid-cap companies with good quality management teams outperform many of their larger peers. Sometimes it’s about finding ambitious management with the ability to motivate the team about them. We are always scouting the smaller end of the market for new and upcoming talent.
What have we been watching?
Following President Obama’s trip across the Atlantic to lend a helping hand to David Cameron, support shifted towards ‘remain in’ and helped sentiment towards some domestic focused UK companies that had been sold on Brexit fears. The bookies odds for a ‘remain in’ vote shortened from 4/9 (69%) to 2/7 (77%). President Obama then went onto Germany to offer support to Angela Merkel, who is having to contend with the migrant crisis, Greece and Brexit risk.
With Brexit risk lowered, for now, UK fund managers were able to focus on other risks particularly low growth, low inflation and low interest rates and the challenge for policymakers of how to sustain global growth. All eyes were therefore fixed on central bankers in Japan and the USA although there was a mixed response to the policy announcements. Fears that the Fed would signal another interest rate hike in June were allayed. Interest rate futures saw the chances of an interest rate rise drop back from over 20% to 15%. By comparison, Asian investors were particularly disappointed by the news that the Bank of Japan (BoJ) did not announce further policy action, despite weak domestic data and the strength of the Yen.
There was some interesting analysis of UK household disposable income by the Resolution Foundation. This revealed how higher house prices and rents are impacting younger consumers. In 1977, 13% of 25-29 year olds rented homes but by 2014 this had risen to 43%. Furthermore, while in 1995 the average two-income household with one child spent 17% of their income on housing costs, that this had risen to 21% in 2015 or an extra £1500 a year, equivalent to adding 10p to basic income tax. Could this be one of the reasons why some retailers are finding trading challenging? Mind you the weather has not done clothing retailers any favours. Yet another high street retailer passed into administration last week, Austin Reed, putting 1,200 jobs at risk.
In Europe, Germany’s key business sentiment indicator declined for the fourth time in five months due to concerns over the export outlook given the sector’s reliance upon the USA and China as well as the strength of the euro. The final reading of the Eurozone manufacturing survey for April confirmed a marginal improvement but suggests output growth remains weak. The latest ECB stimulus into the bank lending sector still appears slow to translate into increased activity for the manufacturing sector. Within Europe, France remains the main cause for concern with manufacturing in contraction and exports showing their steepest decline in three years. However, against this private investment and consumer spending are up while unemployment is starting to drop. However, the French parliament currently has the tricky task of pushing through draft legislation to liberalise France’s notoriously rigid labour law.
There was a treble serving of weaker than expected economic data from the USA. Durable goods orders picked up in March, but not by as much as hoped and capital goods orders which is the key lead indicator of business investment was flat. Meanwhile, US consumer confidence dipped as US household expectations appeared to cool. Finally, US economic growth slowed in Q1 to 0.5% compared to 1.4% in Q4 2016, as consumer spending slowed from 2.45 to 1.9% and business investment declined by 5.9%, the biggest fall since the financial crisis of 2009. Not surprising therefore, that the chances of an interest rate rise in the USA have diminished. The Fed stated that ‘US economic growth appears to have slowed’ although unable to explain why given the robust employment data.
China has moved to clamp down on excessive speculation in commodities after weeks of frenzied trading boosted prices and ignited fears of another bubble in its domestic markets. Cash is believed to have flowed into commodities after Chinese officials imposed curbs on equities trading last year. For example, Shanghai steel futures have risen by more than 50% this year and more than 20% this month. Hopes of more stimulus and an upturn in construction activity is believed to have stoked the speculative buying.
Oil hit its highest level in six months with Brent touching $47at one point following the US Fed comments on US interest rates and in expectation of further Dollar weakness.
Finally, for those that fancy a flutter. Newly promoted Burnley are being quoted at 500/1 to win the Premiership next year. Can lightning strike twice?
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This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.
You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.
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