House prices are up but demand is still light
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The Times
Friday October 6 2017
Business – Need to know – Afternoon Edition
Miles Costello
By Miles Costello
 
House prices grew by an annualised 4 per cent in September, the second consecutive monthly rise and a potential indication that the market is beginning to recover, according to the Halifax. Growth to a record average house price of £225,109 last month followed a 2.6 per cent increase in August, the lender said.

The 1.4 per cent growth in prices during the three months to the end of September compared with the previous quarter marked the fastest quarterly increase since February, Halifax said. The latest annual rise was stronger than the 3.6 per cent expected and came after a much more downbeat survey from Nationwide that put growth for September at 2 per cent.

Halifax was careful not to be too upbeat, though. Russell Galley, managing director of Halifax Community Bank, said: “While the quarterly and annual rates of house price growth have improved they are lower than at the start of the year. UK house prices continue to be supported by an ongoing shortage of properties for sale and solid growth in full-time employment. However, increasing pressure on spending power and continuing affordability concerns may well dampen buyer demand. There has been recent speculation on the possibility of a rise in the Bank of England base rate. We do not anticipate this will have a significant effect on transaction volumes.”

Halifax is among the bullish on the state of house prices, which is often attributed to its emphasis on properties in the north of England, where prices have been holding firmer compared with London, where the Nationwide has a greater presence as a lender.

Britons’ productivity puzzle continues. Measured by output per hour, labour market productivity fell by 0.1 per cent during the second quarter compared with the first quarter, according to figures published today by the Office for National Statistics. Compared with the same period last year, productivity in the three months to June was 0.3 per cent lower, the ONS said, a drop last exceeded in the third quarter of 2013. Observers will no doubt blame the Brexit effect. Productivity grew in services, by 0.2 per cent, but it fell in manufacturing by 1.3 per cent, the statistics agency said.

In many ways the figures should come as no surprise: the services sector is performing relatively well, but manufacturing is getting a dose of the blues: the economy as a whole is going through a slowdown so it follows that we are producing less. The problem is that, contrary to previous recessions, labour productivity has failed to recover since the financial crisis after suffering the initial, expected fall. Productivity in the UK seriously lags behind our competitors in the rest of the G7 at the end of 2016, notably France and Germany, and of course the US. It also comes before next month’s budget and the increasingly confident expectation that the Office for Budget Responsibility is going to have to admit that it has been overly optimistic about Britain’s likely growth.

the Irish building materials company CRH has suffered a setback in its endeavour to buy Ash Grove Cement. Its US target, which makes cement, said late last night that it had received a competing bid proposal from an unnamed third party that would value it at up to $3.8 billion, including debts. This would be higher than CRH’s previously agreed offer of $3.5 billion. CRH issued what was effectively a holding statement this morning, noting that its agreement with Ash Grove remained subject to relevant clearance by regulators and approval by shareholders. No firm offer has yet materialised from the unnamed suitor and we don’t know whether CRH would be prepared to get involved in a bidding war, but either way there is plenty to play for before the shareholder vote due on November 1.
Miles Costello
 
Market Snap
Investors in Chemring, who will be aware that it has not been the easiest of times for the maker of ammunition and aviation countermeasures of late, will be cheered this morning by a seemingly innocuous update on a big contract.

The company confirmed that the cash advance payment and export licences connected with a $30 million deal to supply ammunition to an international customer have now been received. This refers to a much-delayed contract with a Middle Eastern client for 40mm ammunition that has been one of Chemring’s main bugbears of late. The company has a big pipeline of work, particularly for the US military, building up but the Middle East delay has knocked a hole in short-term finances. The shares gained 9p to £180½p.

The FTSE 100 continues to climb towards its 7,547.63 peak in early June. The blue-chip index had added 14.24 points to 7522.23 by mid-morning. The main catalyst was the falling pound, which benefited those overseas earners that make up the bulk of the FTSE, although some early gains could not be held. So the two cigarette makers were strong, British American Tobacco up 55½ p to £4760½ and Imperial Brands 11p to £31.39½p. Ferguson, formerly the Wolseley plumbers merchant, gained 15p to £51.80. The company reported full-year figures in the week that saw more progress for its US side, the bulk of the group, and announced a £500 million share buyback programme.

Easyjet led the fallers on the blue-chip board. The company may have reported a good summer and a favourable profits forecast, and it may be benefiting from the collapse of Monarch. Analysts are aware, though, that the same pricing pressures that put paid to its rival will also have an impact on the budget airline, even if there may be some pressure taken off by the disappearance from the challenged holiday market of so many aircraft seats. The shares lost 26p to £12.58.

Among the smaller caps, Entertainment One was in demand, up 6½p at 270½p on a positive note from JP Morgan Cazenove. The broker thinks the company will benefit from “significant price inflation” in the sort of content it produces from broadcasters desperate for it. Programmes such as Peppa Pig, for which Entertainment One is particularly known, and PJ Masks are doing particularly well in the US and China.

CRH shares, though, were off 37p at £27.73. The Irish building materials maker has launched an offer for the US cement maker Ash Grove Cement, but reports this morning suggest that an unnamed rival may have made a higher approach. CRH had agreed to pay $3.5 billion for Ash Grove but reports suggest that the higher offer could be pitched at up to $3.8 billion.

Martin Waller
Tempus Editor
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FTSE risers and fallers*
Up
Mediclinic International +2.26%
Admiral +2.10%
British American Tobacco +2.05%
BT +1.61%
Direct Line Insurance +1.60%
 
Down
Easyjet -2.96%
CRH -1.35%
Centrica -1.30%
Marks and Spencer -1.10%
Lloyds Banking -0.95%
 
 
Markets
FTSE100 7524.28 +0.22%
FTSE250 20175.62 +0.43%
Cac 5370.300 -0.17%
Dax 12979.72 +0.09%
BrentCrude 56.69 -0.54%
Gold 1269.0200 +0.11%
GBP/$ 1.3064 -0.4%
GBP/€ 1.1159 -0.37%
10Y Gilt 127.050 +0.03%
*As at noon
 
US day ahead
The hurricanes that hit Texas and Florida in September are likely to have dampened job creation that month, with economists calling for a gain of 90,000 in non-farm payrolls in today’s employment situation report. The unemployment rate is forecast to stay at 4.4 per cent with average hourly earnings up by 0.3 per cent month-on-month.

The weekly Baker Hughes rig count comes in this evening, UK time.

The Fed officials speaking today are Raphael Bostic, William Dudley, Robert Kaplan and James Bullard. Eric Rosengren will be speaking tomorrow.

James Dean
US Business Editor
@JamesDeanTimes
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