Must read: central banks, Barratt Redrow, Next

CENTRAL BANKS

The Federal Reserve is expected to cut interest rates by a quarter-point for the first time this year on Wednesday, with the potential for further rate cuts ahead. The door is also ajar for a greater half a percentage point reduction next week, although it is looking less likely after August’s above target CPI data which saw US inflation climb to a seven-month high of 2.9% year-on-year, up from 2.7% in July. Yesterday’s PPI figures painted a more flattering picture, with an unexpected monthly decline for the first time since April.

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The central bank is facing a complex conundrum, with signs of a weakening labour market on the one hand versus concerns about tariff fuelled inflation on the other. As Fed Chair Jay Powell said at Jackson Hole, “in the near term, risks to inflation are tilted to the upside, and risks to employment to the downside”.

In the legal battle over the Fed’s independence, the central bank is winning at least for now after a judge temporarily blocked Trump from removing Fed governor Lisa Cook. Nonetheless, Trump continues to try to verbally intervene in monetary policy by calling on Powell to slash interest rates.

Crossing the Atlantic, the Bank of England (BoE) is expected to keep rates unchanged at its policy decision meeting next Thursday. Before that central bank watchers will be paying close attention to unemployment and inflation figures out on Wednesday and Thursday mornings respectively. Inflation is running much hotter than the central bank would like, raising the prospect of higher for longer interest rates.

At its previous decision meeting, the Monetary Policy Committee (MPC) cut interest rates by 25 basis points to 4%, in a very narrow vote that divided the BoE’s rate setters. December could be when the central bank next cuts rates, after clarity around taxes and spending in provided by the Autumn Budget in November.

It is a busy week for other central banks around the world too including the Bank of Japan, the Bank of Canada, the South African Reserve Bank and the Central Bank of Brazil.

BARRATT REDROW FY – WEDNESDAY 17 SEPTEMBER

Richard Hunter, Head of Markets, interactive investor says: “Barratt Redrow (LSE:BTRW) is navigating its current strategy with caution amid a sector which is clearly being buffeted by wider economic concerns.

Indeed, the group is hoping that it is now at an inflection point, with its confidence in future prospects bolstered by the Redrow acquisition, such as providing access to the more affluent market in which Redrow tends to operate. In addition, a combined land pipeline of over 92000 plots remains in place, with complementary geographical footprints adding a further intriguing dimension to the deal.

There are, however, some warning signals which are to a large extent out of the group’s control. Consumer caution and affordability issues are a headwind for the sector, particularly given the possibility of more tax rises in the upcoming Budget.

There is also a concerning trend – as recently confirmed by Berkeley Group Holdings (The) (LSE:BKG) – that the London market is seeing weak demand, with fewer international and indeed domestic investor completions dragging down the group total.

A previously strong forward order book of £2.9 billion cushioned some of the blow, but the shares remain down by 27% over the last year with some potentially significant challenges still to come.

NEXT HY – THURSDAY 18 SEPTEMBER

Richard Hunter says: “The Next (LSE:NXT) naysayers who eschew the UK retail sector have been dealt blow after blow, as the group continues to fire on all cylinders.

Next now has the reputation of a company which under-promises and then over-delivers. In typical fashion and despite its customary cautionary outlook, the group recently raised its guidance once more for its full-year returns, expecting pre-tax profit for the year as a whole to hit £1.105 billion.

The cyber incident at Marks & Spencer Group (LSE:MKS) and warmer weather were both tailwinds to a strong first half which will not be repeated in the second. In addition, the numbers will come up against stronger comparatives from last year.

Even so, the group has a very simple and clear appreciation for product (the brand) and platform (enabling third-party sales) being its current drivers. Indeed, over recent times the group has leaned towards full-price sales at the expense of discounts, and the strategy has paid off with the company previously noting that there is an increasing proportion of customers who are buying fewer, but more expensive items, which potentially brings new opportunities for Next slightly higher up the price chain.

In addition, the numbers usually underline the group’s unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities. The group believes that international tastes in clothing are beginning to converge, not least of which is due to the increasing visual power, appeal and presence not just of the internet, but also the rise of streaming services which are now increasingly used by younger audiences. The share price has reflected the respect in which the company is held by investors and has risen by 23% this year alone.