Must read: UK house prices, food inflation, Persimmon

GLOBAL MARKETS

Following declines overnight in Asia, European markets are trading mostly lower as investors digest a slew of key earnings reports including from UBS Group AG (SIX:UBSG) and Associated British Foods (LSE:ABF). 

The FTSE 100 is trading around the flatline, supported by AB Foods which has surged on the back of rising profits and strong sales at Primark. This has helped to lift other FTSE 100 retailers like Next (LSE:NXT), Frasers Group (LSE:FRAS) and JD Sports Fashion (LSE:JD.). Shares in Watches of Switzerland Group (LSE:WOSG) are trading sharply higher this morning too, reversing some of this year’s slide after the Rolex seller said it aims to double sales and profits by 2028. 

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The Bank of England’s chief economist Huw Pill said it is not ‘unreasonable’ to forecast a rate cut in the UK by next summer, with interest rates likely to remain around their current levels until the middle of 2024. 

Overnight, Australia’s central bank raised interest rates by 25 basis points to 4.35%, a 12-year high after the Reserve Bank of Australia kept rates on hold at its four previous meetings. There was also some mixed data from China where exports fell for the sixth straight month but imports unexpectedly rose by 3% in October, ahead of forecasts for a drop.

Oil prices are under pressure with Brent crude and WTI down by over 1.5% each after Saudi Aramco reported a 23% drop in third-quarter net profit.

UK HALIFAX HOUSE PRICES 

According to Halifax, UK house prices rose by 1.1% in October month-on-month, swinging from a decline of 0.3% in September and snapping a six-month losing streak. Year-on-year house prices are down 3.2% in October, slowing from an annual drop of 4.5% in September. The average house price now stands at £281,974. 

Housing demand remains sluggish as the Bank of England’s aggressive stream of rate hikes weigh on mortgage affordability. However, a shortage of housing supply is supporting the market’s resilience, with sellers less incentivised to list their properties during this period of market weakness. And a structural shortfall of supply across the UK housing market has stemmed an even steeper downturn in property prices. Echoing a similar forecast from major property firm JLL, Halifax anticipates further weakness coming through in the housing market next year, with prices likely to pick up again in 2025. 

KANTAR GROCERY INFLATION 

UK Kantar grocery inflation drops into single digits for the first time this year. In the four weeks to 29 October, grocery inflation hit 9.7%, the lowest level since July 2022 and down from 11% in the previous month. Some prices have been falling year-on-year including for butter, dried pasta, and milk, however most prices are still going up. Although it is moving in the right direction, grocery inflation is still stuck sharply above the headline rate of inflation in the UK, highlighting the squeeze on individuals and families from the rising price of food items. 

Supermarkets in the UK have been trying to maintain market share by cutting prices of essential food items this year to lure customers through their doors. They have also been focusing on promotions and loyalty schemes, again to try to boost footfall and prevent consumers from shopping around and trading down to cheaper alternative supermarkets like the German discounters, Aldi and Lidl, which are notoriously competitive on price.

PERSIMMON 

Persimmon (LSE:PSN) has raised its home-build target – it now expects to build 9,500 homes in 2023, up from its previous guidance from August of 9,000 homes. It also reported an improved private sales rate over the past five weeks to 0.59 units versus 0.45 in the same period last year.  Persimmon said trading had followed the normal seasonal drop over the summer followed by a pick-up from September. The housebuilder said it is positioning the business for growth when the market recovers, and said disciplined cost management remains a key focus. But it warned that market conditions will remain highly uncertain next year. 

Shares in Persimmon are trading sharply higher, lifting other housebuilder stocks with it, thanks to its home-build target upgrade for the year. While the housebuilders are grappling with cost inflation and softer demand on the back of rising interest rates, Persimmon has committed to build more houses nonetheless. Its decision to up its build targets goes against the broader trend we’re seeing across the UK. The latest construction PMI figures this week highlighted that house building has been falling. But a glimmer of hope in the data came from the fact that construction costs have been easing with prices of key materials like timber and steel coming down as problems with the global supply chain subside.  

While the housebuilders have been heavily punished this year, with Persimmon down over 13%, analysts are starting to wonder whether we are at or close to the trough for the sector, particularly given that the Bank of England is unlikely to carry out many more rate increases from here. Persimmon has rebounded by around 8% over the past month.