JDW, Subway, student debt, interest rates & other:

A DAY IN THE LIFE:

Quiet day in the City yesterday. Sun shining, many on holiday & the US market shut.

Today might be a bit busier but, with the long, July days now being peeled away on the calendar and August to come, it’s hard to escape the conclusion that there’s less being done.

Anyway, it’s probably worth pointing out that it’s 10yrs ago today that interest rates last went up. They rose from 5.50% to 5.75% on 5 July 2007 and then were cut on 10 separate occasions until they hit their present 0.25%.

It’s fair to say that they won’t be cut again and it may also be worth noting that many consumers, employers and even the government itself, don’t really remember what it feels like to live in a ‘normalised’ interest rate environment. On to the news:

PUB, RESTAURANT & DRINK PRODUCERS:

• JD Wetherspoon buys back shares. The co yesterday announced that it was buying back 167,500 shares at 964p for cancellation. The purchase totalled some £1.6m.

• The BBPA has moved to clarify the position with regard to the PIRRS and PICA services saying that they are available to tenants and lessees north of the border. BBPA CEO Brigid Simmonds comments: ‘it is important to be aware that there is an industry Pubs Code specific to Scotland that we and others have developed, and our members are signed up to.’ She adds ‘we need systems that work in the best interests of Scottish pubs, and the legislative route is not always the best solution.’

• Inflation has been squeezing margins, making price rises ‘inevitable’, the British Retail Consortium has warned. BRC research has found prices in June declined 0.3% compared to the same period last year, this is the shallowest level of deflation since November 2013. The chief executive of the BRC, Helen Dickinson said ‘The year-on-year numbers belie the fact that prices have been heading upwards for the last six months; it’s just that significant deflation in the second half of 2016 means there has been considerable ground to make up in the year-on-year figures’.

• The IFS has suggested that the current generation of UK students will graduate with education debts of over £50k. This could impact their spending power over the first couple of decades of their lives thereafter.

• Aprirose, the property investment company, is to acquire 73 pubs from M&B and start a new pub group. The new group will be called Milton Pubs and Taverns.

• Fuller, Smith & Turner’s craft lager Frontier, is to take part in a wide-reaching trade and consumer campaign featuring virtual reality headsets for pub training and a campaign with Time Out, including a full cover wrap.

• The fast food chain, Subway, is considering a move into schools after its successful expansion into hospitals, the MCA has reported.

• The combination of a lack of rain and soaring temperatures in Spain could spell disaster for grape and olive growers this year. This, combined with the late spring frosts, could lead to the grape crop being down by half in some regions, according to Spanish newspaper El Confidencial.

• In the US & backed by the drinks industry, the National Institutes of Health (NIH) will launch a $100m six year long clinical study into the issue over whether a drink a day is could for you and could even prevent heart attacks. Earlier this year, researchers at Cambridge University and University College London found moderate drinkers to have a lower risk of diseases such as heart attack, angina and heart failure compared with teetotallers.

• Booker updates on trading, says LfL sales +4.2% in the 12wks to 16 June. It says ‘overall Booker Group had another good quarter’.

HOLIDAYS, LEISURE TRAVEL & HOTEL:

• Italy is experiencing a bumper year for tourism, with the country expecting to surpass 400m hotel occupancies this year. Occupancies have been boosted due to security concerns at rival destinations such as Turkey, North Africa and France. Currently, Italy is second only to Spain in Europe, which achieved 454m hotel occupancies last year.

• The number of passengers carried by Ryanair increased by 12% to 11.8m in June, up by 1.2m on the same month last year. Load factor was up to 96%, up 2 percentage points year on year.

• Which? has stated that airlines should automatically compensate passengers whose flights have been cancelled or delayed. Analysis of Civil Aviation Authority (CAA) data showed that some airlines had an “alarmingly” high percentage of instances where the aviation body ruled against them.

OTHER LEISURE:

• China’s box office revenues climbed 20% y-o-y in the second quarter. China has relaxed the restrictions on foreign films, which has allowed the country to avoid its first annual box office drop in over 20 years.

FINANCE & MARKETS:

• The Bank of England’s Prudential Regulation Authority has highlighted concerns regarding personal loans, credit cards and car finance.

• Banks need to respond to comments made with regard to the above by September. Consumer credit has been growing by over 10% in recent months, around 5x the rate of growth of the economy as a whole. Both Governor Mark Carney and Deputy Governor Andy Haldane have said recently that interest rates, at some point in the not-too-distant future, will be going up.

• UK interest rates rose most recently 10yrs ago today. They rose from 5.50% to 5.75%. They currently stand at 0.25%.

• The Times today quotes Michael Saunders, an external MPC member, as saying that the Bank is overstimulating the economy with rates at their current levels. Other MPC members have opposing views suggesting, The Times says, that ‘splits on the committee are firmly entrenched.’

• Construction activity, whilst still increasing in the UK, is now growing at a slower rate reports Markit. The June PMI slowed by more than expected to 54.8 against 56.0 in May. Any number above 50.0 implies growth. Markit says ‘survey respondents commented on renewed caution among clients, in response to heightened political and economic uncertainty.’ Construction accounts for around 6% of UK GDP.

• Oil up a shade at $49.57

• Sterling a fraction weaker at $1.2926 and €1.1381

• UK 10yr gilt yield 1bp lower at 1.25%. This time last week it was 1.01%.

• World markets: UK down yesterday & Europe also lower. US shut but Far East mostly up in Wednesday trading

• Brexit:

o London remains Europe’s number one technology hub reports the Mayor of London’s agency, London & Partners.

o London & Partners says ‘the Brexit vote has understandably created some uncertainty, but it is no surprise to see that London continues to attract more than double the amount of investment [of] any other European city.’

YESTERDAY’S LATER TWEETS:

• JDW buying shares back again. Buys 167,500 (some £1.6m worth) at 964p for cancellation

• Greene King & MARS shares at 4yr lows. Trading not bad at the moment but overarching fear of recession?

• Times warns of possible sub-prime crisis in car loans. Some lending ‘reckless’. B of England urges vigilance.

• UK manufacturing PMI shows growth but has to be considered disappointing given low Sterling boost

• Hammond (‘responsible adult’) says to keep pay cap. Boris & Gove, both on manoeuvres ahead of May exit, early election, want to drop it

• UK construction PMI slows to 54.8 (from 56.0). Still above 50.0 but indicative of a slowing economy. Pound slips a little.

RETAIL NEWS WITH NICK BUBB:

• Topps Tiles: the Q3 today from Topps Tiles looks weak, with LFL sales for the last 13 weeks down by 4.7% (before adjusting for the late Easter), but the comps have been tough, given the changes to Stamp Duty a year ago, and investors will be pleased to hear that “we have seen a modest improvement in trading over recent weeks as they have begun to ease”. Investors will also be interested to hear that Topps Tiles is looking at a small acquisition in the commercial tile market.

• Booker Ahead of the AGM today (see below), Booker has issued a good-looking Q1 trading update (for the 12 weeks to 16 June), with Non-Tobacco sales up by 9.6% on a LFL, although that was boosted by favourable weather and the late Easter, whilst Tobacco sales continued to be adversely impacted by changes in tobacco legislation, down by 7.9% LFL. Because of the Tesco merger process, Booker can’t make any forward-looking comments, but CEO Charles Wilson says “Meanwhile business as usual is going well as we continue to improve choice, prices and service for our retail, catering and small business customers”.

• Booker AGM Watch: By tradition, the Booker AGM is held at the depot in Wimbledon, for the convenience of the Board, but today the Board have to trek out towards “Tesco country” for the AGM at 11am, in the form of the Makro cash-and-carry depot in Enfield, at 57 Stockingswater Lane…

• John Lewis Partnership Sales Watch: We flagged a week ago that the slightly later fall of Clearance this year had caused an adverse calendar shift in sales at John Lewis, which evened out last week, so that the overall sales surge of +8.8% gross (about 7% up “LFL”) in w/e July 1st (the first full week of the summer Clearance Sale) wasn’t as good as it appeared. On a cumulative basis over the last 22 weeks, John Lewis is now running up by only 1.1% gross (c0.5% down LFL). Fashion sales were up by 7.0% gross last week and Home sales were 8.0% up, but the star of the show was Electricals, with sales 12.4% up gross, thanks to impressive 34% growth in sales of Apple products…Over at Waitrose the more mixed weather in w/e July 1st hit business and total sales were only 0.5% up gross (over 1% down LFL) and so over the last 22 weeks combined Waitrose is now running up by 2.0% gross (up a tad
LFL).

• News Flow This Week: As the first week of Wimbledon continues (come on Andy!), along with the Hampton Court Flower Show, the Sainsbury AGM is being held today at 11am in the QE II Conference Centre in Westminster and tomorrow brings the ABF (Primark) trading update, whilst on Friday we get the Dunelm Q4.