Pubs to Homebuilders in Spotlight Ahead of UK's Mini Budget




  • In Business
  • 2022-09-23 08:26:17Z
  • By Bloomberg

(Bloomberg) --

Most Read from Bloomberg

  • Japan to Restore Visa-Free Travel From Oct. 11 as Covid Pandemic Recedes

  • South Korea President Caught on Hot Mic Insulting US Congress

  • Unless Rents Rise, Housing Is Set Up for an Epic Crash

  • A Great Copper Squeeze Is Coming for the Global Economy

  • Putin's Order for 300,000 Fighters Drives Russians to the Streets in Protest

Traders are bracing for Friday's UK mini-budget -- the first of Liz Truss's premiership -- which is likely to stimulate the economy with further tax cuts and other business-friendly measures, potentially helping stocks in beaten-down sectors like homebuilders and retail.

A widely-expected halt to planned corporation tax rises could give the broader stock market a boost, particularly the domestic-focused FTSE 250. The index on Friday hit its lowest level since November 2020, extending a year-to-date slump to 22%, as the cost-of-living crisis threatens to push Britain into a recession.

"UK consumers and house-buyers look like they will receive support as well as domestic businesses," Tineke Frikkee, head of UK equity research at Waverton Investment Management, said by email. "This will be good for domestic sectors such as housebuilders, retailers, supermarkets and leisure companies."

Chancellor of the Exchequer Kwasi Kwarteng will deliver the fiscal statement in the House of Commons at around 9:30 a.m. local time. Here's a close look at the sectors in focus:

Retail

Kwarteng has already rolled back the rise in National Insurance, an employment tax, brought in by previous chancellor Rishi Sunak. The UK Treasury said Thursday that the 1.25 percentage point hike will be scrapped from Nov. 6. "Taxing our way to prosperity has never worked," Kwarteng said in a statement.

That decision, alongside the recent household energy price cap, may prevent a further decline in consumer confidence, according to Shore Capital analyst Clive Black. Nevertheless, "aggregate demand can still be expected to be much lower for the majority of households as the important fourth quarter arrives," Black wrote in a note on consumer stocks. JD Sports Fashion Plc on Thursday became the latest high street retailer to flag macroeconomic concerns, while bellwether Next Plc updates next week. Supermarkets such as Tesco Plc could also be impacted.

The FTSE 350 Retailers Index is down 36% this year.

Pubs, Restaurants

During her leadership campaign, Truss was reported to be considering cutting business rates -- a form of property tax on commercial premises. The levy has long been bemoaned by both retailers and leisure operators like pubs and restaurants. JD Wetherspoon Plc and Wagamama-owner Restaurant Group Plc are among the stocks to watch.

A temporary cut to value-added tax has also been touted, while the government has already unveiled a multibillion-pound bailout to help companies with their energy costs.

Homebuilders

Homebuilder stocks got a much-needed boost Wednesday following a report that the government may cut stamp duty. The Times of London said Truss and Kwarteng have been working on a plan to reduce the property transaction tax -- something which was also done, on a temporary basis, during the pandemic.

Cuts targeted at first-time buyers would benefit all housebuilders, but more so Persimmon Plc and Vistry Group Plc, while reductions in the tax at the higher end of the market would benefit Berkeley Group Holdings Plc and Redrow Plc, according to Jefferies analysts Glynis Johnson and Priyal Woolf. Additionally, a potential scrapping of a cap on bankers' bonuses -- or anything else that boosts London as place of employment could benefit Berkeley, too, they said in a note. An index tracking UK homebuilder shares is down 42% this year.

Utilities

The potential for further windfall taxes is still a concern for many UK energy investors. Labour leader Keir Starmer has called for a fresh levy, though Truss has ruled it out, providing support for shares in companies like British Gas-owner Centrica Plc.

Drax Group Plc, meanwhile, slumped last month after Kwarteng said the company's burning of US-imported wood pellets for energy "isn't sustainable." Any further details on Friday would be closely watched by Drax shareholders.

Banks

Ditching the bonus cap would grab headlines, but would be unlikely to move lenders' shares. Investors are instead focused on rising UK interest rates, with the Bank of England on Thursday hiking again -- a move that's set to further expand profit margins for lenders.

The sector has failed to fully price-in this year's yield rise amid worries about the impact of recession on loan defaults. That's left the sector looking "too cheap," according to UBS analyst Jason Napier.

Shares including NatWest Group Plc and Lloyds Banking Group Plc were hit earlier this week as Bloomberg reported that the government is considering scrapping interest payouts on some deposits held at the BOE. Analysts questioned the feasibility of such a plan, including Citigroup's Andrew Coombs, who said in a note that it could "undermine operational independence." Still, any mention of such a change during the budget speech would be of interest.

(Adds FTSE 250 hitting lowest since November 2020 in second paragraph, first chart.)

Most Read from Bloomberg Businessweek

  • The Sneaky Genius of Apple's AirPods Empire

  • This Is What Life's Like in the World's Strictest Covid Zero City

  • Wall Street's Bosses Reassert Themselves With the Return of Annual Culls

  • No One Likes Annual Performance Reviews-Here's How to Get Rid of Them

  • The $8.6 Billion Startup That Helps Governments Trace Crypto

©2022 Bloomberg L.P.

COMMENTS

More Related News

Suncor to Retain Canadian Gas-Station Arm Following Review
Suncor to Retain Canadian Gas-Station Arm Following Review

(Bloomberg) -- Suncor Energy Inc., the Canadian oil sands producer under pressure from activist investor Elliott Investment Management LP, said it decided to...

Hong Kong Peg Creator Says Sky-High Rates Can Defend It
Hong Kong Peg Creator Says Sky-High Rates Can Defend It

(Bloomberg) -- Hong Kong is willing to tolerate sky-high borrowing rates and near term economic pain to defend its currency peg with the dollar in the wake...

Chinese Stocks Surge in US as Vaccine Drive Fuels Reopening Bets
Chinese Stocks Surge in US as Vaccine Drive Fuels Reopening Bets

(Bloomberg) -- Chinese stocks listed in the US extended gains in premarket trading as officials vowed to speed up Covid shots for the elderly and to avoid...

Israel PM Asks 50 Countries to Prevent UN Vote on ICJ Advisory
Israel PM Asks 50 Countries to Prevent UN Vote on ICJ Advisory
  • World
  • 2022-11-29 09:08:18Z

(Bloomberg) -- Israeli Prime Minister Yair Lapid has written to 50 heads of states in a bid to prevent a vote in the United Nations that seeks to request an ...

Spanish Inflation Eases More Than Expected in Boost for ECB
Spanish Inflation Eases More Than Expected in Boost for ECB

(Bloomberg) -- Spanish inflation eased for a fourth month and by more than expected, reinforcing expectations for a wider slowdown in European prices and...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business