Markets perk up, BAE Systems wins major funding for submarine work, Pennon and United Utilities lay out investment plans

“As the new month kicks off, investors appear to be in a brighter mood judging by how the main indices across Asia and Europe moved higher on Monday. The only exception was Japan where the Nikkei 225 slipped 0.3%,” says Russ Mould, Investment Director at AJ Bell.

“It’s been a testing time for markets as investors weigh up the likelihood of sticky inflation and interest rates remaining higher for longer. There is a balancing act for central banks – they want to fight inflation but equally they want to avoid being too aggressive with rate hikes and putting their economy into recession.

“Data has been central to their decision-making and this week will see the release of some important figures shedding light on the state of one key economy. In the US today, we get manufacturing PMI data which will show if purchasing managers are feeling confident about buying equipment, normally an important economic indicator. August saw a score of 47.6 – any figure below 50 represents a contraction. September is likely to stay in contraction territory, but the figure is forecast to narrow to an estimated 47.7.

“JOLTS jobs figures from the US tomorrow are likely to paint a more stable picture compared to late spring and early summer. July saw 8.827 million job openings, much less than the 9.465 million forecast and the fourth month in a row of declines. August’s reading is expected to stay flat at the 8.83 million mark.

“Later in the week we’ll get more key data from the US: services PMI, non-farm payrolls and the unemployment rate. All these data points will certainly keep investors on their toes.

“On the UK market, it’s positive to see BAE Systems be awarded £3.95 billion of funding for submarine development work. However, there is no information on whether this is simply covering the costs of doing the work or whether it is able to make a profit. The market seems to think there is some money in it for the company, given how the share price has risen 2.3% on the news.”

Pennon/United Utilities

“In the wake of the Thames Water debacle and with increased focus on the management of the UK’s ageing wastewater infrastructure, the water utilities are in the spotlight in a way they haven’t been for a long time and which could be making them feel quite uncomfortable.

“It’s in this context that the likes of Severn Trent last week and Pennon and United Utilities today are announcing big investment programmes as part of their business plans submitted to regulator Ofwat. They are looking to reduce the levels of pollution which have made their names mud with environmental campaigners and the public.

“Unlike Severn Trent, which announced a £1 billion fundraise, controversially shutting out retail investors to a large degree, Pennon and United Utilities have not announced immediate share placings. However, United Utilities has made it clear there will be an equity component as it looks to fund its spending plans.

“The problem the utilities face is that the costs of borrowing have gone up significantly and this makes the juggle between rewarding shareholders, funding investment and keeping a lid on bills a difficult one. Households will absorb a lot of the pain but investors will have to take their share too.”

These articles are for information purposes only and are not a personal recommendation or advice.