By Steve Goldstein
U.K. home builders have had a strong run of late. The FTSE 350 home construction index — with companies including Persimmon /zigman2/quotes/206444744/delayed UK:PSN -3.03% , Berkeley Group /zigman2/quotes/202576163/delayed UK:BKG -2.85% and Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV -2.03% — has bounced 30% of the lows of the year.
That makes sense, as house prices have been strong, and mortgage approvals also have beaten expectations. The holiday from stamp duty — which is a tax assessed on house purchases — also has been a tailwind.
Goldman Sachs strategists, however, warn the sector is vulnerable to two things. The first is the sustainability of house prices. Once the U.K. furlough rules end at the end of October, Goldman Sachs economists expect the U.K. unemployment rate to rise to 9%. Another risk, they say, will be the end of the stamp duty holiday.
Another risk for the builders would be bad news on post-Brexit trade negotiations, which would be push down the pound as well as increase general uncertainty. Granted, Goldman expects a so-called “thin” trade deal to be signed, “but the risks remain high.”
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -2.53% on Monday enjoyed solid gains, rising 0.6% in afternoon trade. Some of the hardest-hit stocks of the year advanced, including Rolls-Royce Holdings /zigman2/quotes/203646520/delayed UK:RR -3.88% , Melrose Industries /zigman2/quotes/210306391/delayed UK:MRO -3.12% , and Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA -3.33% .
Cineworld /zigman2/quotes/206525056/delayed UK:CINE -4.56% shares fell 38%, as it said it will be suspending operations at all of its 536 Regal theaters in the U.S. and its 127 Cineworld and Picturehouse theaters in the U.K. from Thursday. Cineworld said it is “assessing several sources of liquidity.”
Weir Group’s shares /zigman2/quotes/201865002/delayed UK:WEIR -2.65% surged after reaching a $405 million deal to sell its U.S. oil and gas division to Caterpillar /zigman2/quotes/203434128/composite CAT -2.68% .