Google searches for revenues
Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (29 April to 3 May, 2019).
Google owner Alphabet saw its market valuation fall by about $70bn in the wake of its disappointing first-quarter numbers. The Bank of England also said rate raises will increase more than people expect and Uber is preparing for its IPO next week. Russia also made a move forward in the creation of its own internet, distinct from the World Wide Web.
The FTSE 100 was little changed over the week by mid-session on Friday. The FTSE 250 was down 0.7% ahead.
The S&P 500 had a three-day streak of record high closes at the start of the week. After markets got off to a fabulous start in 2019, Garry White looks at what could be next for equities here.
Families could be paying an avoidable tax bill of more than £80,000 because parents are too embarrassed to talk to their children about their financial future, according to Charles Stanley research. Click here to discover why.
The Bank of England upped its UK growth forecast for this year, in part because the outlook for the global economy is a bit brighter. The Bank now sees GDP growth of 1.5% in 2019, up from February's forecast of 1.2%. As expected, the Bank kept interest rates on hold at 0.75%. However, Governor Mark Carney hinted that an interest rise is likely sooner than many observers think. The current market expectation that rates will rise just once over the next three years is “unequal to the task of meeting [a] remit” of an inflation target of 2%, he said.
The US Federal Reserve has kept interest rates on hold despite pressure from President Donald Trump to announce a cut. The central bank said borrowing costs will remain at between 2.25% to 2.5%. The Fed made the decision despite Mr Trump tweeting on Tuesday that it should reduce rates by 1% to help the US economy “go up like a rocket”. Fed's chairman Jerome Powell said: “We are a non-political institution and that means we don't think about short-term political considerations, we don't discuss them and we don't consider them in making our decisions one way or the other.”
Indeed, a rate cut seems unlikely soon after a much better-than-expected US jobs report. Non-farm payroll employment increased 263,000 in April, compared with a consensus estimate of gains of 180,000. The unemployment rate fell to 3.6%, the lowest rate since December 1969.
The official reading of China's manufacturing sector fell last month, signalling that the economic stabilisation seen in the first quarter remains fragile. The manufacturing Purchasing Managers' Index stood at 50.1, down from 50.5 in March, according to the National Bureau of Statistics.
Local elections in the UK saw heavy losses for the traditional Labour and Conservative Parties as voters used the opportunity to express anger at the current Brexit impasse.
Is the trade war with China nearing a resolution? The US and China ended their latest round of trade talks in Beijing after what were described as “productive meetings”. Liu He, China’s vice premier, is due to fly to Washington next week to finalise a deal to end the dispute, which will then be put to Donald Trump and Xi Jinping, reports suggest.
UK Defence Secretary Gavin Williamson was sacked following an inquiry into a leak from a top-level National Security Council meeting about Chinese telecom equipment maker Huawei. Downing Street said Theresa May had “lost confidence in his ability to serve”. Mr Williamson, who has been defence secretary since 2017, "strenuously" denies leaking the information.
Canadian officials have been told China has suspended export permits for two pork exporters from Quebec, in a move that could signal an escalation in the diplomatic spat between Ottawa and Beijing following the arrest of Huawei finance director Meng Wanzhou in Vancouver. This is despite a shortage of pork in China, an issue Garry White examines here.
The situation in Venezuela escalated, with two days of clashes between opposition and pro-government forces. Venezuelan President Nicolás Maduro, who is backed by Russia, China and the leaders of Venezuela's military refuses to back down after opposition leader Juan Guaidó tried to spark a military rebellion.
Beyond Meat raised $241m in its initial public offering on the New York Stock Exchange after pricing its shares at the top end of an elevated price range. The $25-a-share flotation means the maker of vegan chicken and beef substitutes was valued at about $1.5bn.
Uber is on the road with its IPO presentations. Chief executive Dara Khosrowshahi said Uber’s future was not as a ride-hailing company, but as a wide technology platform shaping logistics and transportation. The floatation will be priced on 9 May.
Russia moved one step closer to creating its own, independent internet. President Vladimir Putin signed into law new measures that would enable the creation of a national network, able to operate separately from the rest of the world. The network remains largely theoretical though, with few practical details disclosed. Garry White looks at the potential for a fracturing of the World Wide Web to create a “Splinternet” here.
Results from Google-owner Alphabet disappointed, as the internet giant missed revenue expectations. Alphabet, which also owns YouTube, reported $36.3bn (£28bn) in sales for the first quarter, below expectations of $37.33bn. Profits also fell during the three months to 31 March.
Sales of Apple's iPhones fell at their steepest-ever rate in the three months ending March. The company said revenue from the device slipped 17% year-on-year, to $31bn. However, chief executive Tim Cook said sales were stronger towards the end of March, including in China where prices had been cut. However, management lifted its outlook for the three months to June and pointed to growth in its services business, on which the company is focusing to make up for sliding iPhone sales.
Berkshire Hathaway is now buying shares of Amazon for the first time. Warren Buffett, chairman and CEO, told CNBC he did not directly purchase Amazon shares himself. The shares were bought by "one of the fellows in the office that manage money," Mr Buffett said.
Spotify reached 100 million paying subscribers, with the number of users willing to pay for the service jumping 32% in the first three months of 2019. Earlier this week, John Redwood looked at the technology earnings season results so far. Click here for more.
Oil fell for two weeks in a row, as rising US crude inventories and Russia’s failure to meet a targeted production cut tempered fears of a supply crunch. Brent crude futures were down 2.7% over the week to trade at about $70.20 a barrel by mid-session on Friday.
Iran’s oil minister warned that Opec is in danger of collapse as some nations seek to undermine their fellow members, an apparent reference to Saudi Arabia’s pledge to fill the supply gap created by U.S. sanctions on Iranian exports.
BP's first-quarter profits fell by nearly a third, but beat City forecasts as lower oil and gas prices and weaker refining margins were offset by higher production and a stronger trading performance
Royal Dutch Shell posted much-better-than-expected profits for the start of the year despite falling oil and gas prices. Profits for the first quarter fell just 2% to $5.3bn.
The UK’s Climate Change Committee has recommended that the UK moves to zero net carbon dioxide emissions by 2050. John Redwood takes a look at the report here.
Mining & Commodities
Brazil’s exports of iron ore fell to the lowest in seven years as the impact deepens from output curbs following a dam disaster at the country’s biggest producer, Vale. This should benefit rivals such as Rio Tinto and BHP Group.
Shares in Sirius Minerals, which is developing a fertiliser mine near Whitby in Yorkshire, fell sharply over the week. The company announced it had raised $425m to finance the next stage of its polyhalite mine and said the project will cost more than previously planned.
Gold buying by central banks in Russia and China helped boost gold demand in the first quarter by 7%, according to the World Gold Council. Central banks spent about $6bn on gold over the quarter. Garry White looks at why this trend could continue here.
J Sainsbury’s failed bid for Walmart’s Asda, which was blocked by the regulator, cost the company £46m. However, annual results came in better than the market had anticipated. Total sales at the supermarket group rose 2.1% to £32.4bn. However, sales at established stores slid 0.2% for the year, including a 0.9% drop in the last quarter when food and clothing sales slipped.
Next posted a rise in first-quarter sales as it said the unusually warm weather over Easter helped boost sales. Total full-price sales in the first 13 weeks to 27 April were up 4.5% on last year. This was ahead of the company's internal forecast of 3.1% growth for the first quarter.
InterContinental Hotels shares fell after the company revealed a slowdown in occupancy rates, particularly in the US. Revenue per available room rose just 0.3% in the three months to March, compared with growth of 3.5% a year ago.
Betting group Paddy Power Betfair reported a strong rise in revenues, helped by "excellent growth" in both Australia and the US. The company reported total revenues of £478m for the first three months of the year, a 17% increase on the same period a year earlier.
Reckitt Benckiser issued a weak first-quarter trading update, blaming a subdued cold and flu season for subdued sales of its treatments such as Strepsils and Lemsip. The company is still on track for its full-year net revenue target of 3% to 4% like-for-like sales growth, weighted more towards the second half of 2019. The company's operating margin is expected to be maintained from 2018.
Shopping centre owner Intu has been hit by the woes in the retail sector. The owner of the Lakeside and Trafford Centre shopping centres has cut its forecast for rental income this year and it now expects like-for-like revenues to fall between 4% and 6%.
The government wants challenger banks to succeed to increase competition. However, problems at Metro Bank have cast a cloud. Its shares sunk once more after management admitted that deposits had fallen after it revealed in January it made errors in the way it measured risks on lending. The shares are down around 60% in the year to date.
Lloyds Banking Group has set aside a further £100m to cover payment protection insurance mis-selling. Pre-tax profits for the first three months of the year were £1.6bn, unchanged from the same period a year earlier. Margins in the sector have weakened due to intensifying competition in the mortgage market and slowing business investment due to Brexit uncertainty.
US activist investor Edward Bramson spectacularly failed in his bid to land a seat on the board of Barclays at its AGM, with a view to cutting back the lender’s investment bank. Mr Bramson had built a stake in Barclays of 5.5% via his Sherborne investment vehicle. Mr Bramson won just 12.8% of the vote compared with the 50% target he needed for investors to back him.
HSBC reported a better-than-expected 30% rise in profits in the first quarter of the year, after a strong performance from Asia.
Emerging-markets-focussed trade bank Standard Chartered posted a well-received set of first-quarter numbers. Profits rose 10% year-on-year and management unveiled a $1bn share buyback.
Mastercard and Visa both agreed to cut their fees for tourists using their cards in the EU, after a long-running battle with the European Commission.
British car production for exports fell 13.4% in March, with car production for domestic sales falling 18.1%, according to the Society of Motor Manufacturers and Traders. Four out of five cars manufactured in the UK are made for export.
Elon Musk’s Tesla is seeking to raise $2.3bn after its latest results heightened concerns that the troubled car company is running out of cash. Last week, Tesla announced it had lost $702m in the first three months of the year and had sold 31% fewer vehicles in the first quarter than in the fourth quarter of 2018. The company had $2.2bn of cash at the end of the quarter, down 40% from the $3.7bn it had the previous quarter. Tesla ended the quarter with about $10bn in debts.
Airlines and travel
At its AGM, Boeing's chief executive refused to admit that a system introduced in its 737 Max 8 aircraft was flawed following two fatal plane crashes. Dennis Muilenburg maintained the system was only one factor in a chain of events that led to the disasters. However, it also emerged that whistle blowers connected to Boeing had contacted the US airline regulator about the system.
Germany’s Lufthansa said its net loss widened nine-fold to €342m in the first three months of the year, hurt by rising fuel costs and excess capacity in Europe.
Air France-KLM blamed higher fuel costs and price competition as it posted a widening first-quarter losses. However, management said that pressure should ease over the rest of the year, as rival airlines’ capacity growth slows.
Ryanair reported 13.5m passengers across its group during April, up 10% year-on year, while Wizz Air reported that its passenger numbers had risen 19% to 2.7m.
Indian carrier Jet Airways, which was forced to ground all of its flights in April after failing to raise more funds, looks set to face bankruptcy proceedings.
More UK holidaymakers are booking their summer break outside the EU, Thomas Cook said, with the move driven by Brexit uncertainty. In total, 48% of packages purchased so far for this year are outside the Eurozone in places such as Turkey and Egypt.
GlaxoSmithKline said it expected 2019 sales of its shingles vaccine would generate more than £1bn, the pharma giant’s shares slipped on concerns about its free cash flow.
Medical device maker Smith & Nephew lifted its full-year revenues guidance and said there will be more acquisitions ahead. Its new chief executive, Namal Nawana, has a reputation for deal making and bought Osiris Therapeutics, which makes a range of medical products used in the process of repairing skin, bone tissue and cartilage, in March. In April the company bought Leaf Healthcare, which has developed a system for pressure injury prevention and patient mobility monitoring.
US group Pfizer posted stronger-than-expected first quarter earnings and upped the mid-point of its full-year profit guidance.
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Garry White is Chief Investment Commentator at Charles Stanley &Co. Limited, which is authorised and regulated by the Financial Conduct Authority.