Murdoch tries to smash Google
Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (11 to 15 March, 2019).
The FTSE 100 rose 1.5% over the week by mid-session on Friday. The FTSE 250 was up 1.7%.
In the latest in our series of articles on inherited wealth, Lucy Edwards, Partner, Penningtons Manches, introduces the key features of Family Investment Companies and their potential as an addition, or alternative, to a trust.
Theresa May will try to get MPs to back her Withdrawal Agreement for a third time. The Commons will vote once more by 20 March, after previously rejecting it by 230 and then 149 votes, some of the largest defeats for a Prime Minister in history.
MPs voted to ask the EU to delay Brexit beyond the current 29 March departure date. European Council President Donald Tusk said EU leaders could be open to a long extension "if the UK finds it necessary to rethink its Brexit strategy".
MPs voted to reject the idea of the UK leaving the EU without a deal under any circumstances. However, that vote was not legally-binding – and under current law the UK could still leave without a deal on 29 March.
The UK economy grew by 0.2% in the three months to January, matching the growth of the previous three months. However, there was a pick-up in January, when the economy expanded by 0.5%. The services sector, which accounts for about 80% of the private sector economy, grew by 0.3% in January after a 0.2% fall in December. Construction, which accounts for about 6% of the economy, reversed December's fall to grow by 2.8% in January. Production and manufacturing output also both grew in January, having contracted in December.
There was more gloomy economic data from China, as factory output slowed to 5.3%, its weakest level on record. However, government infrastructure spending has helped buoy investment and retail sales growth remained steady in the first two months of the year, boosting hopes that stimulus measures will help avoid a hard landing.
China promised more stimulus measures. On Friday, Premier Li Keqiang said the central bank can use reserve requirements and interest rates to support economic growth, promising broad policy steps to prevent a sharper slowdown.
The Bank of Japan kept monetary policy steady on Friday but tempered its optimism that robust exports and factory output will underpin growth, a nod to heightened overseas risks that threaten to derail a fragile economic recovery.
Germany’s Ifo institute slashed its 2019 growth forecast for Europe’s largest economy to 0.6% from 1.1% due to weaker foreign demand for industrial goods and increased headwinds for exporters.
John Redwood, Charles Stanley's Chief Global Economist, looks at the implications of Donald Trump’s new budget, unveiled last week, here.
A summit to seal a trade deal between US President Donald Trump and Chinese President Xi Jinping will not happen at the end of March as previously discussed, because more work is needed in US-China negotiations, Treasury Secretary Steven Mnuchin said. However, Chinese media reported that “substantive progress” had been made and Beijing passed a new foreign investment law that it hoped would help with the discussions.
Donald Trump’s trade war is just one battle in a clash of values between the US and China, Garry White argues here.
The US Senate rebuked President Trump by voting to end his border emergency declaration, as 12 Republicans joined Democrats. The president said he would veto the vote.
Rupert Murdoch's Australian media company called for the breakup of Google, saying the US tech company wields too much power over news outlets and online advertisers. News Corp Australia said breaking up the tech giant is “necessary” due to the unparalleled power that it currently exerts “over news publishers and advertisers alike”.
Facebook founder Mark Zuckerberg announced the departure of the social media group’s chief product officer Chris Cox and head of WhatsApp Chris Daniels. Mr Cox joined in 2005, a year after Facebook was founded, while Mr Daniels took up his role only a year ago. No reason has explicitly been given for their departure. The changes come shortly after Mr Zuckerberg outlined his plan to transform Facebook into a “privacy-focused platform”.
Music streaming service Spotify has filed a complaint with EU antitrust regulators against Apple, claiming the iPhone maker was unfairly limiting rivals via its app store. Apple’s app store is an important distribution platform for Spotify, but Apple takes a 30% commission on all sales – including music streaming subscriptions – which Spotify and many other third-party app developers have long complained is an unfair “tax”. However, Apple accused Spotify of “misleading rhetoric”.
Oracle shares fell after the company issued disappointing fourth-quarter revenue and profit guidance, representing another setback in the software maker’s push to become a significant player in cloud computing.
Brent crude futures rose 2.7% over the week by mid-session on Friday, trading at about $67.50. The price was boosted by hopes that Opec will prolong its output cuts in the second half of the year. A surprise drop in US crude inventories also helped the price.
ExxonMobil said it plans to cut the cost of pumping oil in the Permian Basin to about $15 a barrel, a level only seen in the giant oil fields of the Middle East such as the Ghawar in Saudi Arabia. The scale of Exxon’s drilling means that it can spread its costs over such a big operation that the basin will become competitive with almost anywhere in the world, Staale Gjervik, president of XTO Energy, the group’s shale division, said.
Mid-cap Gem Diamonds posted record annual profits, but withheld its final dividend citing “certainty about the global diamond industry”. However, the shares recovered some of the resulting share-price losses later in the week after management revealed it had sold a pink diamond from its Letšeng mine in Lesotho for $8.75m. The per carat price of $657,000 is a record for a Letšeng diamond.
Annual results from grocer Wm Morrison showed British shoppers have been stockpiling painkillers and loo paper ahead of Brexit. However, chief executive David Potts admitted it was “a small amount”. Full-year results rose by almost 9% and the company announced its third special dividend payment this year.
Debenhams said it will give "careful consideration" to Mike Ashley's offer of a £150m conditional loan under his attempted coup. The struggling department store chain, which is in advanced talks with its banks on a rival £150m refinancing, warned that any loan from the tycoon's Sports Direct empire would also require the agreement of its own lenders and bondholders. Mr Ashley, who is the largest shareholder in Debenhams, has called an investor vote to remove most of the board and install himself as chief executive. Last week he made the loan offer – interest free – but only if he is handed the Debenhams chief executive job.
The Financial Conduct Authority (FCA) fined Carphone Warehouse £29m for failings that led to the mis-selling of mobile phone insurance and technical support known as Geek Squad. It follows an investigation sparked by whistleblowing reports, the FCA said
Superdry rejected a business plan proposed by its co-founder Julian Dunkerton and urged shareholders not to allow him back on the board. Mr Dunkerton stepped down from the board a year ago since when the shares had lost 70% of their value. Now he has demanded to be reappointed and has published a plan – “Supercharging Superdry". However, Superdry said his return, “in any capacity, would be extremely damaging”.
The Early Learning Centre will make a high street comeback after its struggling owner Mothercare announced its sale to rival chain The Entertainer. The Early Learning Centre (ELC), known for its wooden train sets and shape sorters, had more than 200 UK stores. However, it no longer has any standalone stores and the brand is sold in Mothercare outlets and by other chains.
Cineworld reported a surge in annual profits, boosted by its takeover of US-based Regal Entertainment. Cineworld became the second-largest cinema chain in the world when it completed the £2.7bn deal in February last year.
No-frills pub chain JD Wetherspoon posted a near 20% drop in profits in its interim results as increased labour costs took their toll. The company was also hit by increased repair and utilities costs over the period.
Dignity, the UK’s only listed funeral director, reported a 43% fall in annual profits to £40.5m. Mike McCollum, chief executive, said 2019 is likely to mark the start of the Competition and Markets Authority's investigation into the industry. “Our surveys demonstrate that the majority of clients assume the funeral industry is regulated, when it is not. Some may assume that they will receive the same quality of service from different operators irrespective of price. They will not”.
Domino’s Pizza shares fell after it revealed a fall in profits last year as it suffered “growing pains” in international markets.
Standard Life Aberdeen ended its widely-criticised co-chief executive structure. Keith Skeoch will be sole chief executive and Martin Gilbert will be vice chairman. The structure was introduced when the two companies merged in 2017.
Mike Wells, the man from the Pru, said the insurer it was making "continued progress" in separating its UK business M&G Prudential through a stock market listing. The new came as Prudential’s chief executive reported a 6% rise in 2018 operating profit to £4.8bn, driven by its Asian business.
Shares in pensions provider Just Group slumped after it was forced into a £380m capital raise. The company needs to beef-up its capital buffers after the Prudential Regulation Authority changed the way it calculates equity release mortgages, which Just offers to customers. Management plans to sell £80m of new shares and raise £300m in debt.
US aircraft maker Boeing was forced to ground the entire global fleet of 737 Max aircraft after a second tragic crash of the plane following take-off. The crash of the Ethiopian Air jet came just five months after a similar crash in Indonesia of an aircraft operated by Lion Air. Boeing said it “continues to have full confidence in the safety of the 737 Max”.
Lufthansa cut its growth plans after a slide in fares and higher fuel costs weighed on 2018 profits. The German carrier said it will slow capacity increases to 1.9% this summer from the 3.8% previously planned in an effort to bolster prices and cope with limited room for extra flights at airports. Air fares have been under pressure due to overcapacity in the industry.
Stobart Group, the aviation and energy mini-conglomerate, slashed its dividend from 15p to 6p to free up funds to invest in Southend Airport so it could service 10 million passengers a year.
The US Securities and Exchange Commission (SEC) is suing Volkswagen and its former chief executive Martin Winterkorn over the diesel emissions scandal, accusing the company of perpetrating a "massive fraud" on US investors. The SEC said in its complaint filed in San Francisco that from April 2014 to May 2015, Volkswagen issued more than $13bn in bonds and asset-backed securities in US markets at a time when senior executives knew that more than 500,000 US diesel vehicles grossly exceeded legal vehicle emissions limits.
Volkswagen also pulled the initial public offering of its trucks unit Traton until market conditions improve, halting what was expected to be Germany’s biggest share offering this year.
Tesla unveiled its Model Y electric sports utility vehicle. Chief executive Elon Musk said the compact SUV, built on the same platform as the Model 3, would first debut in a long-range version with a range of 300 miles priced at $47,000.
Nissan will cease production of its luxury Infiniti brand at its Sunderland factory by July, putting 250 jobs at risk. The Japanese carmaker said the move was part of plans to withdraw from the premium car market in Western Europe, where the brand faces intense competition from local rivals including Jaguar Land Rover, Audi, BMW and Mercedes-Benz. The company did not mention Brexit.
Savills warned of falling sales this year as economic and political uncertainty hit markets. The company operates in a number of markets globally and is in retail, commercial and residential properties.
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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.