Lyft and Uber prepare for wild ride
Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (18 to 22 March, 2019).
Levi’s shares relisted for the first time in 34 years, gaining almost a third in their initial trading session. The IPO of Lyft also appeared to be going well ahead of its market debut next week. Unfortunately, Brexit remains unresolved.
The FTSE 100 rose 0.7% over the week by mid-session on Friday. The FTSE 250 was down 1.4%.
In the latest in our series of articles on inherited wealth, Head of Asset Management, Christopher Aldous, discusses Impact investing, a new form of investing for those who want to do their part to make the world a better place. Click here for more.
Prime Minister Theresa May was granted an extra two weeks to come up with a Brexit solution after talks with EU leaders this week. If Mrs May can get parliament to vote through her withdrawal deal next week, that date will be pushed back to 22 May to give time to pass the necessary legislation. If the prime minister can't get the deal through, the UK will have to propose a way forward by 12 April for EU leaders to consider. This could be a no-deal Brexit or a lengthy extension. EU leaders on Friday said Britain had a final chance to leave the bloc in an orderly fashion.
The precise nature of the United Kingdom’s proposed withdrawal from the EU remains uncertain, and at Charles Stanley we are taking steps to ensure that we continue to provide the best possible outcomes for our clients. Click here to find out more.
The US Federal Reserve surprised investors with a policy statement that was more dovish than expected, as it anticipated no further interest rate hikes this year due to signs of softness in the US economy.
The Bank of England left UK interest rates on hold at 0.75%. All nine members of the MPC voted not to change borrowing costs this month in a unanimous vote. The central bank also left its quantitative easing stimulus programme unchanged.
A jump in the UK tax-take slashed government borrowing to its lowest level since 2001-02. The deficit slid to £23.1bn in the financial year to date, down £18bn from the same 11-month period a year ago. It takes the national debt up to £1.79 trillion, the Office for National Statistics said, although as a share of GDP it has fallen by 1.4 percentage points year-on-year to 82.8%.
Weak economic data from Germany and France hit the euro on Friday. Factory orders in both countries shrunk.
Can India be a major motor of world growth? John Redwood, Charles Stanley's Chief Global Economist, looks at the continuing rise of India here.
Trade talks will continue in China next week, although there were some concerns this week about progress. Donald Trump said his administration was considering leaving tariffs on China for a "substantial period".
Italy risked upsetting Donald Trump and Brussels in one swoop after it signed a memorandum of understanding to become part of China’s controversial Belt and Road Initiative.
Canadian companies have been unable to resolve a China halt of imports of canola seeds from the country. Canadian canola seeds are not being bought as part of the stand-off following the arrest of Huawei’s Meng Wanzhou in Vancouver under a US arrest warrant.
Once a trade deal is agreed between Washington and Beijing, Donald Trump is likely to turn his trade guns on Germany. Garry white looks at the problems facing Berlin here.
Shares in denim icon Levi Strauss surged in New York on its return to the stock market after 34 years as a private company. The price soared on its debut, finishing Thursday’s session up 32%, valuing the company at $8.7bn.
Ride-hailing app Lyft is expected to kick off a wave of technology initial public offerings (IPOs) when it lists on Nasdaq next week. The roadshow ahead of floatation appears to have been successful, despite the group posting a loss of more than $900m and a share structure that gives the founders the majority of the voting rights in the company. Reports suggest the IPO is oversubscribed. This makes it more likely that the ride-hailing group will meet or even exceed the $23bn valuation management is seeking.
Rival online mini-cab group Uber plans to kick off its IPO in April, reports also noted, listing on the NYSE. Other flotations expected this year include Pinterest, Airbnb and Slack.
However, Alight, a Blackstone-backed provider of outsourced cloud-based HR services, postponed its $800m IPO on Thursday.
The European Commission (EC) fined Alphabet’s Google €1.5bn for abusing its dominant position in online search advertising. This is the third multi-billion dollar penalty the EC has given the search engine operator.
Shares in Inmarsat jumped after the satellite operator said it was in talks about a $3.3bn offer from a private equity-led consortium, which some observers think opens up the possibility of a bidding war.
Chipmakers received a fillip this week from US group Micron. The sector has been under pressure due to expectations of waning demand, but Micron said it expected a rise in semiconductor demand in the second half of the year.
China’s Tencent, Asia’s most valuable company, posted a decline in fourth quarter profit, hit by a Chinese government crack down on new game approvals which hit the tech giant’s gaming business. Ma Huateng, chairman and chief executive officer of Tencent, said the business had started to refocus on other profitable areas of the business.
The oil price was volatile, pulled between growing concerns of an economic slowdown and hopes of price rises spurred by Opec supply cutbacks. However, over the week, Brent crude futures were essentially flat, trading at about $67.15 a barrel.
Blue-chip oil services group Wood Group returned to growth in 2018 but said its debt-cutting efforts would be slower than it planned after the merger with Amec Foster Wheeler.
Chilean copper miner Antofagasta unveiled a higher-than-expected dividend for 2018, sending its shares to a seven-month high, although earnings dropped in line with analysts’ forecasts.
Palladium prices hit a new record high as the risk of a ban on some Russian exports added to supply concerns for the autocatalyst used in petrol cars. The price has nearly doubled since mid-August and is up about a quarter so far this year.
Retail sales rose in February, up by 0.4% on the previous month, official figures show. However, sales at food stores saw the biggest fall since December 2016, the Office for National Statistics said.
Debenhams may be on the verge of securing a £200m funding lifeline from lenders that would allow the troubled department store to escape the clutches of biggest shareholder Mike Ashley. Mr Ashley is looking to replace most of Debenhams’ executives and install himself on the board, but needs to win a vote at an extraordinary shareholder meeting. Embarassingly, the first request for such a meeting was invalid as the shares were not directly held by Sports Direct but in a nominee account. The request for a meeting was resubmitted this week with the correct paperwork. Debenhams accepted that certain restructuring options could result in no equity value for the company's current shareholders. Reports also suggest Mr Ashley, who some have dubbed “the undertaker of the high street”, is also interested in the collapsed Laura Ashley chain. However, he also said he was not at all interested in Philip Green’s Arcadia and wouldn’t even buy the chain for £1.
The boss of struggling DIY group, Kingfisher, which owns B&Q and Screwfix, is to step down amid worsening profits. Veronique Laury, who had been overseeing a turnaround plan, will leave the company, although no date was given for her departure. Profits fell 13% over the last year, with the firm's French chain, Castorama, dragging down sales.
High street stalwart Next’s annual results indicated profits had edged lower but total group sales increased 2.5% to £4.2bn. While physical store sales slipped 7.9% to £1.95bn, online sales increased 14.7% to £1.9bn. Chief executive Simon Wolfson said that half of its online orders are picked up in-store so physical retail is still essential, but noted landlords needed to get more realistic on rent.
Ted Baker posted its first drop in annual profits since the recession, down 26% to £50.9m. The fall was expected after management warned last month that there would be a substantial foreign exchange hit in the numbers.
Clothing group Bonmarché warned losses could reach £5m-£6m this year, far worse than the £4m loss previously predicted. This was the third in six months from the Yorkshire-based company.
The luxury goods sector continues to be strong. Luxury fashion house Hermes posted a 15% jump in profits to £1.2bn last year, with tableware, jewellery and bathing products performing particularly well.
J Sainsbury and Walmart’s Asda revealed new details surrounding their pledge to cut prices as they attempt to sway the competition regulator, which has come down hard on the proposed merger. In their official response to the Competition and Markets Authority’s (CMA) recent probe, the group promised to cut the price of “everyday items” by at least 10%, but provided little detail on how this will be achieved. The UK’s second and third largest grocers also used their response to express disagreement with the CMA’s provisional findings, which were published last month.
German discounter Aldi launched a new and smaller “local” concept store in Balham, South London as part of a trial that could potentially see a roll-out of the convenience stores across the UK, competing even more directly with the country’s Big Four grocers.
Toyota will build a new hybrid electric vehicle in the UK for Suzuki, in a boost to British car industry workers. The hybrid will be based on Toyota’s Corolla model and made at its Burnaston plant in Derbyshire, with engines supplied by the company’s Deeside factory in north Wales. It is not thought this development will lead to the creation of new jobs, but will increase the utilisation of the current plant.
German carmaker BMW issued a profit warning. Management said profits will fall about 10% this year, blaming heavy investment into electric vehicles and self-driving cars and rising costs of meeting emissions controls.
The US financial regulator is insisting that Elon Musk be found in contempt of court for his tweets. The Tesla chief executive has defended a tweet that he posted in February, revealing the carmaker's production goals for 2019. But the Securities and Exchange Commission (SEC) says he has not made a "good faith effort" to comply with a settlement agreement reached in 2018 which curtailed his social media. It is continuing to ask the courts to find him in contempt.
The trial of Carlos Ghosn, the former boss of Nissan, is expected to start in September, according to Japan's public broadcaster. He was released after 108 days in jail in March after being charged with financial misconduct and aggravated breach of trust, but Mr Ghosn denies any wrongdoing.
Travel and aviation
Boeing reportedly sold the 737 Max 8 planes that crashed in Indonesia and Ethiopia without two safety features that the US aircraft manufacturer offers for an additional cost. It is still not clear what caused Lion Air flight 610 and Ethiopian Airlines flight 302 to crash, but investigators have said flight data showed clear similarities between the two incidents. The two safety features in question were an “angle of attack indicator” and an “angle of attack disagree light”, both of which were not included in the aircraft by Boeing as standard safety features. Garuda Indonesia wants to scrap its multi-billion dollar order for 49 Boeing 737 Max 8 jets after the plane was involved in two fatal crashes. The move is thought to be the first formal cancellation of an order for the aircraft.
Low-cost carrier easyJet said it had pulled out of a consortium looking at buying Italy's struggling national carrier, Alitalia.
Barclays' war of words with activist investor Edward Bramson continued. The bank urged shareholders to block an attempt by Mr Bramson to gain a seat on the board, arguing his appointment would be "detrimental". Barclays argues that the activist’s calls for Barclays to curtail its investment banking arm would “disrupt the group's strategy”.
US-listed delivery group Fedex issued its second profit warning in three months, blaming a sharp slowdown in international trade.
Smiths Group will float its medical business on the stock market. The company had planned to merge the unit with US group ICU Medical but talks fell apart in September. The process is expected to complete in the first half of 2020.
Renishaw shares fell after the engineering group issued a profit warning, blaming a slowdown in Asia of orders for its encoder products and from large end-user manufacturers of consumer electronic products.
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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.