Oil has best quarter in almost a decade
Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (25 to 29 March, 2019).
As the government continues to find a version of Brexit parliament can ratify, hopes mounted that a resolution to the US-China trade war increased. The oil price looks set to have its best quarter in almost ten years and the IPO of Lyft, the world’s largest since Alibaba in 2014, was in high demand.
The FTSE 100 rose 0.8% over the week by mid-session on Friday. The FTSE 250 was 0.1% lower.
In the latest in our series of articles on inherited wealth, Michael Armstrong, Senior Associate at London Law firm Forsters, discusses inherited wealth in the twenty-first century here.
Britain did not leave the European Union on 29 March as originally planned when Article 50 was triggered two years ago. The government continues to find a way to get Theresa May’s withdrawal deal through parliament.
Consumer confidence in Britain fell to its lowest point in more than five years in March, according to a European Commission survey of EU business and consumer confidence. The index for consumer sentiment in Britain dropped to -11.7 points in March from -10.8 in February and -11.3 in January. The reading was the lowest since November 2013.
US consumer confidence fell sharply in March. The index fell to 124.1 from 131.4 in February, the Conference Board said Tuesday - the second lowest rate in a year. This was below expectations of a reading of around 133.
In what could be claimed as a victory by Donald Trump, the US trade gap narrowed in January to $51.1bn. The 14.6% decline was the largest since March 2018 and bigger than expected. However, the trade deficit in February was the highest since October 2008.
John Redwood, Charles Stanley's Chief Global Economist, examines some recent disappointing data and looks at whether a manufacturing recession will end the recovery here.
The latest round of US-China trade talks were held in Beijing. Reuters reported that China has made “unprecedented proposals” in talks with the US on a range of issues including forced tech transfer – one of the major sticking points between the two sides.
The Pentagon authorised the transfer of $1bn to army engineers for new wall construction along the US-Mexico border. The funds are the first under the national emergency declared by President Donald Trump to bypass Congress and build the barrier he pledged during his election campaign.
"Significant issues" with Huawei equipment could put British national security at risk, according to a report by UK authorities. The Huawei oversight board, which is chaired by the head of GCHQ’s National Cyber Security Centre, said there were “underlying defects” in the Chinese company’s practices. It did not, however, call for a ban. Despite the antagonism towards the group from Washington hawks, Huawei's revenue grew 19.5% in 2018, surpassing $100bn for the first time.
The Italians have joined China’s controversial “New Silk Road” programme, a move that is likely to stoke the ire of Washington. Garry White takes a look here.
In a move that targeted the big US tech giants, the European Parliament has approved the first update of EU copyright rules in more than two decades. MEPs in Strasbourg voted 348 to 274 to back rules forcing internet giants such as YouTube and Google to take out licences to show copyrighted content and make them responsible for taking down material that breaks intellectual property law. The vote was the final hurdle for the directive which will have to be implemented by all EU countries by 2021.
Britain will lose another technology company. A consortium made up of London-based private-equity group Apax, New York-based Warburg Pincus and two Canadian pension funds, the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan Board, will buy FTSE 250 satellite communications company Inmarsat for $3.4bn. However, the investor group said it would keep Inmarsat’s headquarters in the UK and maintain the company’s spending on research and development.
Apple held an event to launch its TV offering, a new news service and a credit card. These are a series of subscription services that are meant to extract a little more annual revenue from customers who may not be upgrading their iPhones as often as they used to.
Facebook will block "praise, support and representation of white nationalism and separatism" on Facebook and Instagram from next week. The social media giant also pledged to improve its ability to identify and block material from terrorist groups. The social network has come under pressure after a man livestreamed an attack on two mosques in New Zealand.
Oil looks set to have its best quarter in almost 10 years, despite the uncertain outlook boosted by the Opec+ coalition’s production cuts and the loss of barrels due to US sanctions on Iran and Venezuela. Over the week, Brent crude futures rose 1.5% to trade at about $68 a barrel.
US President Donald Trump renewed his criticism of Opec, saying the cartel should increase production because prices were getting “too high”.
Saudi Arabia's state-controlled oil giant Aramco has reached a $69.1bn deal to purchase a majority stake in petrochemicals group Sabic from the kingdom's sovereign wealth fund. Aramco will purchase the 70% stake in Sabic held by Saudi Arabia's Public Investment Fund (PIF). It will expand Aramco's footprint in refining and petrochemicals and inject cash into PIF, which underpins ambitious plans to remake Saudi Arabia's economy.
Mining & commodities
Shares in Rio Tinto are approaching a ten-year high, as Vale’s deadly mine disaster in Brazil has lifted prices of iron ore.
Norwegian aluminium company Norsk Hydro fell victim to a cyber-attack that cost the group about £25m. The group was hit by malware last week and it is slowly bringing affected systems back online.
EN+, the energy and metals giant backed by Russian billionaire Oleg Deripaska, reported a surge in profits despite being under the threat of US sanctions for nearly a year. Management said it could soon restart dividend payments.
Too much authority was given to former Nissan chairman Carlos Ghosn, an external panel of experts has found. Its report was commissioned to find ways to improve management and corporate governance at Nissan. It found a "concentration of all authority" in the former chairman. Mr Ghosn was arrested and charged last year with underreporting his pay package for five years from 2010 to 2015. He has consistently denied any wrongdoing.
Shares in Uber's largest rival, Lyft, are due to begin trading in New York in a flotation that has valued the firm at $24.3bn. Analysts said the initial public offering (IPO), which was the largest market debut since Alibaba in 2014, sparked a FOMO (fear of missing out) rush of interest, despite the group being heavily loss-making.
Aircraft & travel
The fallout from the crash of a second Boeing 737 Max continued. The first lawsuit was filed in a Chicago federal court by the family of Jackson Musoni, a citizen of Rwanda, which alleges that Boeing had defectively designed the automated flight control system. China suspended a certificate of airworthiness for the jet, saying it needs to review a proposed modification before determining whether the plane is safe to fly after two recent crashes. Also, a Southwest Airlines Boeing 737 Max made a safe emergency landing in Orlando, Florida, after experiencing an engine problem. The plane did not have any passengers on board. The aircraft maker also issued software fixes to prevent failures of its automated flight control system, the likely cause of the accidents.
Europe’s biggest travel group Tui issued another profit warning after it took a €200m hit from the grounding of Boeing’s 737 Max planes. The expense of drafting in spare aircraft and “other disruption costs” will weigh on profits.
Iceland's Wow Air stopped flights, stranding thousands of passengers. The group ceased operations on Thursday and cancelled all flights. Wow said passengers needing to travel should book with other airlines.
Retail sales volumes fell in the year to March, according to the latest monthly CBI distributive trades survey. The survey showed retail sales volumes fell sharply (-18%), the fastest contraction in 17 months. The CBI said it is possible that year-on-year sales growth in March has been distorted by the later timing of Easter this year.
Sports Direct's Mike Ashley was unimpressed after Debenhams’ bondholders cleared the way for a restructuring which could see equity stakes wiped out. Mr Ashley owns almost 30% of Debenhams and has been seeking control of the struggling retailer. However, a majority of the group’s bondholders voted to change the terms of some of their bonds, moving Debenhams closer to a £200m refinancing. “If there were any justice in the world the majority of the advisors would be put in prison,” Mr Ashley said.
There was more bad news for Mr Ashley. Goals Soccer Centres, which operates five-a-side pitches, uncovered “substantial” VAT errors totalling £12m so far, but warned the final cost was not yet known. Mr Ashley owns 18% of Goals, shares in which remain suspended.
The Financial Times said it has seen a list of 67 stores that Sir Philip Green's Arcadia business – which includes Burton, Topshop, Evans, Dorothy Perkins, Miss Selfridge and Wallis – no longer wants to operate. These stores cost Arcadia about £11m in annual rent and management have begun sounding out potential occupiers to take over these stores, the reports suggested.
The Competition and Markets Authority (CMA) launched a full inquiry into the funerals sector. It said the essential costs of a funeral have increased by 6% each year for the past 14 years. Dignity, the UK's only listed provider of funeral related services, says it has been in discussions with the CMA about the issue.
Shares in European banks rose after central bank President Mario Draghi hinted that the central bank is looking at the "side effects" of negative rates on the banking sector. Mr Draghi reiterated that growth risks in Europe remained and that substantial accommodation was still needed in order to get inflation back to the bank's target.
Deutsche Bank is considering raising up to €10bn in fresh equity as part of a potential merger with Commerzbank – a move designed to end the debate over whether Germany’s largest lender has enough capital, reports suggested.
Full-year losses at the Lloyd's of London insurance market narrowed to £1bn from £2bn. The market said there were several large natural catastrophes last year including hurricanes Florence and Michael, Typhoon Jebi in Japan, as well as the Californian wildfires. These disasters led to major claims costing the market £2.9bn, significantly higher than the long-term average of £1.9bn.
Goldman Sachs was fined £34.3m by the Financial Conduct Authority (FCA). The City regulator said the firm had failed to provide "accurate and timely reporting" of 220.2 million transaction reports between November 2007 and March 2017. Accurate and complete transaction reporting helps it identify potential instances of market abuse and combat financial crime.
UK house price growth stayed soft in March as London's worst house price drop in a decade dragged down the market. Prices rose 0.7% year-on-year in March, but fell 3.8% in London.
Half-year profits at Bellway rose 8.7% at £313.9m. Management said the housebuilder had “another good operating performance”, with the completion of 5,007 homes, an increase of 5.6%.
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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.