Brexit horror show

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (8 - 12 April, 2019).

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The Brexit impasse resulted in the UK’s departure date from the European Union being delayed until Halloween. Uber released its pre-IPO documents as smaller rival Lyft, which listed last week, saw its shares plunge. Lyft shares are now trading around a fifth below their flotation price, so next week’s listing of tech unicorn Pinterest is being keenly watched.

The second-quarter earnings season is about to kick off in the US, with earnings in the S&P 500 expected to fall about 4% in aggregate. It is expected to be the first year-on-year contraction in earnings since 2016.

The FTSE 100 was flat over the week by mid-session on Friday. The FTSE 250 was 0.6% ahead.

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Brexit

The deadline to agree Theresa May’s Withdrawal Agreement (WA) has been extended until October 31. The outcome continues to remain unclear and uncertainty is likely to remain for longer.

Economics

UK GDP grew 0.2% in February, the Office for National Statistics (ONS) said, a performance it described as "modest" but which was better than expected. The figures were boosted by companies stockpiling in preparation for Brexit.

The International Monetary Fund cut its forecast of world GDP growth this year for a fourth time in nine months. It now sees growth of 3.3%, down from its previous forecast of 3.7%.

The minutes from the most-recent Federal Reserve meeting imply that rates in the US could have hit their peak and there will be no more increases in the current cycle. The central bank left room for another increase by the end of the year, but said that it currently does not expect to make any changes.

European Central Bank President Mario Draghi warned that data released in recent weeks had confirmed “slower growth momentum” in the Eurozone. The German ten-year government bond yield, an important benchmark for European fixed-income assets and one that is viewed as a safe haven for investors, dipped into negative territory on the back of Mr Draghi’s comments.

Turkey’s embattled lira fell against the dollar after data showed the central bank’s foreign currency reserves declining by almost $2bn. Garry White looks at the cause of Turkey’s economic woes here.

China’s exports rebounded after the Lunar New Year holiday amid a pickup in trade talks optimism. Exports jumped 14.2% in March from a year earlier, while imports fell 7.6% in dollar terms, the customs administration said.

The dollar is still king when it comes to global central bank reserves, but the current administration’s antagonistic policies is resulting in some countries trying to ditch the US currency. Garry White takes a look at “de-dollarisation” here.

Geopolitics

As hopes that a resolution to the China-US trade war mounted, European Union ambassadors gave the go-ahead for trade talks with the US as the bloc seeks to keep at bay the threat of American automotive tariffs, reports suggested. EU trade chief Cecilia Malmstrom now has a mandate to negotiate cuts in industrial tariffs.

After spending seven years in the Ecuadorian Embassy in London, Wikileaks co-founder Julian Assange has been arrested after his asylum was withdrawn. The UK will now decide whether to extradite Assange, in response to allegations by the Department for Justice that he conspired with former US intelligence analyst Chelsea Manning to download classified databases.

John Redwood, Charles Stanley’s Chief Global Economist, looks at the potential impact of the Gilets Jaunes protests on President Macron’s policies here.

Technology

Uber Technologies released its pre-IPO documents. The ride-hailing group continues to lose billions of dollars, despite its significant growth to 91 million users. Documents filed with the Securities and Exchange Commission showed it made a small profit last year, but this was because of the sale of businesses in Asia. It made an operational loss of $3bn. Since it was founded the company has lost $7.9bn dollars in total. Smaller rival Lyft floated last week and its shares are now down by almost a fifth since the IPO. Shares in Japanese technology investor Softbank hit a 19-year high on hopes that the $7.7bn investment it made in Uber a little more than a year ago could double.

Scrapbook website Pinterest is expected to start trading in New York next week. However, the shares look set to be priced at a discount to the last private fundraising in 2017. The company said it will price its shares at between $15 and $17 apiece – valuing Pinterest at as much as $11.3bn. Although this is an impressive figure, the last time investors were involved in a private fundraising the business was valued at $12.3bn

The Walt Disney Co will launch its own streaming service to compete with Netflix and Amazon Prime Video. The service, called Disney Plus, which will only be available in the US initially, but will eventually be offered globally. It will offer subscribers what it calls "family friendly" content from Pixar, Marvel, Star Wars and National Geographic.

Shares in Snapchat owner Snap fell after industry analyst EMarketer predicted the group will lose users in the US for the first time this year.

Bath bomb and soap retailer Lush deleted all its social media accounts. “Increasingly, social media is making it harder and harder for us to talk to each other directly,” Lush said. “We are tired of fighting with algorithms, and we do not want to pay to appear in your newsfeed.”

Energy

Oil headed for its longest weekly winning streak since 2016 as supply disruptions in Libya and Venezuela persist at a time when the OPEC+ coalition is showing record compliance with its pledged output cuts. Brent crude futures rose 1.4% over the week by mid-session on Friday to trade at around $71.30 a barrel.

Mining

The copper market is likely to move into a deficit in the next year as China’s economic stimulus pushes demand to surpass faltering mine supply, according to Antofagasta chief executive Ivan Arriagada. Copper is regarded as the most economically sensitive metal due to its wide range of uses in plumbing and wiring.

Supermarkets

Online grocery shopping in the UK is set to grow more slowly, with customers worried about order problems and delivery charges, according to new research. Last year, 45% of consumers said they shopped for groceries online, down from 49% in 2016, according to market researcher Mintel. It also found 42% of older people said they had never bought groceries online and had no interest in doing so.

Tesco has posted bumper full year profits, which came in ahead of market expectations. The grocer recorded its thirteenth quarter of like-for-like sales growth in the UK. On a full-year and group-wide basis, Tesco’s like-for-likes grew 1.4%.

German discount supermarket Aldi has launched a trial of its first ever self-service checkout tills at its Glascote store in Tamworth, Staffordshire.

Other Retail

The British Retail Consortium said total UK retail sales dropped by 0.5% year-on-year in March, after a 0.5% rise the month before. This was the first fall since April 2018. BRC chief executive Helen Dickinson said: “Brexit continues to feed the uncertainty among consumers.”

Mike Ashley failed in his attempts to take over Debenhams, much to his annoyance. Sports Direct, which is controlled by Mr Ashley, said that the takeover of Debenhams by its lenders as part of an administration process was "nothing short of a national scandal". The department store rejected two last-ditch takeover offers from Sports Direct. Its lenders are made up of High Street banks and US hedge funds. Mr Ashley said reversing the administration process would mean that "a full, better and appropriate solvent solution can be found". He added: "This solution would include allowing myself and appropriate senior Sports Direct management access to detailed information to save the business for all stakeholders.”

Strong sales growth at French group LVMH eased concerns about a slowdown in the luxury sector. Shares in the owner of brands such as Christian Dior and Krug champagne touched a record high after first-quarter revenues rose 16%, beating market expectations. The news boosted shares in peers such as Burberry, Gucci-owner Kering, Hermes and Moncler.

Homewares retailer Dunelm bucked the high street trend by posting better-than-expected third quarter results and raising its profit guidance for the year.

Bonmarché rebuffed a £5.7m takeover offer tabled by Philip Day, saying it “materially undervalues” the retailer. Earlier this month Mr Day, who owns the Edinburgh Woollen Mill Group, acquired more than half of Bonmarché’s shares through holding company Spectre, which triggered a mandatory takeover bid.

Games Workshop shares rose after the fantasy-games company, said it expected profits will be around £80m in the current year. The company is also set to pay out a 35p per share dividend in line with the company's policy of distributing "truly surplus" cash.

Ted Baker completed its investigation into alleged inappropriate behaviour by founder Ray Kelvin. The inquiry found “several areas for improvement” at the retailer, but it declined to release the full contents. Company insider, Lindsay Page, was also unveiled as its new chief executive.

Controversial retailer Philip Green appointed two restructuring specialists to the board of his Arcadia retail empire as he prepares a major overhaul of the struggling, privately-owned business. Also, Philip Green's biggest investor sold its 25% stake in Topshop and Topman back to Arcadia. US based Leonard Green Partners bought its stake in Arcadia’s two top retail brands in 2012 for a reported £350m.

LK Bennett was purchased from administrators by Rebecca Feng, who runs the fashion retailer’s Chinese franchise business.

Consumer

Bookmaker William Hill said it made a profit on this year’s Grand National despite a second consecutive victory for hot-favourite Tiger Roll.

Airlines

Boeing failed to win any orders for its 737 Max 8 airliner in March, as scrutiny of the plane increased following a second deadly crash in less than five months. JP Morgan estimated that stopping deliveries of the aircraft will cost the aircraft maker $1bn a month.

American Airlines cut its sales outlook after being forced to cancel hundreds of flights involving the grounded Boeing 737 Max 8 aircraft. The airline now expects a key measure of total revenue to be flat or grow by 1% during the first quarter, compared to previous forecasts of a 2% increase. American is the second- largest operator of 737 jets, with 24 planes.

Southwest Airlines operates 34 Boeing 737 Max 8 planes and this week modified its timetable up to August 5 to keep the aircraft grounded.

Delta Air Lines beat expectations in its first quarter results and increased its full-year guidance. The airline does not operate any 737 Max 8 planes.

Virgin Atlantic posted a loss for a second year in a row and warned it would not make a profit for at least another two years as its earnings were hit by Brexit and higher fuel costs.

Jet Airways suspended all its international flights, raising fresh fears about the survival of India's largest private airline.  The airline, saddled with more than $1bn of debt, is seeking a financial lifeline to avoid collapse. Carriers in India must maintain a fleet of least 20 aircraft to continue to operate international services.

Financials

The jury was discharged in the trial of former Barclays’ executives for conspiracy to defraud. John Varley, former chief executive, and former senior bankers Roger Jenkins, Tom Kalaris and Richard Boath have been on trial at Southwark Crown Court since January.

Outsourcing

Shares in security group G4S jumped after Canada's Garda World Security said it was considering a takeover offer.

For more information please get in touch 020 3504 8307 or email us at madeforyou@charles-stanley.co.uk 

Garry White is Chief Investment Commentator at Charles Stanley &Co. Limited, which is authorised and regulated by the Financial Conduct Authority.

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