London gets Trumped

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets last week (2 – 6 December 2019).

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It was a busy week in markets. Trade confusion abounded following contradictory reports from Washington and Beijing, with comments from Donald Trump in London ahead of the Nato meeting indicating a deal may not be possible until after the 2020 election.

Aramco officially became the world’s biggest IPO ever, although it didn’t reach the $2 trillion level coveted by Saudi Arabia’s de facto leader Mohammed bin Salman. House Speaker Nancy Pelosi kicked off the formal impeachment process for Donald Trump, with a fast-track process that could settle the matter by Christmas.

The pound rallied as markets continue to bet on a Boris Johnson majority in the 12 December general election.

The FTSE 100 fell 2.5% over the week by mid-session on Friday, as the pound rallied. The blue-chip index and sterling usually move in the opposite direction as the vast majority of earnings generated by index constituents comes from abroad. The more UK-focussed midcap FTSE 250 lost 0.2%.

UK election & Brexit

The pound hit a 31-month high against the euro this week, as hopes of a Tory majority mounted. Polls seemed to confirm the Tory lead is stabilising at around 10 points.

Prime Minister Boris Johnson pledged to deliver Brexit by 31 January and a tax-cutting budget within 100 days should the Conservative Party win the 12 December election. Other early goals include a defence review, more funding for schools, and the introduction to Parliament of legislation on immigration. The prime minister also committed to securing a trade deal with the European Union by the end of next year.

The UK economy will pick up speed by 2021 if headwinds from Brexit are lifted, according to the Confederation of British Industry’s (CBI) latest forecast. It predicted that GDP could be 1.8% by 2021, after more modest expansion of 1.3% this year and 1.2% in 2020. The CBI forecasts are based on the “assumption that Britain leaves the EU by 31 January next year and has a clear line of sight to an ambitious trade deal” and that such a deal must involve “alignment with EU rules where essential for frictionless trade”.

Labour’s plan to renationalise large chunks of the economy risks years of disruption that could delay Britain’s transition to a low-carbon economy, the Institute for Fiscal Studies thinktank said.

Trade

It was a busy week on the trade front – but whether a phase one deal between the US and China can be agreed remains uncertain due to continuing contradictory reports.

Positive reports at the start of the week turned into trade negativity. Donald Trump said he wouldn’t mind if a trade agreement wasn’t reached until after the 2020 election, before rowing back.

President Trump escalated the situation further when the president said he will reinstate tariffs on steel and aluminium from Argentina and Brazil, nations he criticised for cheapening their currencies to the detriment of US farmers, and again called on the Federal Reserve to loosen monetary policy. Argentina, in particular, has won significant business for its soybean exports since the trade war started. 

The US government then said it may slap punitive duties of up to 100% on $2.4bn on imports of French Champagne, handbags, cheese and other products. The move comes after it concluded that France’s new digital services tax would harm US tech companies. The news hit shares in companies such as LVMH, which owns the Moët & Chandon brand, and Gucci-owner Kering. US Trade Representative (USTR) Robert Lighthizer said the US government was also exploring whether to open similar investigations into the digital services taxes of Austria, Italy and Turkey. France’s government said the EU would retaliate. Boris Johnson, who has pledged to launch a similar tax in the UK, said he planned to push ahead with the move, despite the threat of US tariffs. You can read the USTR statement on France here.

UBS chief economist thought the steel tariffs were much more damaging to sentiment than the threat to French cheese, however. “Substituting Kraft cheese slices for Camembert may be a heavy burden. However, earlier tweets re-imposing taxes on US users of Brazilian and Argentinian steel seem even more serious,” Paul Donovan said. “Companies have spent years believing that they can operate global supply chains. Trust in global supply chains is threatened when a Trump trade deal does not seem to last more than a few months”.

A Bloomberg report later in the week quoting unnamed “people” on both sides saying discussions were progressing well. This one report using uncited sources added $561bn to global equities, Deutsche Bank calculated.

On arrival in London for the NATO summit, President Trump said that it might be better to wait until after the 2020 election to strike a trade deal with China. “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right,” Mr Trump said. The US general election is set to take place in November 2020. The next day he appeared to reverse this view, saying talks were “progressing well” – which helped boost equity markets. Garry White argues that the trade war is turning into a “forever war” here.

China made a concession on Friday. Beijing said it will waive imports tariffs for some US soybeans and pork, based on applications by individual US soybeans and pork companies.

The World Trade Organisation rejected European Union claims that it no longer provided subsidies to Airbus, prompting the US to say it could increase retaliatory tariffs on a wider range of European goods. Garry White explains what’s going on here. The USTR statement on Airbus can be read here.

American tech companies are getting the go-ahead to resume business with Chinese smartphone giant Huawei Technologies, but it may be too late. The Chinese company at the centre of the trade war dispute about spying for Beijing using its 5G equipment launched a smartphone made with no US parts. While Huawei hasn’t stopped using American chips entirely, it has reduced its reliance on American suppliers or eliminated US chips in phones launched since May, according to research from Swiss bank UBS and Fomalhaut Techno Solutions, a Japanese technology lab.

Huawei also launched a legal challenge to a decision by US regulators to classify it as a national security threat. It comes after the US Federal Communications Commission put curbs on rural mobile providers using a $8.5bn government fund to buy Huawei equipment.

FTSE reshuffle

FTSE Russell announced the result of its quarterly rebalancing of UK indices. The changes take place from close of play on 20 December.

Airline easyJet and takeaway group Just Eat will return to the FTSE 100. Insurer Hiscox and Mexican precious metals miner Fresnillo will be demoted to the FTSE 250.

Other shares promoted to the FTSE 250 will be: C&C Group; Helios Towers; and LXI REIT.

Other demotions: Card Factory; NB Global Floating Rate Income Fund (GBP); and Riverstone Energy.

FTSE Russell operates a reserve list for the FTSE 100 Index, to be used in the event of a corporate action occurring between reviews. Note Just Eat is currently in a takeover situation. On the reserve list are: Avast; Bellway; Direct Line Insurance; Fresnillo; GVC Holdings; and Intermediate Capital Group.

Economics

Activity in the UK manufacturing sector shrank in November, according to the IHS Markit/CIPS manufacturing Purchasing Managers' Index (PMI). The measure sank to 48.9 in November from 49.6 in October. Any reading below the 50 level denotes a contraction. It also showed that British manufacturers cut jobs last month at the fastest rate since 2012. The UK construction sector contracted for the seventh month running in November as new work fell sharply.

Are things improving for Europe’s factories? Data suggests that may be the case. Euro-zone manufacturing activity contracted for a tenth straight month in November although the bloc’s battered factories may have turned a corner as forward-looking indicators in Monday’s survey appear to have passed a nadir. IHS Markit’s final PMI has been below the 50 level, which marks the boundary of contraction and growth since, February. However, at 46.9 it was above October’s 45.9 and higher than a preliminary estimate of 46.6.

The US economy added the largest number of jobs for 10 months in November, with the latest figure comfortably beating analysts' expectations. The figures showed 266,000 jobs were added last month, while the jobless rate dipped to 3.5% from 3.6%. This implies the US consumer will continue to be strong and should ease the pressure on the Federal Reserve from Donald Trump to cut interest rates further.

US factory data was soft. The US economy’s manufacturing sector contracted for a fourth straight month in November, as new order volumes slid back to around their lowest level since 2012. Construction spending also unexpectedly fell in October.

There was some bad news for Germany after industrial production unexpectedly extended its decline. Output fell 1.7% in October, its second consecutive monthly drop and the steepest since April. Economists had expected a 0.1% gain. This means German manufacturing has now suffered its biggest downturn since 2009, the height of the financial crisis.

The week started with some much-needed upbeat data from China. Manufacturing in China grew at its strongest rate in nearly three years, according to private survey data released Monday by the media group Caixin and research firm Markit. Also, Beijing released official PMI data that showed an increase to an eight-month high of 50.2 in November, up from 49.3 in the previous month. The news boosted mining companies including Rio Tinto, BHP Group and Anglo American.

Japan’s prime minister Shinzo Abe launched the country’s first fiscal stimulus since 2016, with a larger-than-expected $121bn package. The spending is a response to lacklustre demand both domestically and externally, partly as a result of the introduction of an 8% consumption tax in an attempt to increase government revenues.

Australia's economy grew 0.4% in the three months to September, below forecasts expecting a 0.5% expansion.

Global investors are awaiting policy decisions to help provide them with direction. John Redwood rounds up the issues here.

Geopolitics

House Speaker Nancy Pelosi on Thursday asked the House Judiciary Committee to proceed with articles of impeachment against President Donald Trump. “The president’s actions have seriously violated the Constitution,” Mrs Pelosi said. He “leaves us no choice but to act,” she said.  There is a “rapid” timetable that could bring the process to conclusion before the Christmas holiday. “The facts are uncontested,’’ Mrs Pelosi added. “The president abused his power for his own personal benefit.”

Hong Kong’s retail sales suffered a record contraction in October, following almost six months of political unrest. Retail sales by value contracted by 24.3% year-on-year, representing the fourth month of double-digit declines. By volume, sales contracted by 26.2%, also a record, according to a government release. The territory now expects to post its first budget deficit since the early 2000s.

The US House of Representatives overwhelmingly approved legislation that would impose sanctions on Chinese officials over human rights abuses against Muslim minorities, prompting Beijing to threaten possible retaliation.

Donald Trump said that French President Emmanuel Macron had been "very insulting" by describing NATO as "brain dead" in comments last week.

IPOs

The New York Stock Exchange (NYSE) said it had filed with the US Securities and Exchange Commission to allow companies going public to raise capital through a direct listing, instead of an initial public offering. Direct listings also avoid restrictions on stock sales by insiders, which often includes venture capitalists, and are less costly than an IPO, in which companies pay banks to underwrite a share offering and to stabilise their share price if needed. They have not been used to raise funds before. Both Spotify and Slack listed in the US via the direct listing method.

State-owned oil giant Saudi Aramco raised a record $25.6bn (£19.4bn) in its IPO in Riyadh. The share sale was the biggest ever, surpassing that of China's Alibaba which raised $25bn in 2014 in New York. Aramco relied on domestic and regional investors to sell a 1.5% stake after lukewarm interest from abroad.

Following on from Abu Dhabi’s commitment to invest $1.5bn in the Aramco IPO last week, Kuwait’s government said it will invest as much as $1bn in the IPO as the kingdom asks regional allies to participate. The reports noted that the Kuwait Investment Authority had been reluctant to commit significant funds to the flotation, but was told by the government that a stake was in the country’s “strategic interest”.

Saudi Arabia’s Tadawul has introduced an equity index cap of 15%, which is set to address concerns over the weighting oil giant Aramco will have when it lists on the exchange. The state-owned oil company is expected to list 1.5% of its shares this month in a deal which could raise more than $25bn and top the record IPO of Chinese retailer Alibaba on the New York Stock Exchange in 2014. The Aramco IPO is seen as a test for the Saudi exchange, where the largest listing so far has been worth $6bn.

Oman Oil Company, wholly owned by the Gulf crude producer that is not part of Opec, plans an IPO of up to 25% of the group by the end of 2020, as its rulers seeks to shore up its budget deficit after the 2014 oil price crash.

A Chinese stock closed below its flotation price on its market debut for the first time in seven years, underscoring the weakness of investor sentiment in the Asian nation. Luoyang Jianlong Micro-Nano New Materials fell 2.2% on Shanghai’s Star board Wednesday, the first mainland listing to flop on opening day since Haixin Foods slid 8% in October 2012.

Dobbies Garden Centres is considering a return to the stock market after posting a rise in full-year profits and sales. Dobbies’ chair Andrew Bracey said the stock market was the “natural place” for the business and it would make a float “in a year or so”. The UK’s largest garden centre chain is currently owned by a group of investors led by Midlothian Capital Partners and Hattington Capital.

Profit warnings

Advertising agency M&C Saatchi issued its second profit warning in three months. Management blamed higher costs and weak performance in the fourth quarter and a restructuring of its UK business would now occur. Profits are expected to fall between 22% and 27% compared with last year.

Cineworld blamed a weaker box office as the company said it expected trading for the full year to be slightly below expectations. Total group revenue fell by 9.7%, with revenue losses in the US and UK divisions at 10.9% and 9.7% respectively. Box office takings fell 12.8% overall, which Cineworld said was due to postponement of some highly anticipated movies to 2020. The shares have already been weak this year, on concerns about its £2.3bn debt pile following the purchase of Regal Cinemas. Its shares are down by about 17% this year.

Emerging markets

The Reserve Bank of India surprised markets with a decision to not cut the cost of borrowing. Investors had expected policymakers to lower its key interest rate as the country faces a sharp slowdown. India's economic growth fell to 4.5% in September, the slowest pace in more than six years.

After a troubled period, the Turkish economy actually returned to growth in the third quarter, rising 0.9% year-on-year. The major emerging market economy has a track record of 5% growth, but a near 30% slide in the lira’s value last year pushed up inflation and interest rates, while domestic demand tumbled.

South Africa’s GDP shrunk 0.6% in the third quarter. StatsSA said that the largest negative contributors to growth in GDP in the third quarter were the mining and quarrying industry which decreased by 6.1% and contributed minus 0.5 percentage point to GDP growth.

Brazil’s economy expanded 0.6% in the third quarter, beating analyst expectations and bolstering hopes of a cyclical recovery in Latin America’s largest economy.

The United Arab Emirates new orders fell for the first time on record in November as the impact of recent price cuts to stimulate demand waned. The Arab world’s second-largest economy saw output growth and payroll numbers also fall. The slump means companies are increasingly looking to Dubai’s World Expo next year as a catalyst to revive growth.

Garry White warns of the danger of losing your marbles in emerging markets, recounting the story of how the biggest-gaining share of 2019 fell 98% in just a few minutes, here.

Climate

Newly installed President Christine Lagarde said the European Central Bank (ECB) should do more to help tackle the climate emergency, as she came under pressure from MEPs to step up action against global heating. In a strong hint that she would move the ECB beyond its traditional remit of controlling inflation, Lagarde said the bank would incorporate the climate threat into both its economic forecasts and in its capacity as watchdog of the financial system. John Redwood looks at what green central banking means in reality here.

The United Nation's two-week gathering of countries to discuss climate change and set targets – the 25th Conference of the Parties (COP25) started in Madrid. Coal is likely to be the focus, with new European Council President Ursula von der Leyen indicating her intention to launch a Green Deal for Europe. John Redwood looks at what the conference is about – and the future of coal – here.

Activist hedge fund TCI has called on company directors to disclose their carbon dioxide emissions or risk punishment. The investor, which is led by venture philanthropist Sir Christopher Hohn, has sent letters to companies such as Airbus and Moody’s warning them to improve their pollution disclosure or face having their directors voted against. The letters also called on asset owners to fire fund managers that do not insist on climate transparency.

Technology

Hedge funds that owned a large stake in Inmarsat dropped their opposition to a £2.6bn takeover of the satellite operator just before a court hearing was due to begin on Tuesday. The decision paves the way for a private equity buyout of the London-based company. The shareholders including Oaktree, Kite Lake and Rubric argued they were being short-changed as the takeover price failed to reflect the full value of Inmarsat’s spectrum assets. The consortium purchasing Inmarsat includes Apax Partners and Warburg Pincus.

It was a big week for Alphabet, the owner of the Google search engine. Founders Larry Page and Sergey Brin have announced they are stepping down from top roles at the online giant's parent company. The billionaires will leave their respective roles as Alphabet's chief executive officer and president but remain on the board, as they own more than 50% of the group’s voting shares.

The change at the top came as regulators continued to target the company. EU antitrust regulators are investigating Google’s collection of data, the European Commission told Reuters, suggesting the world’s most popular internet search engine remains in its sights despite record fines in recent years.

The UK’s competition watchdog on Monday said it was probing Google's £2.6bn buyout of privately held big-data analytics firm Looker Data Sciences. The Competition and Markets Authority (CMA) said it was considering whether the deal could hurt competition in the UK or other markets and invited comments on the acquisition until 20 December. The deal would build upon Google Cloud's BigQuery, a tool for managing large datasets. Garry White looks at the future of Big Data in the NHS here.

It’s not only Google that has piqued regulatory interest. US antitrust enforcers have broadened their scrutiny of Amazon.com beyond its retail operations to include its massive cloud-computing business, Bloomberg reported.

Facebook chief executive Mark Zuckerberg defended the company’s decision to not take down political advertising that contains false information – and compared the alternative to censorship. “What I believe is that in a democracy, it’s really important that people can see for themselves what politicians are saying, so they can make their own judgments,” he said. “And, you know, I don’t think that a private company should be censoring politicians or news.”

Estonian ride-hailing firm Bolt is starting to breakeven in a majority of the countries in which it operates. The company is now profitable — or close to being profitable — in two-thirds of its markets, Markus Villig said in an interview. Founded in 2013 as Taxify and rebranded this year as Bolt, Bolt is the best-placed ride-hailing app to capitalise from Uber’s failure to secure a new London licence, according to market intelligence company SimilarWeb. Its research showed that the Estonian app saw the largest amount of Android downloads out of Uber’s competitors in the months leading up to the app’s recent ban. French ride-hailing app Kapten saw a similar increase in daily downloads after the Uber ruling was released by Transport for London.

Energy

Opec stood on the verge of a deal to reduce its official output target in line with recent production on Friday, but after six hours of fraught talks in Vienna on Thursday, ministers left the cartel’s headquarters before a final agreement was nailed down. Brent crude futures rose 1.7% over the week by mid-session on Friday to trade at about $63.40 a barrel.

Russian President Vladimir Putin and his Chinese counterpart Xi Jinping oversaw the launch of a landmark pipeline that will transport natural gas from Siberia to northeast China. The start of gas flows through the Power of Siberia pipeline reflects Moscow’s attempts to pivot to the East to try to mitigate pain from Western financial sanctions imposed over its 2014 annexation of Crimea.

There was some good news for Tullow Oil shareholders. Ugandan authorities reached a deal in its tax dispute with a number of international oil firms, allowing Tullow to move forward with plans to sell some of its stakes in the nation's oil fields. The shares slumped last month after management cut its 2019 oil production and cash flow guidance due to problems at the indebted group’s Ghanaian operations.

Mining

Glencore shares slumped as another investigation into potential misconduct was launched. Britain's Serious Fraud Office launched a probe into "suspicions of bribery" in the conduct of business at the miner.

A court in Ukraine today put out a warrant to detain Ferrexpo founder Kostyantyn Zhevago. Mr Zhevago, who stepped down temporarily as chief executive at the iron ore pellets producer in October, is suspected of money laundering and fraud at Finance & Credit JSC, a bank he owned in Ukraine until 2015. The billionaire has denied any allegations of wrongdoing but is on an international wanted list as he failed to appear for a pre-trial investigation.

Brazil’s Vale told investors it may finally reach its target of boosting iron ore output to a record in 2022, three years after a deadly dam disaster derailed the drive. The news caused a fall in the price of the steel-making ingredient.

Rio Tinto said it had halted operations at its Richard Bay Minerals unit in South Africa after one employee was shot and another seriously injured in nearby violence. Shares in Iluka Resources gained as the site mines mineral sands such as titanium dioxide, of which there are only a few producers.

Consolidation in the gold mining sector continued apace. China’s biggest gold producer, Zijin Mining Group, agreed to buy Canada’s Continental Gold in a deal worth $1.37bn. The deal comes just a week after Canada’s Kirkland Lake Gold agreed to buy Detour Gold Corp for $3.7bn.

UK-listed Centamin edged higher after Canada’s Endeavour Mining Corp said it planned to take a £1.47bn merger offer for the Egyptian-based miner directly to shareholders after its board refused to discuss the bid. In a statement, Centamin’s board unanimously rejected the merger proposal, arguing it would put at risk shareholders' ability to keep receiving dividends at historic levels and it also exposes them to Endeavour's large debt levels.

Airlines & travel

Boeing conceded it could temporarily halt or further cut production of its 737 Max airliners as regulators increase scrutiny of the jet

United Airlines ordered 50 passenger jets from Europe’s Airbus to serve as replacements for the US carrier’s existing fleet of ageing Boeing planes. The order was a blow to Boeing, as the aviation giant's 737 Max planes remain grounded around the world after two deadly crashes that killed 346 people. The list price for the planes for Airbus is $6.5bn.

Budget airline Ryanair is planning to close two bases, due to the ongoing delays to Boeing’s 737 Max jet. Ryanair says it now expects to only receive 10 aircraft in time for next summer, not the 20 previously expected. That means it will carry a million fewer passengers – 156m, not 157m – and force it to shutter operations at Nuremberg and Stockholm Skavsta. However, later in the week chief executive Michael O’Leary said the Irish carrier may have to cut more flights from its summer schedule if the grounding of the 737 Max jetliner drags on.

Media

Comcast-owned Sky will build a new 32-acre TV and film studio in Elstree, with 14 sound stages, which it says will create some 2,000 jobs and generate £3bn investment over five years. It will be called Sky Studios Elstree and is expected to open in 2022.

Daily Mail & General Trust, the owner of the Daily Mail newspaper, reported a sharp fall in pre-tax profit for the full year, days after it snapped up the newspaper for £50m. Although revenue from circulation and print advertising from the Daily Mail and Mail on Sunday titles slipped 4%, this was more than offset by the boom for Mail Online, where revenue grew 14% to £140m.

Almost 300 songs written by the writer behind one of Adele’s biggest hits have been bought by Hipgnosis Songs Fund. Songs sold by Fraser T Smith to Hipgnosis include Set Fire To The Rain from Adele's 21 – the best-selling album of the 21st century – as well as the debut album by rapper Stormzy. Mr Smith also worked with Stormzy on Gang Signs and Prayer – which won the Brit award for best album last year.

Supermarkets                                                                       

Online grocer and technology company Ocado launched a £500m bond issue, partly to fund its construction of robotic warehouses for overseas partners. While Ocado’s retail business has only a 1.4% share of Britain’s grocery market, its state-of-the-art technology has enabled it to win partnership deals with supermarket groups around the world, including Kroger in the United States, Casino in France and most recently Aeon in Japan. The company, valued at almost £9bn, remains lossmaking. 

Other retail

There was some good news for the UK’s embattled retailers, as consumers appeared willing to splurge on Christmas. Barclaycard, which processes about £1 of every £3 spent in the UK, said it was an “outstanding” Black Friday compared with last year. Transaction value was up 16.5% year-on-year, with the volume of transactions up 7.2%. Retail data company Springboard said that footfall – a measure of people’s shop visits – was up 3.3% on Black Friday.

Dunelm shares jumped after the homewares retailer raised its full-year profit guidance, thanks – in part – to a good customer response to its new website.

Fashion retailer Ted Baker said it overstated the inventory on its balance sheet by up to £25m and has announced an independent review into the accounting/stocktaking debacle. Ted Baker said that the issue is related to previous years and would have "no cash impact" on any adjustments made to the value of the inventory, but its shares slid by around 10% in the wake of the announcement, hitting a ten-year low.

Fast-fashion retailer Quiz’s pre-tax profits revealed interim profits had plunged 85%. Management said online sales rose 12% and international revenue climbed 3% but profits were hit by "onerous" shop leases amid a difficult retail environment.

Boohoo said it had seen “strong” sales since the end of August after it benefited from a record performance across the Black Friday weekend. In a trading update, the online fashion retailer said it was “comfortably in line” with forecasts for the rest of the year, having posted a 43% jump in revenues in its half-year period ending 31 August. However, Boohoo shares fell after it was revealed that its co-founders have sold £142.5m of shares in the group. Carol Kane sold a third of her stake and Mahmud Kamani sold 35 million shares to reduce his stake to 13.1%.

The John Lewis Partnership saw a record week of sales last week, which included Black Friday.

Shopping centre landlord Intu, which owns the Trafford Centre in Manchester and Lakeside in Essex, reported a 6.9% rise in visitor numbers over the Black Friday weekend.

Tiffany & Co shares fell after the luxury jeweller reported earnings and revenue that fell short of analysts’ expectations. The earnings report came a week after French luxury giant LVMH reached a deal to acquire Tiffany for $16.bn in cash.

Consumer

Shares of luxury down jacket and skiwear maker Moncler surged following a report that France’s Kering could be interested in buying the company.

US gunmaker Smith & Wesson upped its annual guidance after firearms sales picked up in the second half of the year. The company is in the process of splitting its weapons business from its other retail brands.  

Financials

Credit ratings agency Moody’s lowered the UK banking sector's outlook to “negative” from “stable” as the operating environment for lenders continues to weaken. "The UK's economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country's growth prospects," Moody’s Laurie Mayers said. "Meanwhile, persistently low interest rates and increased mortgage market competition are eroding the net interest margins of most UK lenders. These challenges will outweigh the sector's strong capital and liquidity buffers, and an expected decline in banks' conduct costs."

Phoenix Group agreed to buy Swiss Re UK insurance unit, ReAssure Group, extending an acquisition streak with its largest-ever purchase.

Shares in Deutsche Bank fell in Frankfurt after reports that the US Department of Justice had accelerated its investigation into the troubled German bank’s role in the €200bn Danske Bank money laundering scandal.

Hedge fund billionaire Steve Cohen, the biggest backer of Metro Bank, sold down a chunk of his stake in the troubled lender after a difficult year. He sold 3.8 million Metro shares for about £7m, according to regulatory filings published days after it emerged that Colombian billionaire Jaime Gilinski Bacal had snapped up a big stake in the bank worth almost £15m.

Lloyd’s of London launched a space-insurance policy. Policies worth $25m (£19m) will be offered by 18 insurance syndicates operating out of the London insurance market, led by Brit and Hiscox. The policies will pay out for accidents such as exploding rockets, in-orbit collisions or damage to components when they are being transported pre-launch – and could also cover companies’ third-party liability to any tourists who they send into space. Virgin Galactic is expected to be the first company offering space tourism. Read more about its recent flotation here.

Property

Capital & Counties will officially become a real estate investment trust (REIT) this year after selling off its vast Earls Court development site. The FTSE 250 property group said it is now a “prime central London property investment business centred around Covent Garden” after officially completing the sale of its stake in Earls Court to APG and Delancey for £425m.

Primary Health Properties said it had won a contract to provide development funding to build and own a medical centre in Eastbourne for £8.4m. The property, which PHP will own, will provide facilities for two merged GP practices to deliver primary care services for a patient list of more than 18,000.

Autos

Shares in Aston Martin Lagonda actually rose following a report in Autocar that billionaire Lawrence Stroll was preparing a bid to buy a major stake in the James Bond carmaker. Mr Stroll is father of Formula 1 driver Lance Stroll and owner of the Racing Point F1 team.

Swedish start-up Volta, which is hoping to revolutionise the transport industry with electric trucks, picked the UK to build its prototype vehicle. Volta founder Carl-Magnus Norden said he had signed up UK companies including motorsport specialist Prodrive and electric drive designer and manufacturer Magtec to the project.

The UK's first major mass litigation has begun, with about 100,000 motorists seeking redress from Volkswagen over the "dieselgate" emissions scandal. Lawyers representing owner of VW, Audi, Seat and Skoda cars told the High Court the German company misled consumers. In 2015, VW admitted 11 million cars worldwide – including 1.2 million in the UK – were fitted with “cheating” software that cut emissions readings in tests.

South Korea’s LG Chem will invest $916m in its US subsidiary by 2023 to set up an electric vehicle battery joint venture with General Motors.

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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