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Last Week in the City: Amazon targets London retailers

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (11 to 15 February, 2019).

St pauls cathedral
Garry white employee

by
Garry White

in Features

15.02.2019

Retail behemoth Amazon has reportedly secured retail space in London for its cashier-less Amazon Go grocery convenience store concept, which would increase competition in an already competitive environment. Trade talks concluded in Beijing and are expected to restart in Washington on Monday, increasing hopes a resolution to the dispute could be found.

The FTSE 100 rose 2.2% over the week by mid-session on Friday as the pound weakened on Brexit confusion. The FTSE 250 was up 1.4%.

Stop blaming millennials – Start investing in them! In our second article focusing on inherited wealth, Harry Heartfield, Partner at Edition Capital, discusses the increasing influence of millennials here.

After US senator Bernie Sanders launched an attack on share buybacks, Garry White argues that, although they are not perfect, they are no great evil either – click here.

Earnings

Each week during the earnings season, Charles Stanley Earnings Tracker looks at reported earnings from major markets across the globe and compares them with analysts’ expectations. Click here for the full report.

Brexit

Members of the pro-Brexit European Research Group (ERG) of Conservatives inflicted another embarrassing parliamentary defeat on Theresa May after they refused to endorse her approach to resolving the deadlock over the Irish border.

The UK and Switzerland have signed a deal to continue trading as normal after Brexit. The “continuity agreement”, which is based on the EU's existing free trade deal with Switzerland, was agreed in December but ratified on Monday.

Chinese Vice Premier Hu Chunhua cancelled trade talks with Chancellor Philip Hammond after defence secretary Gavin Williamson threatened to deploy a warship in the Pacific. Mr Williamson said Britain must be prepared to boost our “lethality” as he threatened to deploy a British aircraft carrier to China’s “backyard”.

US carmaker Ford issued a new warning on the “catastrophic” impact of a no-deal Brexit after it told Theresa May that it was stepping up preparations to move production out of Britain.

Jon Cunliffe, Charles Stanley's Chief Investment Officer, looks at the market implications for potential Brexit outcomes here.

Economics

UK GDP expanded by 0.2% in the fourth quarter of 2018, down from 0.6% in the third quarter and missing analysts' expectations of 0.3%. This dragged annual GDP down to 1.4% in 2018, the lowest growth since 2012.

UK retail sales rose 1% in January month-on-month. That was a rebound from December, when sales fell 0.7%.

Germany managed to avoid slipping to a recession – but only by a narrow margin after fourth-quarter GDP came in flat.

US retail sales recorded their biggest drop in more than nine years in December, as receipts fell across the board, suggesting a sharp slowdown in economic activity at the end of 2018. Retail sales tumbled 1.2%, the largest decline since September 2009 when the economy was emerging from recession.

Geopolitics

On Friday, US trade negotiator Robert Lighthizer told Chinese President Xi Jinping that “very difficult issues” remain after two days of trade talks. “We feel that we have to make headway on some very, very important and very difficult issues. We have additional work to do but we are hopeful," Mr Lighthizer said. President Xi Jinping said the talks would continue in Washington on Monday. “Negotiations between both sides have achieved important progress in another step,” President Xi said. “I hope you keep up the good work, and push for a mutually-benefiting and win-win agreement.” Earlier in the week, President Trump said he would consider extending the deadline for a trade deal with China beyond the 1 March deadline.

John Redwood, Charles Stanley’s Chief Global Strategist, looks at Donald Trump’s trade wars and asks whether Germany is next – here.

A US federal judge ruled that Paul Manafort, President Trump’s former campaign manager, had lied to special counsel Robert Mueller. This was a breach of his plea deal, which is now no longer valid.

Saudi Arabia expressed “regret” over the European Commission’s proposals to add it to a money-laundering list of governments that do too little to thwart the financing of terrorism and organized crime.

A snap general election was called in Spain on April 28. Prime Minister Pedro Sánchez made the announcement two days after his Socialist government suffered a defeat in Parliament after failing to get its 2019 budget passed.

Venezuela wants to create a trading bloc of China, India and Russia to help the South American country settle oil payments in currencies other than the dollar after the US imposed sanctions curbing the Opec member's crude exports. Garry White looks at moves to try and pay for oil in currencies other than the dollar here.

New issues

Levi Strauss unveiled plans to list on the New York Stock Exchange, raising about $600m to expand sales in India, China and Brazil. The company last listed in 1971, but the Strauss family took it private again in 1985.

Lyft is positioning itself as the first ride hailing company to float on public markets as it attempts to IPO before Uber. Reports noted Lyft’s management were ready to tell potential investors its share of the US market is close to 40%, a 5% increase year-on-year.

Technology

California is considering a proposal that would force tech companies to pay people for using their personal information. Governor Gavin Newsom said he has asked his team to develop legislation to create a "data dividend". He argued that "California's consumers should ... be able to share in the wealth that is created from their data."

UK-listed software company Micro Focus International posted a better-than-expected 5.3% decline in annual revenue and said a more positive trend would continue, sending its shares sharply higher.

Warren Buffett’s Berkshire Hathaway has trimmed its stake in iPhone maker Apple, but it remains its largest investment. The fund increased its stakes in JP Morgan Chase and General Motors.

Energy

The oil price rose this week as supply issues won out over concerns about a global economic slowdown.Russia said it would accelerate the output cuts it agreed to in a deal with the OPEC+ alliance, while Saudi Arabia was said to curtail supply from the Safaniyah field to repair a damaged power cable. Brent crude futures rose 4.5% over the week by mid-session on Friday to trade at about $61.60 a barrel.

Tullow Oil reported its first net profit in five years, as its West African business boosted both its top and bottom lines in 2018. The company also return to the dividend list after announcing a payment of 48c a share.

The government rejected a planning appeal by shale gas group Cuadrilla to frack at a second site in Lancashire because of traffic concerns. Last week, the company admitted that commercial fracking in the UK was impossible under the government’s seismicity rules, under which work was repeatedly paused at its Preston New Road site after triggering minor earthquakes. The government has said it has no plans to review the regulations.

Mining and commodities

Palladium is now more valuable than gold. The metal closed at a record high after Johnson Matthey said the supply deficit of the metal used in autocatalysts will increase this year.

Morgan Stanley said it expected the copper prices to rise 14% in 2019, as a supply deficit starts to emerge.

Australia’s Fortescue Metals says one of its driverless trucks, travelling at low speed, ran into another parked at its Christmas Creek iron ore mine in the Pilbara region of Western Australia. No one was hurt or at risk of being injured, but the industry has been moving towards driverless trucks and trains to reduce costs.

Supermarkets

The Competition and Markets Authority said it was extending its deadline for a decision on the proposed merger between supermarkets J Sainsbury and Walmart’s Asda, citing the “scope and complexity” of the deal. The competition watchdog said the extended period will now last until 30 April, instead of the original deadline of 5 March.

Retail

Amazon has reportedly secured retail space in London for its cashier-less Amazon Go grocery convenience store concept. It is not clear how many sites have been secured for the stores or their exact locations, The Grocer reported.

Shares in troubled department store Debenhams jumped after the group received a £40m cash injection. The retailer said the agreement with banks and bondholders would “act as a bridge while the company continues talks for longer-term refinancing”.

Broker Merrill Lynch downgraded its rating on BooHoo shares to “neutral” from “buy” and on Asos to “underperform” from “neutral”. It noted that the “fast fashion” sector was now growing at its slowest rate since the financial crisis.

Consumer

Burberry shares were helped by a positive set of results from Gucci-owner Kering. Paris-listed Kering, which also owns Saint Laurent and Balenciaga, has been under scrutiny over whether demand among Chinese shoppers, who account for over a third of industry sales, can hold up amidst Donald trump’s trade war. The results suggest that the fears were overdone. For a backgrounder on this issue click here.

Shares in UK restaurant and pub chain The Restaurant Group dived following news that chief executive Andy McCue will step down from his position due to “extenuating personal circumstances”.

Financials

Royal Bank of Scotland revealed a significantly larger dividend than expected. Its total annual payout was 13p, 60% ahead of City expectations. The final quarter of 2018 was strong, and annual profit jumped significantly.

Autos

Japanese carmaker Nissan cut its full-year profit guidance after it took a £65m charge related to the scandal around its former chairman Carlos Ghosn, who was arrested over allegations of financial misconduct and breach of trust. Renault’s board of directors has voted unanimously to strip former boss Mr Ghosn of up to €30m (£26m) in pay and severance.

Amazon and General Motors are in talks to invest in Rivian in a deal that would value the US electric pickup truck manufacturer at between $1bn and $2bn, reports suggested.

Will there actually be an electric revolution? John Redwood, Charles Stanley’s Chief Global Strategist, looks at development in next-generation vehicles here.

Healthcare

Full-year results from AstraZeneca were comfortably ahead of City expectations. Its guidance for the coming year was also better than expected. This was driven by a strong performance from new medicines – especially those for cancer – and strength in emerging markets.

Shares in medical device maker Convatec slumped once again after the company unveiled disappointing 2018 results and announced a $150m “turnaround plan”. The colostomy bag maker remains without a chief executive and has issued two profit warnings in 18 months.

Shares in Spire Healthcare slid after Credit Suisse cut its rating on the group Healthcare to “underperform” from “neutral” and halved its target price to 85p.  It blamed softer NHS revenues at the business, as the health service tries to rein in costs.

Smith & Nephew shares fell following reports the company was in discussions to acquire US surgical instruments maker NuVasive, a deal that would likely be worth more than $3bn.

Property

Segro, the warehouse property REIT that has benefitted from the rise of online shopping, launched a £450m share issue to fund its development pipeline. Management said it was on track to invest more than £600m in development capex, infrastructure and land in 2019, following £688m invested in 2018.

Getting out of Buy-to-Let? Think carefully about what you do with your profits. Charles Stanley’s Gareth Hayward takes a look at your options here.  

Travel

Hilton Worldwide Holdings, which owns the iconic hotel brand, beat expectations in the fourth quarter, boosting peers such as InterContinental Hotels. However, on Friday, Millennium & Copthorne warned that 2019 will be “another challenging year for the group” as the company is investing heavily and several of its large hotels are earmarked for major renovations.

Package holiday group Tui slipped after it revealed that losses increased as margins fell in the final three months of 2018. It blamed Northern Europe’s “unusually long and hot summer”, overcapacity in the Canary Islands and weakness in sterling “as a result of the Brexit decision”.

European aircraft manufacturer Airbus has pulled the plug on its struggling A380 superjumbo, which entered service just 12 years ago. Airbus said the last deliveries of the world's largest passenger aircraft, which cost about $25bn (£19.4bn) to develop, would be made in 2021. The decision comes after Emirates, the largest A380 customer, cut its order. The A380 faced fierce competition from smaller, more efficient aircraft and has never made a profit.

Reports suggested that US airline Delta and easyJet had formed a consortium with Italian railway group Ferrovie dello Stato to explore a bid for Alitalia.

Ryanair said it would be interested in buying some of Thomas Cook’s airport slots if no full offer for the airline was made. The package holiday group put the unit up for sale last week.

Unions at Ryanair have criticised a potential €99m bonus for chief executive Michael O'Leary. Joost van Doesburg of the Dutch pilots’ union VNV said: "This type of bonus will only stimulate Mr O’Leary to continue his unsustainable way of dealing with his employees and increase social abuse like bogus self-employment and no sick pay”.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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