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Last Week in the City: Dovish Fed powers equities

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

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

Garry White

in Features


A dovish testimony at the US House of Representatives from Federal Reserve Chair Jerome Powell propelled the S&P 500 over 3,000 and the DJIA over 27,000 for the first time ever. However, the gains failed to be reflected in the UK. The FTSE 100 fell 0.3% over the week by mid-session on Friday and the FTSE 250 was down 0.7%.


Testimony from Federal Reserve Chair Jerome Powell bolstered the case for easier monetary policy in the US and provided a fair wind for equity markets. Mr Powell cited geopolitical uncertainties and global growth slowdown as the reasons why an easier policy will help sustain the expansion domestically. The head of the world’s most-powerful central bank also said he would not step down if the US president asked him to.

The UK economy returned to growth in May after shrinking in April, but the news failed to allay fears of a future slowdown. The economy grew 0.3% from the month before, after declining 0.4% in April. Growth for the three months to May was 0.3%, with all sectors showing growth.

Brazil's lower house of Congress voted by a large majority to overhaul the country's generous pension system. The vote, with 379 in favour and 131 against, is seen as an important victory for President Jair Bolsonaro. His government says the reforms are critical to boosting the growth of South America's biggest economy.

John Redwood, Charles Stanley’s chief global economist, argues that the market is expecting a series of rate cuts, but it may be optimistic amount how low rates will go here.


In its Financial Stability Report, the Bank of England said the UK banking system is still resilient to the financial impact of a worst-case disorderly Brexit. The Bank said "the perceived likelihood of no-deal Brexit has increased since the start of the year".

The UK's ambassador to the US, Sir Kim Darroch, resigned after the leak of emails that called his administration “inept”.

The US announced fresh duties on some Mexican and Chinese steel goods on Monday, saying those countries helped their manufacturers with unfair subsidies. The Commerce Department found that imported steel used in construction benefited from subsidies in China, Mexico and Canada, but in the case of Canada the subsidies were negligible, so no retaliatory duties were imposed.

Trade tensions continue to alter supply chains. Japan’s Nintendo said it was planning to shift some of the production of its Switch gaming console to Vietnam from China. The shift is aimed at “diversifying risks”, a spokeswoman said.

The trade dispute between the US and India ratcheted up a gear after the Asian nation introduced higher tariffs on 28 US products, including almonds, apples and walnuts, in response to Washington’s withdrawal of key trade privileges for New Delhi. However, trade talks started on Friday, but India is unlikely to immediately commit to any changes to foreign investment rules for foreign e-commerce firms such as Walmart’s Flipkart and Amazon.

Hong Kong leader Carrie Lam said the controversial bill that would have allowed extradition to the Chinese mainland was “dead". However, she stopped short of saying it had been withdrawn completely, as protesters have been demanding.

The first shipment of a Russian missile defence system arrived in Turkey in Friday, a development that could move the country closer to US sanctions.

The United States has warned Turkey it will face economic sanctions if it goes ahead with the purchase of a Russian missile defence system. It has also said Turkey won't be allowed to participate in the program to produce the high-tech F-35 fighter jets.

Profit warnings

Corporate earnings growth has been decelerating for some time, with analysts reducing their forecast and companies cutting guidance. There have been a number of guidance cuts this week that show this trend is continuing.

German stocks were hit by a profit warning from chemical giant BASF, which cut its full-year forecast and warned that second quarter profits would halve. The downgrade was prompted by a slowdown in the global economy and industrial production driven by trade conflicts. The news hit chemicals sector peers including Bayer, UK-listed Croda and Dutch-quoted Akzo Nobel.

Shares in Hong-Kong listed Geely, China’s largest carmaker by volume, fell after management said it expected a sharp drop in first-half profits as demand for vehicle slowed in the Asian powerhouse.

German carmaker Daimler issued its fourth profit warning in just over a year, this time blaming higher costs to deal with a recall for faulty airbags and increasing funds set aside to address allegations of emissions-tampering in diesel cars.

Car dealership Lookers said full-year underlying pre-tax profit will be below expectations as it battled weaker car demand in Britain in June and margin pressures.

Eddie Stobart Logistics said it expected operating earnings for the first half to be at the lower end of expectations, hurt by a slowdown in some businesses and as it exited a “problematic” contract. Management also said its 2018 adjusted earnings would be restated and reduced by about £2m after a review of previous statements under new Chief Financial Officer Anoop Kang.

Recruiter Page Group warned that global economic uncertainty will hurt profits this year, sending shares sharply lower.

New listings

Swiss Re pulled the £3bn listing of its British life insurance arm Reassure. The reinsurance giant blamed “heightened caution and weak underlying demand” from institutional investors for the postponement of its initial public offering (IPO). Trading in the shares was expected to begin last week.

Richard Branson’s space tourism adventure Virgin Galactic plans to go public. The group will merge with a cash shell that listed in 2017 in New York by former Facebook executive Chamath Palihapitiya. The cash shell, called Social Capital Hedosophia Holdings, will reportedly invest $300m in Virgin Galactic for a 49% stake, and has to distribute its cash in the next few months or return the money to investors.

DouYu International Holdings, a Chinese video-game live-streaming platform, is seeking to raise as much as $944m in a US IPO. The company delayed its flotation amid market jitters in May but now plans to go ahead with the listing.

Investors have already subscribed for more shares than brewing giant AB Inbev is offering in the float of its Asia-Pacific operations, according to reports citing sources involved with the world’s biggest IPO so far this year.

Data Privacy

Following the introduction of General Data Protection Regulation (GDPR), the Information Commissioner's Office (ICO) was given larger powers to fine companies for data breaches. This week, the ICO showed that it took its role serious, announcing that British Airways, owned by IAG, will be fined more than £183m after hackers stole the personal data of half a million of the airline’s customers. This amounts to 1.5% of British Airways turnover last year. Also, Marriott International has been informed by the ICO of its intention to issue a fine of £99.2m against the company in relation to the Starwood guest reservation database incident. The Nasdaq-listed hotel operator had a data breach last year that could have affected up to 500 million customers.


Donald Trump criticised Bitcoin, Facebook’s proposed Libra digital coin and other cryptocurrencies and demanded that companies seek a banking charter and make themselves subject to US and global regulations if they wanted to “become a bank”.

Federal Reserve Chair Jerome Powell said he had “serious concerns” about Facebook’s planned digital currency Libra.

Another cryptocurrency exchange was hacked and funds stolen. Bitpoint, a licensed cryptocurrency exchange based in Japan, has been hacked for $32m in crypto assets.

For Charles Stanley’s view on digital coins such as Bitcoin click here.


France approved a digital services tax, despite threats of retaliation by the US, which argues that it unfairly targets American tech giants. The 3% tax will be levied on sales generated in France by multinational companies such as Alphabet-owned Google and Facebook. The Trump administration ordered an inquiry into the move – which could result in retaliatory tariffs.

Apple disabled the Walkie-Talkie app on the Apple Watch, because of a flaw that let users eavesdrop on other people's iPhones.


Tensions with Iran boosted the oil price. Brent crude futures rose 4.4% over the week by mid-session on Friday to trade at around $67.00 a barrel.

Iranian boats tried to impede a British oil tanker near the Persian Gulf – before being driven off by a Royal Navy ship. HMS Montrose, a British frigate shadowing the BP-owned tanker, was forced to move between the three boats and the tanker, a Ministry of Defence spokesman said. He described the Iranians' actions as "contrary to international law".

Iran also called on Britain to release its seized oil tanker and warned foreign powers to “leave the region because Iran and other regional countries are capable of securing the regional security”. The Royal Marines seized the tanker last week on suspicion it was breaking European sanctions by taking oil to Syria.

Global oil stockpiles swelled surprisingly in the first half of 2019, as production cuts by OPEC and its partners failed to prevent the return of a surplus, the International Energy Agency said.


BHP Group is exploring options for its thermal coal business, which may include a disposal, amid a growing investor focus on environmental issues.

Garry White argues that recent sharp gains in the mining sector may be coming to a halt as iron ore prices peak here.


Shares in pharmaceutical companies such as AstraZeneca and GlaxoSmithKline fell on Friday after the White House said it was ditching a key plan to lower US drug prices, raising the possibility that new measures focussed on drug makers would be introduced. The abandoned proposal would have required health insurers to pass billions of dollars in rebates they receive from pharma groups to Medicare patients.


"The insurance market has seen continued deterioration from 2018 'catastrophe events', including Typhoon Jebi in Japan and Hurricane Michael in Florida. The scale of deterioration has been significant, with industry loss estimates having increased materially since these events," according to Lloyd's of London insurer Hiscox.

Deutsche Bank announced 18,000 job cuts as part of a radical reorganisation, but the market remained sceptical over the proposals. In London, some staff stayed away from work after being told their passes would stop working at 11:00. A spokesperson said the aim of the changes, which will shrink its investment banking business, was to make the bank "leaner and stronger". It is completely withdrawing from its equities trading business, as well as shrinking its bond and rates trading operation.


Online grocer Ocado revealed that that the blaze destroyed its Andover warehouse in February cost £110m, although the group expects to recover the full cost through its insurers. However, the fire knocked 2% off first half sales and the group swung to an interim loss of £142.8m.

Lidl said it will create 500 jobs in Scotland as it revealed plans to open 12 new stores in the country. The German discount grocer already has 98 shops across Scotland.

Other retail

Poor weather conditions led to the worst June on record for UK retail sales, as shops struggled to compete with last year’s performance. Total sales fell 1.3% in June, compared with an increase of 2.3% June 2018. The three-month average is now a decline of 0.1% and the 12-month average is an increase of 0.6% – the lowest since the data series began in December 1995.

Marks & Spencer’s clothing & home managing director, Jill McDonald, resigned. Ms McDonald, who led the bellwether retailer’s non-food division, will be leaving the business after nearly two years in the role. Sales at the retailer’s non-food arm have continued to decline.

Superdry shares were hit after the fashion group reported a “disappointing” loss. The company suffered a boardroom exodus in April after co-founder Julian Dunkerton won an audacious bid to reinstall himself onto the board.

Home furnishings company Dunelm has bucked the retail gloom. Management expects full year pre-tax profit to be towards the upper end of its guidance range. However, in the short-term, management said it remained cautious about the uncertain political climate and the impact it may have on consumer spending.

Furnishings group DFS posted strong sales growth for its latest financial year, but warned future earnings could suffer from uncertain economic outlook. The sofa giant revealed that online sales growth hit 17% in the 12 months to the end of June, with underlying gross sales growth of 7%.


While not admitting any wrongdoing, consumer goods giant Reckitt Benckiser agreed to pay up to $1.4bn to resolve all US federal investigations into the sales and marketing of an opioid addiction treatment by its former subsidiary Indivior. This is materially larger than the company's $400m provision, but it removes an overhang on the shares that had been in place since early April.

Tobacco giant Imperial Brands abolished a key pledge on dividends. The Lambert & Butler and Davidoff maker said it would stick to increasing its dividend by a tenth this year but would link it to “underlying business performance” in the following years.

Pub chain JD Wetherspoon reported positive sales growth. In the 10 weeks to 7 July, like-for-like sales increased by 6.9% and total sales increased by 6.6%.

Travel and transport

A number of airlines have been told to carry out inspections on older Airbus A380s after cracks were found in the wings of the superjumbo jets.  While Airbus said the safety of the aircraft was not affected, the European Aviation Safety Agency said that if not found and repaired, the issue “could reduce the structural integrity of the wing”. Carriers affected include Singapore Airlines, Emirates, Air France, Qantas and Lufthansa.

Flyadeal, a low-cost Saudi Arabian airline, cancelled an order for 30 Boeing 737 Max aircraft. The decision follows the crashes of two 737 Max jets, the first in Indonesia in October followed by one in Ethiopia in March, which killed 346 people.

Embattled package holiday company Thomas Cook is in £750m rescue talks with banks and its largest shareholder, Fosun. This may result in the Chinese investor buying the group’s tour business. Thomas Cook's chief executive, Peter Fankhauser, said the proposal was "not the outcome any of us wanted" but insisted it was "pragmatic".

Shifting from diesel to electric is a major change and consumers are confused. As a result, vehicle sales are falling. John Redwood takes a look at the issue here.


Housebuilder Barratt Developments said profits were expected to be ahead of market expectations of around £910m. That compares with £835.5m last year. David Thomas, chief executive, said: "It has been another very good year for the group both operationally and financially".

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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