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Last Week in the City: Lyft plummets in Uber warning

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (15 to 18 April, 2019).

City 15/18 April 19
Garry white employee

by
Garry White

in Features

18.04.2019

Newsflow was busy this week, despite fewer trading sessions as markets closed for the Easter break on Friday. US first-quarter reporting season kicked off with some mixed statements and shares in ride-hailing company Lyft continued to trade significantly below their IPO price. In the UK, JD Sports hit an all-time high after the sportswear retailer posted record results. The gold price hit its lowest level in 2019 on the outlook for the dollar.

The FTSE 100 was up 0.2% over the week by mid-session on Thursday. The FTSE 250 was 0.3% ahead.

Is there too much saving in the world? John Redwood takes a look at the global glut of cash here.

Economics

Mario Draghi, president of the European Central Bank, reportedly said over the weekend he was concerned about central bank independence in the US. This followed a tweet from Donald Trump that said: “If the Fed had done its job properly, which it has not, the Stock Market would have been up 5,000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%...with almost no inflation.” It also followed President Trump’s controversial Trump picks for a seat on the Federal Reserve board of governors, which includes Herman Cain and Stephen Moore. Critics accuse the President of picking loyal partisans instead of people with real economics experience.

General UK government gross debt was £1,837.5bn at the end of 2018, equivalent to 86.7% of GDP. Debt has exceeded the 60% target every year since 2009.

UK unemployment fell by 27,000 in the three months to February to 1.34 million, according to the Office for National Statistics. Average weekly earnings, excluding bonuses, had an estimated rise of 3.4%, before adjusting for inflation. When adjusted for inflation, pay, including bonuses, increased by 1.5% on the year, the highest figure since the summer of 2016.

UK inflation remains stable in March, as falls in the price of clothing offset petrol price rises. The CPI rose 1.9% year-on-year, slightly below expectations of a 2% rise.

US central bankers continued with their dovish tone. Charles Evans, head of the Chicago Federal Reserve and a voting member of the Federal Reserve’s rate-setting committee, said he will be comfortable leaving rates unchanged until the autumn of 2020. A survey of fund manager by Merrill Lynch showed a slim majority of fund managers now believe the US central Bank has concluded its interest rate rises in this cycle. John Redwood looks at Charles Stanley’s latest asset allocation view here.  

The postponement of Brexit may have helped improve economic sentiment in Germany, according to Achim Wambach, president of German research unit ZEW. The company published data showing investor sentiment in Europe’s largest economy increased for the sixth-consecutive month. However, the German government also halved its growth forecast for 2019 to just 0.5%.

China's GDP growth beat in the first quarter. The world's second largest economy expanded by 6.4% in the January to March period, faster than the 6.3% expected by economists.

Unemployment in Turkey rose to its highest level in a decade, as the impact of last year’s currency crisis and government mismanagement continues to hit the economy. The unemployment rate now stands at 14.7%. Garry White looks at Turkey’s economic woes here.

John Redwood, Charles Stanley’s Chief Global Economist, looks at current central bank thinking on inflation here.

Geopolitics

France raised the pressure it is exerting on the UK to swiftly exit the European Union. The country’s Finance Minister, Bruno Le Maire, urged the UK not to pursue a second referendum. After the departure date was delayed until October 31, newsflow regarding Brexit has been light, as parliament took its Easter break. 

The European Commission published a list of $20bn worth of US imports it could hit with tariffs, in an aircraft subsidy dispute that has dragged on for nearly 15 years. These include agricultural produce from dried fruit to ketchup, fish, tobacco, handbags and suitcases. The commission also singled out hardware such as tractors, shovels, helicopters, planes as well as video game consoles. The published list will now be open to consultation until 31 May and could then be revised. The move was in response to proposals last week by the Trump administration, which targeted a seven-page list of EU products for tariffs, ranging from large aircraft to dairy products and wine.

Two House of Representatives committees upped their investigation of Donald Trump’s business operations by issuing subpoenas for a range of documents from Deutsche Bank. The move comes from the intelligence committee and financial services committee of the House, both of which have been controlled by the Democratic Party since January.

Technology

Facebook chief executive Mark Zuckerberg oversaw plans to consolidate the social network’s power and control competitors by treating its users’ data as a bargaining chip, while publicly proclaiming to be protecting that data, according to about 4,000 pages of leaked company documents obtained by NBC News.

Netflix reported the biggest increase in subscribers since it launched 12 years ago, adding 9.6 million in the first quarter. The video streaming service said the gains were better than expected and left them with a total of nearly 149 million subscribers. However, the company continues to burn through cash. Management now expects its operations and investments to consume $3.5bn this year. The company insists it is not worried about The Walt Disney Co and Apple’s moves into the streaming TV market.

Apple settled a lawsuit with Qualcomm, allowing the company to catch up with its competitors in the race to release 5G phones.  The agreement ends a multi-billion dollar legal battle over smartphone technology and will allow Apple to use Qualcomm's advanced chipsets. As part of the settlement Apple will also make a payment to Qualcomm and the two have made a six-year license agreement. The size of the payment has not been disclosed.

Samsung's new near-$2,000 foldable smartphones are breaking when unfolded, according to reviewers sent the devices before the public launch next week. The Samsung Galaxy Fold has an internal folding screen which can be used as a tablet-sized device, as well as an external screen which can be used as a smartphone. Reviewers said the screens cracked, half of the screen had begun flickering on and off or stopped working altogether within a few days.

Lyft shares continued to fall following its IPO. At the end of trading on Wednesday, the shares were down 17% from their $72 flotation price. Rival Uber is also preparing its IPO and in its pre-listing document’s management addresses a forthcoming safety-transparency report it expects to release this year, which will include data on claims of sexual assaults and other safety incidents on its platform. It said the report could “negatively impact its brand”.

Scrapbook site Pinterest raised $1.43bn in its IPO after pricing the offering at $19 a share on Wednesday, valuing the company at $12.6bn. This is around 12% below the valuation achieved in a 2017 private fundraising. The shares are expected to start trading on the New York Stock Exchange on Thursday.

Garry White argues that the current wave of technology flotations comes with a high degree of risk here.

Europe’s largest IPO this year flopped. Shares in Italian payments group Nexi fell by up to 8% on their debut on the Milan stock exchange.

Energy

Oil prices edged slightly lower after Russia's finance minister Anton Siluanov said Russia and Opec may decide to boost production to fight the US for market share. Brent crude futures were down 0.1% over the week to trade at about $71.25 a barrel by mid-session on Thursday.

US Energy Secretary Rick Perry is planning to leave the Trump administration and is finalising the terms and timing of his departure, reports suggest.

Mining

The gold price fell to its lowest level this year, hitting miners of the precious metal.

Airlines

US regulators found that more training will be needed to fly Boeing's troubled 737 Max plane, but say the system under scrutiny was "operationally suitable".

United Continental Holdings, the parent company of United Airlines, reported first-quarter earnings that beat Wall Street profit expectations but fell shy of revenue estimates, as the airline grapples with the prolonged grounding of Boeing’s 737 Max jets. There have also been calls for a management shake-up at the company.

Shares in India’s Jet Airways slumped after it failed to secure emergency funding from its lenders. Jet was India's second-largest airline by market share, until recently. But dozens of its planes have been seized by creditors, leaving the firm with only seven operational aircraft. Later in the week, the company “temporarily” suspended all flight operations.

German flag carrier Lufthansa posted an operating loss of €336m in the first three months of the year, as rising fuel costs hit its profits. It also said “market-wide overcapacities” pushed down prices.

Autos

German prosecutors charged former Volkswagen chief executive Martin Winterkorn with fraud over the diesel-emissions scandal. Mr Winterkorn was accused of a particularly serious fraud, which carries a maximum penalty of 10 years in prison.

Shares in Chinese carmakers jumped on speculation authorities are considering relaxing controls over the number of automobile licenses in major cities. Reports suggested that people familiar with the matter had confirmed the proposals have been drafted and include potential subsidies for new-energy vehicles. For an insight into the issues driving the global auto slowdown, click here.

Retail

It’s not all gloom on the high street. Shares in retailer JD Sports Fashion hit an all-time high after the company posted record annual profits. The retailer is benefiting from the athleisure” trend, as more people wear sportswear as a fashion choice and not necessarily to play any sport.

Full-year results from Card Factory sent its shares higher, but they were moving from a low base. The company said online sales grew strongly during the year, but lower footfall at its stores meant that its overall like-for-like sales stayed flat. Growth came as the retailer opened new stores, a strategy that helped it to grow its market share in the single-card market.

However, it was much gloomier at Monsoon Accessorize. The company, one of the UK's biggest privately-owned fashion retailers, has appointed Deloitte to prepare a Company Voluntary Arrangement (CVA) that could be launched within weeks, reports suggested.

Consumer

Unilever started 2019 on a better-than-expected note, aftersales in the first quarter beat analysts’ expectations. Gains were driven by emerging markets in Asia, providing some reassurance after the company had warned that Latin America would weigh on its performance this year.

Property and construction

Shares in Galliford Try slumped by almost a fifth after the company issued a profit warning. The house building and construction group said profits will be £30-40m lower than the expected £156m. It said the biggest chunk of the downgrade related to the Queensferry Crossing road bridge in Scotland, which recently raised final cost estimates.

House builder Countryside Properties said that it was on track to deliver full-year results in line with expectations as it posted a 43% jump in first-half completions.

Financials

US banks delivered a mixed bag of first-quarter results.  JP Morgan and Wells Fargo reported quarterly profit and revenue that exceeded analysts’ expectations, while Goldman Sachs and Citigroup both missed estimates on their revenue. Bank of America and Citigroup missed revenue expectations but its earnings still beat forecasts. Morgan Stanley reported a 9% drop in profits, although the figure beat market expectations.

BlackRock, the world’s largest asset manager, reported a better-than-expected first-quarter profit, as global financial markets rebounded from a volatile fourth quarter.

UK-listed emerging markets fund manager Ashmore gained after its assets under management rose 11.2% in the first quarter. This followed positive investment returns and new client inflows. Corporate debt was the most popular, with assets under management for this asset class rising 30.6pc in the first quarter.

Industrials

Shares in consumable goods provider Bunzl slid sharply after the group saw a slowdown in growth in the first quarter of this year. Revenues rose 4% year-on-year, compared with growth of 7% in the first three months of 2018. Underlying growth in the distributor’s North American division was just 1%. This was “as a result of slightly lower sales to customers in the grocery and retail sectors, principally due to the lack of both volume growth and product price inflation”, management said. 

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