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Last Week in the City: Markets slump on growth woes

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (30 September to 4 October 2019).

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (30 September to 4 October 2019).
Garry white employee

Garry White


It was a very busy week for participants in global markets. A slew of negative economic data prompted significant growth concerns; the Democrats launched an impeachment inquiry into Donald Trump; Boris Johnson revealed his plans for a deal to leave the European Union and the US administration said it would put tariffs on $7.5bn of European goods after a ruling that Airbus had received unfair state aid. Markets fell sharply.

The FTSE 100 fell 4.3% over the week by mid-session on Friday and the FTSE 250 was down 2.8%.

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Boris Johnson presented his proposals to the European Union (EU) for solving the Brexit impasse. The EU was “open but not convinced” by the new proposals, according to Donald Tusk, the president of the European Council. The plan will keep Northern Ireland in the EU single market for goods but see it leave the customs union. However, the border infrastructure remains a significant sticking point. Irish prime minister Leo Varadkar said plans was welcome but fell “short in a number of aspects". The UK Government’s proposal for a new Protocol on Ireland/Northern Ireland can be read here.

Trade wars

The US is considering stopping Chinese companies listing on American stock exchanges, according to Donald Trump. However, these comments may be a ruse to raise tension ahead of the next round of trade talks, as US Treasury official said there were no current plans to do this. “The administration is not contemplating blocking Chinese companies from listing shares on US stock exchanges at this time,” a Treasury spokesman said. There were also reports that the administration wants to limit the ability of US citizens to invest in China.

The World Trade Organization (WTO) warned that the outbreak of tariff wars posed a threat to jobs and living standards as it slashed its forecast for trade growth in 2019. The WTO said it had more than halved its growth forecast for trade in goods this year from 2.6% to 1.2% after a summer of escalating US-China protectionism, a slowdown in global growth and fears of the impact of a no-deal Brexit.

The WTO also said that Airbus benefitted from illegal subsidies, a ruling that will allow the US to legitimately raise tariffs on $7.5bn (£6.1bn) of goods imported from Europe. The dispute about state aid for Airbus has been rumbling on at the WTO for the last 15 years. The US will now slap 25% tariffs on EU goods including single-malt Scotch whisky, French wine and Italian cheese. Trade barriers will also be raised on UK-made sweaters, cashmere items and wool clothing, as well as olives from France, Germany and Spain. These could be raised as soon as 18 October. There is a parallel case being assessed at the WTO relating US state aid provided to Boeing. The EU has challenged various US federal, state and local subsidies that benefit the Seattle-based aircraft maker. These amount to $5bn to $6bn in WTO-inconsistent subsidies disbursed between 1989 and 2006. US airline such as Delta Air Lines and United Airlines fell as a 10% tariff will be raised on the European group’s planes and many have them on order. Shares in French group Pernod Ricard and Rémy Cointreau rose after cognac and champagne were excluded from tariffs.


The September US Employment Report reported weaker than expected jobs growth, but there were offsetting upwards revisions to the previous two months’ data.  What is a little worrying is the cooling of wage growth, which will raise questions about the sustainability of this year’s solid consumption growth.

UK gross domestic product (GDP) contracted 0.2% between April and June. However, the UK economy did better in the first quarter of the year than originally expected, as stockpiling for the March Brexit date boosted growth. First-quarter GDP growth was revised upwards to 0.6% from 0.5%.

Britain’s dominant services sector contracted in September, causing the biggest cut in employment in more than nine years. The sector – which makes up about 80% of the UK economy – saw new contracts fall for the first time this year. IHS Markit and the Chartered Institute of Procurement and Supply’s services business activity index slipped to 49.5 in September, down from 50.6 in August. A score of under 50 indicates contraction. "At current levels, the surveys point to GDP falling by 0.1% in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession,” Chris Williamson, chief business economist at IHS Markit, said.

A measure of US manufacturing unexpectedly fell deeper into contraction territory, posting the weakest reading since June 2009. The sector has been hit by a global slowdown and the US-China trade war. The Institute for Supply Management’s factory index slipped to 47.8 in September. The figure missed all estimates in a Bloomberg survey that had called for an increase from August’s reading of 49.1. UK and European manufacturing purchasing managers’ indices (PMIs) also spread further gloom. John Redwood looks at the world-wide crisis in manufacturing here.

The US services sector is still growing, but it is not as strong as expected, according to the ISM Non-Manufacturing Index. The closely-watched measure came in at 52.6, compared to an expected reading of 55.3. It was the weakest reading since August 2016.

German Chancellor Angela Merkel’s centre-right party wants to stick to its ‘black zero’ budget policy of no new debt, despite growing pressure at home and from abroad to ditch the fiscal maxim. It is believed that Christine Lagarde, when she takeover over the presidency of the European Central Bank (ECB), plans to try to talk European leaders into more fiscal stimulus.

Inflation in the Eurozone dropped to a three-year low in September of 0.9% due to cheaper energy, as the European Central Bank continues to struggle to hit its price-rise target of 2%.

China's manufacturing activity index improved in September as a raft of policy measures kicked in.  The PMI for China's manufacturing sector edged up to 49.8 in September from 49.5 in August, the National Bureau of Statistics. A reading above 50 indicates expansion, while a reading below that reflects contraction.

India’s central bank cut interest rates for the fifth time this year, bringing its benchmark interest rate down to 5.15%.  


US House of Representatives speaker Nancy Pelosi initiated a formal impeachment inquiry against President Donald Trump, charging him with betraying his oath of office and the nation’s security by seeking to enlist a foreign power to tarnish a rival for his own political gain. The inquiry was prompted by allegations that President Trump pressured the Ukrainian president to investigate his leading political rival Joe Biden and his son, Hunter.

Donald Trump accused House Speaker Nancy Pelosi of trying to distract voters from the Democratic impeachment inquiry with a promise to work with the White House on lowering drug prices. “It is just camouflage for trying to win an election through impeachment. The Do Nothing Democrats are stuck in mud!” the president noted. This implies that a bi-partisan agreement on lower drug prices could be more difficult following the decision to launch an impeachment inquiry. Garry White looks at the pricing issue here. There are also concerns that the impeachment enquiry may impact the resolution of the trade war with China.

The situation in Hong Kong appears to have deteriorated. Chief executive Carrie Lam invoked colonial-era emergency powers, so that the semi-autonomous territory can enact a ban on face masks like the ones pro-democracy protesters have worn during months of demonstrations. The ban emerged days after police shot an 18-year old pro-democracy protester in the chest during an altercation, signalling a new escalation by authorities and angering protesters. Garry White asks if its status as a global financial hub is at risk here.

The US and North Korea began working-level talks in Stockholm on Friday, reports suggested. The news reports said the North Koreans sensed “an opportunity” right now, perceiving President Trump as “politically vulnerable” and “starving for a win” — which they think could mean Trump is willing to be more flexible in negotiations to bring “tangible results”.


Saudi Aramco will increase dividend payments to $75bn a year and pay less tax as the government tries to secure the $2 trillion valuation targeted by the country’s Crown Prince Mohammed bin Salman in the state oil group’s IPO. However, if this high valuation is achieved, the shares will yield just 3.75%, significantly lower that rivals such as BP, Royal Dutch Shell and ExxonMobil. There is significant scepticism this valuation can be met, especially after the recent attack on its oil facilities and the market’s sceptical treatment of WeWork.  You can download the slides from a presentation that was given to analysts by Aramco executives on Monday here.

WeWork officially pulled its listing plans amid investor scepticism over its sky-high valuation. The decision leaves the rental company facing a cash crunch as its new bosses prepare to make deep cuts to stem its losses. As a result, credit rating agency Fitch downgraded the company’s credit rating by two notches to “CCC+”, putting the Softbank-backed office-sharing group’s rating deep into junk territory.

Another unicorn IPO just got closer. Airbnb is preparing to hire Morgan Stanley and Goldman Sachs to advise on its planned stock market debut next year, Reuters reported. The short-term rental company is considering going public through a direct listing rather than an IPO in mid-2020, the report said.

Budweiser Brewing Co APAC shares opened 1.5% higher in their Hong Kong debut on Monday, outperforming the broader Hang Seng Index in what has been the world’s second-biggest initial public offering so far this year.

The links between China and Africa continue to build. The Chinese smartphone company Transsion, which dominates Africa's phone market with its Tecno brand, soared as much as 96% on its first day of trading on China's Nasdaq-style stock market called Star, briefly pushing its valuation to $7.7bn. The shares gave up some of those gains but still closed up 64% on its first day of dealings. Zhu Zhaojiang, founder and chairman of Transsion, controls nearly 14% of the company.

Biotechnology company ADC Therapeutics postponed its planned $200m US IPO, citing adverse market conditions. Although small, the postponement is significant because biotechnology offerings are typically assessed on the prospects of their products and are regarded as being less sensitive to wider market turbulence.

Shopping tax refund firm Global Blue is preparing for a possible €1bn listing in Amsterdam this year. The Switzerland-based firm, which relies mainly on Chinese, Middle Eastern and Russian tourists who use its network to purchase luxury goods tax-free, has now appointed Morgan Stanley and JP Morgan as global coordinators and Credit Suisse as a book-runner.


The world’s largest gambling group will be created if shareholders agree an all-share merger deal. FTSE 100-listed Flutter Entertainment, the owner of Paddy Power Betfair and Poker Stars, wants to merge with Stars Group, the Nasdaq and Toronto-listed owner of Poker Stars. Combined annual revenues are about £3.8bn and the new company will have around 4 million active customers. There are likely to be competition issues to solve before a deal is concluded.

Hochschild Mining has acquired the BioLantanidos ionic clay rare earth deposit in Chile. The precious metals producer said the acquisition represents an opportunity for Hochschild to enter a "unique" rare earth deposit. Rare earths are essential in several technological components with increasing global demand and some are critical in the manufacturing of permanent magnets used in electric vehicles. Hochschild is acquiring 93.8% of the BioLantanidos deposit that it does not already own for $56.3m.

Sports Direct shares rose after the Competition and Markets Authority said it had referred rival sportswear retailer JD Sports' acquisition of Footasylum to an in-depth investigation after it failed to offer any remedies to the regulator’s issues.

Profit warnings

Zotefoams saw its shares slump after the foam and insulation maker warned of a hit to its second-half sales. Management said that a “significant” deterioration in its European markets, as well as slower-than-expected growth in North America, meant its sales for the period would be £6m below market estimates, with a corresponding impact on profits.

Aim-listed marketing consultancy group Immedia Group said its interim losses widened significantly while it also anticipates a difficult remainder of the year. The news sent its shares down by almost half.

SpaceandPeople, which markets and sells retail licencing space and is also listed on Aim, warned annual profits would be lower than market expectations. Management blamed slower-than-expected contract approvals for the expansion of its German retail merchandising unit.

German publisher Axel Springer said it expected 2019 adjusted earnings would decline in a mid-teens percentage range. Management said the downgrade was due to the restructuring of its News Media National branch and lower-than-expected revenues in the News Media and Classifieds Media segments. It previously expected a mid-single-digit percentage decline.


A new ruling from the European Court of Justice (ECJ) could spell trouble for Facebook. It said courts in the EU can order Facebook to remove worldwide comments by users of its service that have been declared illegal.

The launch of Facebook's Libra cryptocurrency has been dealt a blow by partners Visa and Mastercard, both of which are considering backing out, reports suggested. The followed a backlash from US and European officials. Facebook's poor privacy record is not impressive for regulators, which are set to impose tough rules on Libra.

Snap shares fell after Facebook launched a rival function on its Instagram service, called Threads. It allows Instagram users to share their status or quickly send photos and videos. It borrows several elements from Snap.

Amazon is pushing ahead with plans to open a physical chain of grocery stores in the US and has signed dozens of leases for retail space around three big cities. The retailer is focusing on locations in and around Los Angeles, Chicago and Philadelphia, The Wall Street Journal reported.

Alphabet-owned Google is now 21 years old. Healthcare is an area in which it could come to dominate in the next two decades, but this isn’t without controversy. Garry White looks at the issue here.


Oil headed for its biggest weekly decline since the middle of July after global economic data disappointed, adding to growth fears. Brent crude futures fell 6.6% over the week to trade at about $58.00 a barrel.

Saudi Arabia’s credit ranking was cut one notch at Fitch Ratings, citing rising geopolitical and military tensions in the Gulf region. The rating was cut to A from A+ with a stable outlook, according to a statement. “Recent drone and missile attacks on Saudi Arabia’s oil infrastructure resulted in the temporary suspension of more than half of the country’s oil production,” Fitch said. “Although oil production was restored fully by end-September, we believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage.”

British oil major BP said upstream business head Bernard Looney will succeed Bob Dudley as chief executive when he retires next year. Mr Dudley has held the job for nearly a decade, after taking the helm from Tony Hayward following the Macondo oil disaster in the Gulf of Mexico.  


Palladium prices hit a record high this week as global stocks continue to run low. Demand in China has soared for the metal used in catalytic converters ahead of new environmental standard launched in 2020. There is already the threat of industrial unrest in South Africa. The price is up by around a third this year, making it one of 2019 best-performing commodities. 

The gemstone market remains subdued. Anglo American’s DeBeers unit said that the value of rough diamond sales rose in the eighth cycle of the year, but was down significantly on the previous year. The value increased to $295m from $287m in the seventh cycle, down from $482m in the eighth cycle of last year. There are expected to be ten cycles, or auctions, this year.

Iron-ore miner Ferrexpo denied allegations made on social media that its chief executive Kostyantin Zhevago was being investigated in relation to a business he owned in Ukraine until 2015. According to Reuters, authorities suspect Mr Zhevago of large-scale money laundering and embezzling funds from a bank he formerly owned.

Egyptian gold miner Centamin revealed that chief executive Andrew Pardey intends to leave the mid-cap group next year. The company also warned that production for the first nine months of 2019 was lower than expected at 331-332,000 ounces, but said the lower end of its full-year guidance range of 490,000 ounces “remains achievable”.


The Financial Conduct Authority (FCA) proposed a series of measures to address the problems it has identified with competition in the UK home and motor insurance market. A consultation will be held on the remedies and a final report published in the first quarter of 2020. These remedies include tackling high premiums for consumers, stopping practices that could discourage switching and getting companies to publish information about price differentials between their customers. The news hit shares in Admiral, Direct Line and Hastings.

Metro Bank shares surged following press reports that US activist investor Elliott Advisers was considering taking a stake or buying parts of the business. Reports suggested a clutch of investors were looking at the challenger bank after it was forced to pull a £250m bond sale as it could not attract enough interest despite an interest rate of 7.5%. The bank also announced that its controversial chairman and founder Vernon Hill would be leaving the embattled lender. The bank has been under pressure since it revealed a £900m accounting error at the beginning of the year.

Credit Suisse said its chief operating officer, Pierre-Olivier Bouée, had resigned after a probe found he arranged the surveillance of an executive who left to join rival UBS. Private detectives were hired to track the Swiss bank's former head of wealth management, Iqbal Khan in September, in a scandal that has rocked the normally staid world of Swiss banking. Mr Khan left the bank in July. There is no indication chief executive Tidjane Thiam, who it was well known had fallen out with Mr Khan, knew about the surveillance. Some shareholders have been supportive, with a number saying it would be bad if senior executives were forced out by the scandal.

Veteran investor Martin Gilbert is retiring from Standard Life Aberdeen next year. Mr Gilbert’s departure comes less than two years after he oversaw an £11bn merger between Aberdeen Asset Management and Standard Life Investments that created one of Europe’s largest ever fund managers.


Tesco revealed its chief executive Dave Lewis had quit, calling the decision “a personal one”, after five years at the helm.  Mr Lewis said he had completed the turnaround plan he designed following the company’s 2014 accounting scandal and would leave the company in a “position of strength”. He will be succeeded next summer by Ken Murphy, a Boots lifer who most recently was the chief commercial officer of its American parent Walgreens Boots Alliance. The announcement came as Tesco reported a better-than-expected first-half operating profit before one-off items of £1.41bn, a rise of 25.4%.

Waitrose managing director Rob Collins has announced his resignation as parent company John Lewis Partnership unveiled a head office restructure and business consolidation plan that could see a third of senior managers leave.

Other retail

Shares in Ted Baker slumped by around a third to a nine-year low after it swung to a loss in the first half of the year. Management revealed the fashion retailer made a £23m pre-tax loss in the 28 weeks to 10 August, a sharp reversal from the £25m profit it delivered in the same period last year. The company blamed management turmoil and price pressure from heavy discounting and unseasonably warm weather in September.

The plan to turn around Marks & Spencer’s clothing and home business is 18 months behind schedule, chief executive Steve Rowe said at the company’s capital markets day. Mr Rowe said more needs to be done to put the long-suffering divisions back on track and that he was disappointed with progress so far.

Slowing growth at pie and pasty group Greggs sent its shares lower. Third-quarter total sales rose 12.4%, as company-managed shop like-for-like sales grew 7.4% for the 13 weeks to September 28. However, same-store sales growth was lower than the 10.5% seen in the first half of the year. Nevertheless, its shares are still up almost 50% in the year to date. 

Topps Tiles shares fell after the group reported a 1.9% fall in fourth-quarter like-for-like sales. “Political uncertainty continued to weigh on consumer confidence in the final quarter and we expect this to remain a feature until there is greater clarity,” chief executive Matthew Williams said.

US fashion group Forever 21 has filed for Chapter 11 bankruptcy protection, becoming the latest retail chain to fall victim to challenges on Main Street. The global fashion brand has requested court protection from creditors in the US, joining more than 20 other retailers which have filed for bankruptcy in the last two years.


Imperial Tobacco chief executive Alison Cooper will leave the company after a successor is found. The announcement came a week after the group issued a profit warning, blaming the crackdown on flavoured e-cigarettes in the US. The company has invested heavily in vaping products, which many believe are safer than tobacco. But it warned that demand in the US had fallen sharply since Donald Trump vowed to ban flavoured varieties last month.


Shares in electric car maker Tesla fell after the company missed its target for vehicle deliveries in the latest quarter. The company delivered 97,000 cars, just shy of the target of 100,000 set by founder Elon Musk.

Germany's first mass lawsuit was launched this week, as 450,000 owners of diesel Volkswagen cars take on the company. They argue they are owed compensation for being sold cars based on misleading emissions data. The scandal has already cost VW €30bn. It has faced class action claims in the US and Australia, but this is the first time Germans could pursue group claims since the law was changed last year.

US vehicle sales for Ford fell 4.9% year-on-year during the third quarter. An 8.8% increase in the automaker’s truck sales wasn’t enough to offset a 10.5% decrease in SUV sales and a 29.5% drop in cars.

Airlines & travel

Budget airline Ryanair reported an 8% jump in September passenger numbers to 14.1 million. The load factor, which is a measure of how full the planes are, came in at 96%.

Low-cost carrier Wizz Air reported increased capacity and passenger numbers for September, with the group continuing to grow its network. Wizz Air's capacity grew 19.7% year-on-year to hit 4.03m following a route network expansion, including 24 new routes to Poland, Hungary and Romania.

Spain is preparing a $300m rescue package for its tourism industry, after the collapse of Thomas Cook left bars deserted and beaches empty at its holiday hotspots. The country’s tourism minister said the cash would be split across 13 different measures, including a credit line for companies struggling to cope.

Construction & property

The UK’s construction industry is shrinking at a faster pace, according to the latest PMI survey. The headline reading fell to 43.3 in September from 45 in August. “Building activity fell at the second-fastest rate since April 2009, only narrowly outpaced by June’s decline. A historically steep drop in new orders was also registered, while companies trimmed employment at the fastest rate since the end of 2010 due to unfavourable demand, client hesitancy and low confidence,” according to survey compiler IHS Markit/CIPS.

Plumbing parts distributor Ferguson unveiled a better-than-expected 7% rise in full-year profit, as it benefited from cost-cutting measures. Last month, Ferguson announced plans to spin off its UK business under the Wolseley brand and focus its core business on the North American market.

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