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Last Week in the City: May clings on despite Brexit confusion

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (December 10 to 14, 2018).

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Garry White

in Features


The FTSE 100 rose 0.3% over the week by mid-session on Friday, as news relating to Brexit resulted in the pound having a volatile week. The more UK-focused FTSE 250 hit a 12-month low on Monday and was down 1.2% over the week.


It was a busy week for UK Prime Minister Theresa May, who won an internal Tory Party vote of confidence. This means she will remain unchallenged as party leader at least for the next year, although she agreed not to stand as leader in the next election to help win the vote. This followed the postponement of Tuesday’s vote on the withdrawal agreement she agreed with the EU, as it was unlikely to be passed by parliament in its current form.  The main controversy related to the Irish backstop, which aims to prevent a hard border between Northern Ireland and the Irish Republic. Critics argued that the backstop would keep the UK tied to EU rules indefinitely and curb its ability to strike trade deals. However, EU leaders have said the Brexit withdrawal agreement is "not open for renegotiation". European Commission president Jean-Claude Juncker said there could be clarifications but no renegotiation. European Council president Donald Tusk said the backstop would "apply temporarily unless and until it is superseded by a subsequent agreement that ensures that the hard border is avoided". If the agreement cannot pass parliament, a no deal exit is more likely although there is the ability to postpone the Article 50 withdrawal before we leave on March 29 next year.


The European Central Bank confirmed the end of its asset purchase scheme but otherwise kept policy broadly unchanged, promising protracted stimulus for an economy struggling with an unexpected slowdown and political turmoil. The central bank repeated its promise that rates would be kept at their current record lows at least through next summer and that it would keep open-ended the time horizon for reinvesting cash from maturing bonds.

China’s economy slowed again in November, with retail sales and industrial production both weakening. Industrial production growth decelerated to 5.4%, below economists’ estimates. Retail sales – formerly a pillar of support for the economy – posted the weakest performance since May 2003, were up 8.1% year-on-year.

US core consumer price index, which excludes volatile food and energy costs, rose 0.2% in November month-on-month and 2.2% from a year earlier. This reinforced expectations that the Federal Reserve will raise interest rates next week, although expectations of rate rises in 2019 by the US central bank appear to be easing.

John Redwood, Charles Stanley’s Chief Global Economist, looks at the market implications of current central bank actions here.

John also looks at the Japanese economy, where GDP per head is growing at a faster rate than many EU countries, here.


French President Emmanuel Macron gave in to the demands of the gilet jaunes protesters, offering €15bn in financial relief for angry people from “peripheral France”. His offer included a de facto 6% increase in the minimum wage, a tax-free Christmas bonus for low-earners and the partial abolition of a new tax on pensions. The package is likely to push the country’s deficit to about 3.5%, breaching fiscal rules in the Eurozone. This has given the populist Italian government a boost, as it too was in dispute with Eurozone authorities after it passed a budget that breach the 3% deficit limit as well. The dispute has impacted France’s economy. Data this week showed that France’s private sector contracted for the first time in two-and-a-half years in November due to the protests.

The EU and Japan have agreed the final parts of a major free trade agreement — dubbed the “cars-for-cheese” deal. The trade agreement is the largest struck between the EU and another country and it comes into effect on February 1 next year.

In a move to help end the current trade war, China proposed cutting tariffs on US-made cars to 15%, the same tax levied on car imports from other countries. Reports suggested that China's cabinet will review the plans, which would undo the 40% import duty China imposed on US cars this summer.

Donald Trump says he could intervene in the case of Huawei executive Meng Wanzhou if it helps to avoid a further decline in US relations with China. Ms Meng, chief financial officer of Chinese networking giant Huawei, was arrested in Vancouver and could be extradited to the US to face fraud charges linked to the alleged violation of sanctions on Iran. In what was seen as a tit-for-tat action, the Chinese government detained two Canadians, entrepreneur Michael Spavor and former Canadian diplomat Michael Kovrig, over suspicion of "endangering national security". Talk of a boycott of Canada Goose jackets in China over the arrest has caused the shares to fall almost 20% in the last two weeks.


Tesla chief executive Elon Musk said he did not respect the US market regulator in an interview with CNBC. "I want to be clear: I do not respect the SEC,” Mr Musk said. Elon Musk settled securities fraud charges brought against him by the Securities and Exchange Commission (SEC) earlier this year.

Facebook appeared on a “dirty list” of companies from the US, UK, France, Switzerland and China accused of involvement in human rights and environmental violations in Myanmar. Burma Campaign UK said Facebook was on the “dirty list” because it had “consistently allowed its platform to be used to incite hatred and violence [against] minorities in Burma, in particular the Rohingya Muslim minority and Muslims in general”.


Brent crude prices fell 1% over the week by mid-session on Friday to trade at around $61 a barrel on concerns of a supply glut and a slowing economy.

Opec said it had offset a drop in sanctions-hit Iranian oil exports and lowered the 2019 forecast of demand for its oil. The cartel said demand for its crude would fall to 31.44 million barrels per day (bpd), 100,000 bpd less than predicted last month and 1.53 million less than it currently produces.


Anglo American said overall production will rise by more than previously expected between 2018 and 2021, while this year’s costs are forecast to be lower.

Reviving the US coal industry was one of the tenets of Donald Trump’s election campaign, but cheap shale gas makes this a very difficult proposition. Garry White argues that Trump will fail in his quest to reignite coal here.


J Sainsbury and Walmart-owned Asda have launched a legal challenge after complaining they are unable to meet the deadlines of the competition watchdog investigating their planned £7.3bn merger. The Competition and Markets Authority (CMA) is investigating the potential effects of the deal on shoppers and suppliers and it has refused to give them extra time over Christmas to “respond to a large amount of material recently provided to us”.

Online grocer Ocado’s retail revenue grew 12% in its latest quarter, in line with its guidance for the year, as new capacity helped it win new customers.

Other retail

Dixons Carphone shares tumbled after the retailer wrote down the value of its mobile business, Carphone Warehouse. The company, which also owns Currys PC World, posted a loss of £440m for the six months to 27 October – down from profit of £54m a year ago.

Over-50s clothing group Bonmarche Holdings issued a profit warning and said trading conditions were worse than at the height of the financial crisis.  Its shares fell by around a third.

Shares in fashion retailer Superdry plunged after it issued its second profit warning in less than two months - blaming mild weather for a potential £22m hit to its bottom line.

Struggling floor covering retailer Carpetright said interim losses widened sharply to £11.7m from £0.6m last time. Like-for-like sales fell by 12.7% over the six-month period but the company said there was a "marked sequential improvement" between the quarters.

Mike Ashley’s Sports Direct reported a 27% fall in interim profits as it counted the cost of absorbing failed department store House of Fraser. The group injected £70m into the department store's supply chain and Mr Ashley admitted that he faced "significant challenges" turning around its fortunes.

Inditex, the world’s largest fashion retailer which owns the Zara chain of stores, fell after the company missed market expectations in its third quarter results. Results at the Spanish-listed company were hit by currency moves, although margins expanded due to a lack of discounting.


Equipment hire group Ashtead saw revenue climb past the £1bn mark in its latest quarter as US division Sunbelt got a boost from the aftermath of two US hurricanes. It now expects full-year results to beat expectations.

Defence-related shares benefitted from reports that US President Donald Trump has agreed to Defence Secretary Jim Mattis’ request for a $750bn budget for the upcoming 2019 fiscal year.

Property and construction

UK house prices are continuing to fall as buyers and sellers "sit tight" amid the political uncertainty caused by Brexit, according to the Royal Institution of Chartered Surveyors (Rics). It found that the number of people looking for a new home between October and November fell 6%, while the number of agreed sales dropped 5%. The impact of softer demand meant house prices slid 1% last month, Rics said.

First-half losses more than doubled at Purplebricks, with the online estate agent warning that it saw little prospect for immediate improvement in the UK property market.

Balfour Beatty said its 2018 results would be better than expected due to an additional infrastructure investments sale in December, sending its share higher.


Shares in Interserve – one of the UK's largest providers of public services – collapsed after it revealed it is seeking a rescue deal. The company has £500m of debts and says its rescue plan will involve issuing new shares.

Serco shares jumped after the group maintained its guidance for 2018 profit, as margins grew on the back of an improved operational performance and cost cuts as part of its restructuring plan.

Troubled security group G4S saw its shares jump after management said it was separating its cash and notes business, which had revenues of £1.2bn last year, into its own unit that it might list in the future.


TUI Group posted an 11% rise in annual earnings, just ahead of forecasts, and said next year would generate similar growth, after strong demand for its higher-margin hotel and cruise offerings. TUI’s earnings growth and positive outlook are the latest example of it outshining smaller British rival Thomas Cook, which last month posted an almost 20% fall in annual earnings and suspended its dividend.

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