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Last Week in the City: Tesla loses another executive

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (28 January to 1 February, 2019).

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Garry White

in Features


The FTSE 100 was once again trading above the 7,000 level on Friday – a landmark last seen in November. Optimism over trade talks between the US and China set a positive tone in global stock markets, as did an even more dovish tilt from the Federal Reserve.  The FTSE 100 rose 3% over the week by mid-session on Friday. The FTSE 250 was up 1.7%.


Foreign Secretary Jeremy Hunt admitted that Article 50 may have to be extended to avoid the UK crashing out of the EU without a deal on 29 March. Prime Minister Theresa May is trying to get adjustments from the EU over the backstop to the Irish border, but Dublin and Brussels insisted that negotiations on the Withdrawal Agreement would not be reopened. The Conservative Party put on a rare show of public unity this week, after votes on Tuesday saw off attempts by parliament to take control of the Brexit process. Germany’s Chancellor Angela Merkel said the EU’s goal must be to ensure the UK’s orderly exit from the bloc.

Barclays is preparing to move £166bn worth of assets from London to its Irish division, a High Court judgement revealed. The reason for this is that the bank is concerned that City financial services companies could lose their special "passporting" rights that enable them to provide services across Europe, in the event of a no-deal Brexit pass.


The Federal Reserve became even more dovish this week, as it kept US interest rates on hold. In its statement, the central bank removed language regarding future rate increases being consistent with its goals, and instead said it viewed an accomplishment of its goals as the most likely current outcome, without explicit reference to future hikes. It also added the word “patient” to the statement. This easing in tone has been responsible for the sharp rebound in equities in January.

US jobs data was strong – and significant ahead of expectations. Wage gains cooled and the government shutdown pushed up the unemployment rate, signalling job gains remain robust without major inflation pressures that could worry Federal Reserve officials. Nonfarm payrolls increased by 304,000, the most in almost a year in January.

Growth in the UK factory sector cooled to a three-month low, with the January manufacturing purchasing managers’ index hitting 52.8, down from 54.2 in December. Warehouses are also stockpiling goods at the fastest rate since the record began, almost 30 years ago, ahead of Brexit.

There was more downbeat data out of China. The Caixin/Markit Purchasing Managers Index – which is a private survey of China's manufacturing sector – hit 48.3 in January, down from the 49.7 level in December and below expectations of 49.5. A reading below 50 indicates contraction. It comes after the country reported its weakest economic expansion in 28 years in 2018, and growth is expected to slow further.

Italy's economy contracted for the second consecutive quarter at the end of last year, throwing the country into a technical recession, seen as a setback for the new populist government. GDP fell 0.2% quarter-on-quarter between October and December, following a 0.1% decline in the third quarter. France's GDP rose 0.3% in the final three months of 2018, beating expectations despite the Gilets Jaunes protests. GDP in the 19 countries sharing the single currency rose by 0.2% in the fourth quarter.


US and Chinese trade negotiators will meet again in February in an attempt to reach a deal before the end of a 90-day truce, China's media reported. In December, the two countries agreed to the truce to try and defuse their escalating trade war, which had led to new tariffs on billions of dollars of goods. The announcement came at the end of a two-day meeting in Washington, where China pledged to purchase an additional 5 million tonnes of US soy beans. To find out why soy beans matter to the trade dispute click here.

John Redwood, Charles Stanley’s Chief Global Economist, looks at technology, trade wars and the US-China relationship here.

The trade talks have been complicated by the situation relating to Huawei. Meng Wanzhou, its chief financial officer, appeared in a Vancouver court this week for a bail review. The next court date is March 6, but Canada must decide on the extradition request by 1 March.  US law enforcement officials announced 23 criminal charges against Huawei and Ms Meng – including money laundering, fraud, conspiracy and intellectual property theft – and made the extradition request. A UK government review into telecoms security which will recommend whether Huawei should be banned from UK networks will be completed in March. A number of countries have said they will not use the company’s products over spying fears. Garry White took a look at the implications of the Huawei situation here.

In a snub to President Trump, the UK, Germany and France created a new payments system to allow European businesses to trade with Iran without falling foul of US sanctions. The Instrument for Supporting Trade Exchanges (INSTEX) was described as a “new mechanism for facilitating legitimate trade between European entities and Iran”.

The US Congressional Budget Office (CBO) calculated that the 35-day-long US federal government shutdown, which ended on Friday 25 January, cost the US economy $11bn.

North Korea promised to destroy all its nuclear enrichment facilities, according to the US’s top nuclear negotiator.  Pyongyang has demanded “corresponding measures” from Washington.


Facebook shares soared after the social media group smashed Wall Street expectations in its earnings report. Its user numbers continued to rise, despite a number of recent privacy scandals.

Apple warned sales for its second quarter were likely to be lower than forecast, a signal that it continues to face weak demand for its iPhone, especially in China. Indeed, data released this week indicated that smartphone sales fell 14% over the course of 2018 in China.  The tech giant said it expects revenue between $55bn and $59bn for the current quarter ending in March, largely below analysts' average estimate of $58.83bn.

Online retail giant Amazon guided to lower-than-expected sales for the first three months of the year, sparking investor fears over slowing growth. The shares fell despite it reporting record sales, up 20%, and profit, up 63% for the Christmas holiday period.

Tesla rattled investors by reporting profit that fell short of expectations and revealing that its chief financial officer is leaving — the latest senior executive to exit the electric car company. Elon Musk, chief executive, said Deepak Ahuja was retiring. Mr Ahuja returned to the company less than two years ago after its previous chief financial officer unexpectedly quit.

Ebay beat quarterly sales forecasts after a jump in Christmas spending.

Ride-hailing companies Uber and Cabify will suspend their services in Barcelona after the regional government imposed limits on how they can operate in the city.

Foxconn, which raised hopes of a US manufacturing revival by announcing a new factory in Wisconsin, is now reconsidering its plans. It no longer expects to make liquid crystal display panels at the Wisconsin plant and plans to hire mostly engineers and researchers, not manufacturing workers. The changes are a significant shift from the company’s announcement of the plant at a White House ceremony in 2017.

South Korea’s Samsung Electronics warned of weaker earnings for the coming year, after reporting a 29% drop in fourth-quarter operating profits.


BT Group said it continued to expect full-year earnings will reach the top end of its guidance range after third-quarter results beat market forecasts. However, the company warned that it faces potential headwinds, such as tighter regulation and competition in the consumer division.

Broadband provider TalkTalk issued a profit warning. Management cut current-year guidance by between £10m and £15m due to changes in how the company reports revenue from connection fees as well as investment in its network.


After falling at the end of last year, the oil price soared in January. Brent crude prices rose 18.5% over the month, but were down 1.2% over the week by mid-session on Friday. 

Royal Dutch Shell reported its strongest financial results in four years after the energy company’s profits surged by a third in 2018. The fourth-quarter profits were a third higher than the year before, but were more or less unchanged from the prior quarter, in part due to a dip in oil prices at the end of last year.


Iron ore prices rallied after another tragic accident at a tailings dam owned by Brazilian miner Vale – less than three years after a similar accident at the Samarco mine, jointly owned by Vale and BHP Group. Vale shut down 10% of iron ore output offline as it plans to decommission a total of 19 dams over three years. The move is likely to benefit Australian rivals such as Rio Tinto and Fortescue Metals Group.


Ocado has held secret talks with Marks & Spencer over the launch of a food delivery service that could signal the end of its long running tie-up with Waitrose, owned by The John Lewis Partnership. The current supply deal between the companies ends in September 2020.

Tesco announced plans to scrap fresh counters from 90 stores, in a move that will place more than 9,000 skilled workers in its meat, deli and fish counters at risk. In response, rival Wm Morrison said it's planning to invest in its Market Street counters, which specialise in fresh food amid growing demand from customers.


Mike Ashley’s influence on the UK’s retail industry is increasingly significant. According to retail analyst firm GlobalData, 3.2% of all spending on non-food products in the UK go via retailers the Sports Direct founder has a stake in, The Retail Gazette reported. Last year Mr Ashley brought House of Fraser and Evans Cycles out of administration and is currently in talks to take over HMV and Sofa.com.

The company that owns Oddbins has appointed administrators. European Food Brokers, which also owns Wine Cellars and Whittalls Wine Merchants, continues to trade.


A jump in sales of gin and tequila helped boost revenues at Diageo, the world’s largest producer of spirits. The shares hit a new all-time high following publication of its interim results, which showed strong growth in the UK market.

Consumer products giant Unilever warned of a “challenging” year ahead after sales growth missed City expectations in the fourth quarter of 2018.


TSB, which is owned by Spain’s Sabadell, said its computer meltdown pushed the bank into a £105.4m loss last year, down from a £162.7m profit in 2017. Up to 1.9 million digital and mobile banking customers were left unable to access their accounts in April last year after work to transfer the bank’s IT system failed.

Deutsche Bank reported an increase in full-year pre-tax profits to €1.3bn, up from €1.2bn in the previous 12 months, despite a 4% fall in revenues to €25.3bn.

Shares in Metro Bank fell to record lows in the continued fall-out from last week's trading update. The group admitted that the accounting error had been initially discovered by official regulators and not its own staff as the lender claimed in its disappointing trading update the previous week.

Private-equity company 3i Group reported a rise in its net asset value during the third quarter of its financial year, driven by a strong performance of its private-equity portfolio. The total return for the nine months to the end of 2018 was 13.9%, driven by good growth from non-food discount retailer Action, 3i Infrastructure, mini-pumps manufacturer Aspen Pumps, and travel agency Audley Travel.

Is there too much borrowing? John Redwood, Charles Stanley’s Chief Global Economist, looks at mounting levels of debt around the world here.


Royal Mail Group shares are trading near record lows after declining junk mail and business uncertainty meant it delivered fewer letters. Companies have been forced to scale back their mass mail marketing campaigns because of tighter EU privacy rules introduced under the General Data Protection Regulation. However, online shopping continues to boost its parcels unit.

Shares in packaging giant RPC Group rose after US rival Berry Global said it was looking at outbidding private-equity group Apollo Management for the company. Indiana-based Berry confirmed it has requested information from RPC which would allow it to carry out the necessary due diligence ahead of a “possible offer in cash”.


Shares in Severn Trent, United Utilities and Pennon rose after all three groups had their five-year business plan for the 2020 to 2025 period approved by regulator Ofwat. The plans set out how management intend to cut bills by up to £70 in real terms over the period.


The annual rise in house prices "almost ground to a complete halt" in January, according to the latest survey from the Nationwide. Prices grew by just 0.1% from a year earlier, the building society said, down from an annual rate of 0.5% in December.

London-based estate agent Foxtons says it expects an 80% drop in earnings for 2018 after a fall in sales volumes and a rise in operating expenses.

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