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Last Week in the City: Trade hopes propel Wall Street to record high

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (4 – 8 November 2019).

The US and China agreed to roll back tariffs on each other’s goods in stages should they reach an interim agreement in the next few weeks, as negotiations continue over resolving the more than year-long trade war.
Garry white employee

Garry White

in Features


The US and China agreed to roll back tariffs on each other’s goods in stages should they reach an interim agreement in the next few weeks, as negotiations continue over resolving the more than year-long trade war. This helped Wall Street hit a triple record high this week, as the DJIA, S&P 500 and Nasdaq reached new all-time records.

The FTSE 100 rose 1.1% over the week by mid-session on Friday and the midcap FTSE 250 also rose 1.1%. It hit a 12-month high on Thursday.

Trade war

China and the United States have agreed to remove additional tariffs in phases once their leaders sign an interim deal towards ending a costly trade war, with both sides still working to wrap up the agreement, the Chinese Ministry of Commerce said on Thursday. “If China and the US reach a phase one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously,” a ministry spokesman said.

US Commerce Secretary Wilbur Ross said licenses for American companies to sell components to China's Huawei will come "very shortly". Mr Ross said the government had received 206 requests for approval to do business with the Chinese company since it was placed on the Entity List. Its inclusion banned Huawei from buying American-made parts without a special license, while US companies were banned from selling to Huawei without a special license too.

The US trade deficit with its global partners contracted to $52.5bn in September. The deficit was slightly above expectations of $52.2bn. August’s shortfall was just over $55bn. However, both imports and exports fell. US exports were down 0.9% and imports fell 1.7% month-on-month. Soybean exports fell by $1bn, although this is not stripped out by country.


A fiscal expansion looks certain in the UK, whichever party wins the 12 December election. Both Labour and the Conservatives dropped a key target to see the national debt falling over time. The move will allow more spending on hospitals, schools, housing, and public transport.

The pound fell after the release of the Bank of England’s minutes from its most-recent rate-setting meeting. The Bank’s Monetary Policy Committee voted in favour of holding rates for the 15th month in a row, but the market was surprised that two members voted for an immediate rate cut.

Boris Johnson’s Brexit deal and global trade tensions are likely to hold back growth in the UK economy over the next three years, the Bank of England said. British national income will be 1% lower by 2022 than originally thought, the Bank predicted today in its quarterly inflation report. The bank now thinks growth will pick up to 1.8% t in 2021 and 2% by 2022, although it will be just 1.4% in 2019 and 1.2% in 2020.

The UK services sector, which includes retail, finance and creative industries, saw its purchasing managers' index (PMI) rise to 50.0 in October, up from 49.5 in September, according to IHS Markit. The market had been expecting a more modest rise to 49.6. “Although this represented a slight improvement on September's contraction, business levels were supported by existing contracts as the volume of new work declined further,” IHS Markit said.

British construction activity shrank for the sixth month in a row in October – at one of the fastest rates since the 2009 financial crisis. The IHS Markit/CIPS construction PMI rose to 44.2 in October from 43.3 in September, roughly in line with economists’ forecasts in a Reuters poll, but this was still the third-lowest reading since 2009 and pointed to a fall in output.

Factory activity across the Eurozone contracted sharply last month, with the malaise spreading across the region. Manufacturing activity in Germany, Europe's largest economy, remained stuck in recession as new orders fell for the 13th month running. Italian manufacturing activity declined for the 13th consecutive month, while in Spain it contracted for a fifth month. However, France bucked the trend and factory growth increased modestly, likely supported by billions of euros of stimulus from the government. US manufacturing is also seeing a slowdown. New orders for US factory goods fell by the most in four months in September.

However, there was some positive data from Germany, as the country’s exports posted their biggest rise in almost two years in September. Seasonally-adjusted exports increased by 1.5% on the month. That was their biggest increase since November 2017 and compared with economist expectations for a rise of 0.4%.

The People’s Bank of China cut the interest rate on its medium-term lending facility for the first time since early 2016. It cut the rate by 5 basis points to 3.25% from 3.30% previously.

Central bank action has supported markets this year, but John Redwood argues that we need to see a recovery in corporate earnings here.


Billionaire businessman Michael Bloomberg is strongly considering entering the race for the US Democratic Party's presidential nomination. The ex-New York City mayor is concerned the current field of candidates is not good enough to beat Donald Trump in the 2020 election, his adviser said.

The Japanese and Chinese stock markets have not performed in line with the main western markets in recent decades. John Redwood takes a look at why here.


On Sunday, Saudi Arabia’s state-owned oil behemoth Armaco finally unveiled details of its oft-postponed IPO. The country is trying hard to find “anchor investors” but not having much luck. Reports suggested the company was "negotiating commitments" from its wealthiest citizens to buy stock in the Aramco initial public offering, including billionaire Prince Al-Waleed bin Talal, who was previously arrested by Mohammed bin Salman’s security services and locked up in the Riyadh Ritz-Carlton for months until he pledged an unknown amount of money to the Saudi treasury.

Aramco has abandoned plans for a foreign listing and will list its shares on the Riyadh stock exchange alone and the price will be determined after registering interest from investors. The autocratic states crown prince Mohammed bin Salman has previously said he wanted a valuation of $2 trillion, but observers remain sceptical as to whether this can be achieved.  Indeed, many think a valuation of between $1.2 and $1.5 trillion is more realistic. In order to try and interest western investors, the kingdom cut taxes on the company for a third time, revealed incentives for investors not to sell and said it was considering boosting dividends further to around $100m a year. Aramco also released its results for the first nine months of 2019, which showed that income slipped from $83.3bn in 2018 to $68.2bn this year, with revenues down from $233.3bn to $217.1bn.

Trainline, which floated in London earlier this year, reported an operating loss of £8m and loss after of tax of £89m, largely as a result of the costs associated with the IPO.

The Indian arm of US-based Burger King filed for an IPO to raise up to 4 billion rupees (about $57m), as it looks to open more restaurants in the country. Burger King India plans to have 325 stores by the end of 2020, up from 202 as of June this year.

Chinese electric vertical take-off and landing aircraft developer EHang is preparing to launch an IPO on Nasdaq, offering $100m in American Depositary Shares.

Uber beat estimates in its third-quarter results but lost more than $1bn. The group reported losses of $1.2bn, almost 20% more than the $986m loss during the same quarter last year, on revenue of $3.8bn. Revenue from the taxi aspect of the business rose by 20% since the same quarter last year, from $2.4bn to almost $2.9bn. The shares hit a record low later in the week after the lock-up period for insiders to sell their shares expired.  


FTSE 100 listed Just Eat cancelled its shareholder meeting on 4 December which was scheduled for a vote on the all-share offer from Dutch group Takeaway.com. Instead, the deal will need acceptance from 75% of Just Eat's shareholders. The Just Eat board unanimously recommended that shareholders accept the Takeaway.com offer. There is a rival cash offer from another approach from investment group Prosus, which Takeaway.com said significantly undervalued Just Eat.

British Airways owner IAG agreed to buy Air Europa for €1bn in a move that management said was an attempt to make Madrid a key aviation hub that will challenge rivals such as Heathrow and Charles De Gaulle in Paris. It also will make it a major player in international routes to South America. Air Europa has a fleet of 66 aircraft and carried nearly 12 million passengers last year. However, there may be competition issues. Ryanair chief executive Michael O'Leary said his company will ask the UK's market watchdog to force IAG to make divestments as part of the deal, which he said would be bad for competition.

US medical device maker Stryker is to buy smaller rival Wright Medical in a $5.4bn transaction to increase its exposure to orthopaedics, a fast-growing sector.

Profit warnings

Blue chip engineer Weir Group warned that profits at its oil and gas division will be lower than expected as US customers deferred orders in the third quarter. Orders for the division in the third quarter were 32% lower year on year reflecting challenging market conditions in North America. Original equipment orders fell 26% and aftermarket orders decreased by 34%.

Germany’s Commerzbank said its 2019 profit would be lower than last year, partly due to the impact of eurozone monetary policy that has pressured margins.

US clothing retailer Gap slashed its full-year guidance and said chief executive Art Peck will step down immediately, temporarily replaced by the founders’ son Robert Fisher. Third-quarter same-store sales fell 4%.

Shares of The Works slumped after the retailer warned on profits, blaming a "challenging" consumer environment. Recent like-for-like sales haven’t improved as much as hoped and, with management also taking a cautious view on Christmas, the company said full year pre-tax profits were expected to come in “significantly below” the current consensus of £7.3m.

Shares in LightwaveRF, which makes lighting devices that can be controlled from a smartphone, slumped after it warned that its current year loss will be materially below market expectations.


Shares in Woodford Patient Capital Trust, founded by veteran money manager Neil Woodford, dropped on Monday after the fund cut the valuation of one of its major holdings. Last month the investment trust said Schroders would manage its portfolio after the abrupt exit of Mr Woodford following the winding up of his flagship equity income fund. The funds' net asset value was cut by 4.3% after IH Holdings, a unit of cold fusion technology firm Industrial Heat was cut, as well as the upward valuation of another unnamed company.


The takeover of Inmarsat was thrown into chaos after one of its largest shareholders threatened to scupper the $3.4bn deal after accusing the board of short-changing investors. Oaktree, founded by billionaire Howard Marks, demanded a delay, arguing the deal needs to be sweetened to give investors cash from a lucrative US mobile phones spectrum contract, said to be worth a whopping $2bn.  Oaktree argued that the price being paid by bidders Warburg Pincus and Apax ignored huge revenues Inmarsat may be set to gain from its US partner Ligado.

Japanese investor Softbank posted an operating loss for the most recent quarter of about $8.9bn on its mega tech funds, including the flagship Vision Fund, which holds investments in Uber, WeWork, Slack and other major start-ups. In what many will regard as an understatement, chief executive Masayoshi Son said: "My judgement around WeWork was not right in many ways.”

Chinese search engine Baidu posted better-than-expected results for the third quarter. Revenue growth was flat while earnings per share declined for the September quarter, but they were above market expectations.


Despite hopes of progress in the US-China trade war, Brent crude futures fell 0.6% over the week by mid-session on Friday to trade at about $61.30 a barrel. Opec downwardly revised its forecast for global oil demand growth over both the medium-term and long-term, citing tough market conditions and “signs of stress” in the world economy.

Boris Johnson’s government announced a ban on new fracking in the UK, a move that was criticised by opposition parties as a political move ahead of the 12 December general election. The Department for Business, Energy and Industrial Strategy said hydraulic fracturing was “paused unless and until further evidence is provided that it can be carried out safely here”. This followed a series of earth tremors caused by Cuadrilla’s operations near Blackpool.  Shares exposed companies such as iGas and Egdon Resources fell. Australian-listed AJ Lucas, which owns almost half of Cuadrilla, was also hit hard.  Cuadrilla’s management said it hoped to "address concerns" about fracking so that a moratorium announced by the government can be overturned.

Drax, Equinor and National Grid announced plans to develop the world's first net zero emissions industrial zone in the north east of England by 2040, a move they said could help Britain meet its climate targets. The plan involves cutting emissions at several industrial sites around the Humber estuary, using technology to capture, store and use carbon dioxide emissions and by using hydrogen as an emission-free fuel for heating and transport.

Airlines & travel

The fallout from the Boeing 737 Max crashes continues. Ryanair said there would be a further two-month delay to the start of its Max 737 deliveries and warned it may have none of the jets to fly next summer, which would hit growth at the airline. Ryanair now expects to fly 157 million passengers in the year to 31 March 2021, a growth rate of just 2.6% from its target of 153 million in its current financial year. This would mark its slowest growth rate in seven years.

A Boeing whistle-blower also claimed that passengers on its 787 Dreamliner could be left without oxygen if the cabin were to suffer a sudden decompression. Boeing denied the accusations and said all its aircraft were built to the highest levels of safety and quality.

Shares in British Airways owner IAG fell after the group cut its forecast for capacity growth in the next three years due to global economic weakness.

Engine maker Rolls-Royce managed to escape a profit warning but cut its full-year outlook to the lower end of its guidance as it continued to struggle with the Trent 1000 engine. Management said it was likely to take a £1.4bn charge to full-year operating profit because of troubles with the engine.

Norwegian Air's shares fell 8% after it conducted its third fundraising in less than two years. The company raised 2.5 billion Norwegian crowns (£200m) from a combined sale of shares and convertible bonds, which it said would cover its needs "through 2020 and beyond based on the current business plan".

US-listed travel companies TripAdvisor and Expedia missed third-quarter earnings expectations due to competition from the like of Airbnb, sending shares in both companies down by around a quarter. Shares in Booking Holdings, which owns the website booking.com, were also hit despite beating Wall Street earnings expectations.

Last week, Richard Branson’s Virgin Galactic became the first space tourism company to list on public markets. It’s probably best to invest indirectly. Garry White explains why here.


Aston Martin Lagonda swung to a loss in its third quarter as demand for its luxury cars dried up. However, the shares surged after management said its first production trial of the DBX, its first luxury SUV, was now complete. Orders for the car have already been placed at “confidential” customer events and a second trial is set to begin later this month.

BMW reiterated its full-year guidance at its third-quarter results after cars sales rose 3.6% in the period, including a 5.8% rise in China sales in September. The positive outcome was mainly down to the German group’s launch of a new X3 sports utility vehicle.

Japan’s Toyota posted a rise in operating profit for the second quarter, boosted by higher sales and strength in North America.


A trio of natural disasters resulted in Lloyds of London insurer Hiscox to set aside $165m for claims, exceeding the insurer’s catastrophe budget for the second half of the year. The claims are from damage resulting from hurricane Dorian and typhoons Hagibis and Faxai.


J Sainsbury’s profits were almost wiped out for the first half of the year after being hit by costs relating to store closures. Pre-tax profits dropped to £9m from £107m in the same period last year. Sainsbury's also announced a 1% drop in like-for-like sales.

Other retail

The British Retail Consortium said overall retail spending rose 0.6% year-on-year in October, marking the strongest growth since April when spending was boosted by the timing of Easter. Nevertheless, the BRC said the longer-term outlook remained bleak, with the 12-month rolling average of sales growth falling to a new low of 0.1%.

Marks & Spencer profits dropped in the first half of its financial year following a sharp fall in demand for its clothes and home goods. Overall, pre-tax profits tumbled by 17% to £176.5m on total sales down 2.1% to £4.86bn. Like-for-like sales in clothing and home fell by 5.5% during the six months to 30 September, worse than an expected 4.3% drop. However, its shares rose after its new management indicated that action was being taken. The high street store said it was going to ensure that they had enough product in all sizes and would be quicker to restock popular and fast-selling items in stores. The retailer also said it was seeing a positive response to its current winter season clothing, which it described as a "better value product". Food was also a bright spot, with like-for-like sales growing 0.9%, ahead of an expected 0.3% rise. The dividend was cut by 40% to 3.9p, as previously indicated.

Games Workshop shares soared again after management said that trading since its update in September had continued "well", with profit and sales ahead of the previous year. The company, which makes miniature wargames, said royalties receivable were "significantly" ahead of the prior year.

Mothercare plans to call in administrators to the group’s UK business, putting 2,500 jobs at risk. The baby goods retailer said that its 79 UK stores were "not capable of returning to a level of structural profitability and returns that are sustainable for the group".

Associated British Foods reported a 2% rise in annual earnings, with growth at its Primark fashion chain and grocery businesses more than offsetting lower sugar profits. It also said that the rise in the pound should help margins in the current year. Management had previously warned that the weak pound would hit its margins going forward.

The gloomy retail backdrop didn’t stop Briton’s love of Swedish meatballs. Sales in Ikea’s UK business were up 8% year-on-year to £2.1bn, the retailer said in its annual report.

Interim profits at Halfords were dented by weakened consumer confidence. The car parts, bikes and camping retailer said pre-tax profits for the 26 weeks to 27 September fell 2.5% to £27.5m. Management said one cause was “consumers delaying big-ticket discretionary purchases, reflecting the current economic and political uncertainty”.

Fashion chain Superdry reported a steep fall in revenues in the first half of its financial year, although the group said its turnaround plan is making "good progress".

The owner of high-street chemist Boots is considering taking the company private in a deal worth about £48bn. US-listed Walgreens Boots Alliance has drafted in Evercore Partners to examine whether a deal can be agreed. Chief executive Stefano Pessina owns 16% of the equity and would stand to gain about $9bn from a deal. If a deal was to go through, a leveraged buyout would require the involvement of several private equity firms willing to invest lump sums of cash.


Imperial Brands described 2019 as a "challenging year with results below our expectations" when it published its full-year results. This followed a slowdown in next-generation products such as cigarettes following a ban on favoured vaping products in the US. As a result, management was taking a “cautious” revenues outlook for the current year.

Shares in gambling companies fell after a cross-party group of MPs called for a £2-per-bet limit on online games to prevent gambling addiction, which they referred to as a public health crisis. Companies including GVC Holdings, which owns Ladbrokes and Coral, William Hill and 888 Holdings were hit.

It was all gloom for gaming companies. London-listed GAN said it expected full-year revenue will more than double on strong demand for its internet gambling software in the US States after the start of the National Football League season in September. The company supplies internet gambling software to US casinos.

French luxury-goods group Richemont missed earnings estimates in the third quarter. The owner of Cartier and Van Cleef & Arpels saw a double-digit decline in Hong Kong sales, hit by the recent protests in the territory.  


The battle for viewers in video streaming services is hotting up, with BritBox, a streaming service offering shows from ITV, the BBC, Channel 4 and Channel 5, launched in the UK. Downton Abbey, Gavin & Stacey, Wolf Hall, Love Island and Broadchurch are among the shows available. US-listed The Walt Disney Co reported higher revenue and profits, despite massive investments in its streaming service, Disney+, which is set to launch on 12 November. As a result of the increased competition, Netflix shares are down by about a quarter since their summer peak.

BT Group’s shares fell after Virgin Media agreed a five-year mobile deal with Vodafone UK. It replaced Virgin Media's current agreement with BT which expires in late 2021 and means Virgin Mobile services, including 5G, will be hosted on the Vodafone network.

Germany’s Deutsche Telekom raised its full-year guidance but cut its dividend after reporting a rise in third-quarter revenue and earnings. Management blamed unexpectedly high-costs for the mobile spectrum auction in Germany, as well as “greater clarity” on spectrum auctions in the US.

United Group, the private-equity backed cable company, has struck a €1.2bn deal to acquire Bulgaria’s former state-owned telecoms operator Vivacom.


AstraZeneca said it will create a new global research & development centre and an artificial intelligence innovation centre in China and a "first-of-its-kind" healthcare industrial fund with China International Capital Corp. The fund's target size is $1bn and it will support domestic companies and partners, and international companies looking to establish a presence in China.


The difficult retail backdrop has hit shopping centre owner Intu hard. The real-estate investment trust revealed that it was expecting to report a sharp drop in rental income for 2019 after a higher-than-forecast number of insolvencies from its tenants. Management conceded it may have to sell assets into a distressed market or raise new equity. It said like-for-like net rental income for 2019 was likely to be down by about 9% year-on-year, with more than half the reduction coming from the impact of cost-cutting insolvencies known as company voluntary arrangements (CVA).

Bovis Homes has agreed to buy Galliford Try’s housing arm for almost £1.1bn. Bovis will pay £300m cash and £675m in shares to acquire Linden Homes and Galliford Try Partnerships & Regeneration. The move will more than double the size of Bovis’s housebuilding operations, making the company one of the five largest residential developers in the country.

House builder Persimmon said sales volumes fell 6% over the first half of the financial year. However, management noted that in the summer the group had seen the usual pick-up in customer activity.


Kier Group’s shares fell following a report alleging lenders are trying to pass on its debt to hedge funds. HSBC was said to be marketing the company’s debt for as little as 70p in the pound.

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