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Last Week in the City: Venezuelan inflation to hit 10,000,000%

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped UK equity markets this week (21 to 25 January, 2019).

Sunset over london
Garry white employee

by
Garry White

in Features

25.01.2019

The World Economic Forum was held in Davos, with the rich and powerful meeting for their annual shindig. The tone was muted, with the political failings of Europe and the US a major theme. Economists expressed concern over the financial uncertainty provoked by polarisation in Western societies caused by populist movements. Corporate leaders expressed dismay at the inadequacy of Western political leadership. Activists lamented the lack of imagination and empathy among Western elites.

The FTSE 100 fell 2.2% over the week by mid-session on Friday as the pound strengthened. The FTSE 250 was down 0.5%.

Garry White argues that there are reasons to be positive on equities following the falls at the end of 2018 here.

Brexit

The pound rose above $1.30 this week after the Labour Party said it could support legislation that delayed Britain’s departure from the EU. This followed proposed legislation from Conservative Nick Boles and Labour’s Yvette Cooper that would give MPs a vote on extending the Article 50 exit process. The amendment is expected to pass.

Airbus and Ford have issued stark new warnings about the dire consequences of Britain crashing out of the European Union without a deal to protect trade links and supply chains. “The UK's aerospace sector now stands at the precipice," Airbus chief executive Tom Enders said. “If there is a no-deal Brexit, we at Airbus will have to make potentially very harmful decisions for the United Kingdom." Ford said that a 'no-deal' Brexit would cost it $800 million in 2019.

Northern Ireland’s Democratic Unionist Party will reportedly back Theresa May’s Brexit deal if she secures a time-limit on the Irish border backstop from Brussels.

On Tuesday next week, MPs vote on what they think the government should do next. So far, 14 amendments have been proposed, though more may be added.

Economics

China’s official economic growth in 2018 came in at 6.6% – the slowest rate since 1990. The figure was in line with expectations.

Spending by UK households surged to a 13-year high, according to the Office for National Statistics. Average total spending rose £18.40 a week to £572.60 in the year ending March 2018, which is the highest since 2005 once inflation is taken into account.

German business sentiment fell to its weakest level in almost three years as trade uncertainties and weaker growth in China amplified concerns over the economic outlook. The Ifo Institute’s gauge of corporate confidence in Europe’s largest economy fell to 99.1 in January from 101.0 in December. This was its fifth consecutive decline.

The International Monetary Fund (IMF) warned that the world economy is slowing — and that it will get worse if countries keep squabbling over trade. The agency's updated World Economic Outlook lowered estimates for growth in 2019 by 0.2 percentage points to 3.5%, its second downward revision. It blamed weakness in Germany and Turkey.

Geopolitics

US Commerce Secretary Wilbur Ross downplayed expectations for an end to the US-China trade war when both sides meet in Washington next week, as hopes were mounting that a resolution could come soon. Mr Ross said the countries were a long way from resolving their differences. “We’re miles and miles from getting a resolution,” he said in an interview on CNBC. “Trade is very complicated. There are lots and lots of issues.”

Concerns that the longest US shutdown in history cut damage economic growth mounted. The US Senate has rejected two bills to end the government shutdown, leaving no end in sight to the shutdown, which has lasted over a month. President Trump wants funding for his wall on the border with Mexico.

Inflation in Venezuela is expected to hit a staggering 10,000,000% this year according to the IMF. The political crisis in the South American nation took a dramatic turn with the decision by Donald Trump and several Latin American countries to recognise the opposition leader, Juan Guaidó, as the country's interim president. The decision inflamed tensions, bolstering critics of socialist President Nicolás Maduro who has responded by cutting ties with Washington. The US State Department said all non-emergency government employees should depart the country.  

Technology

Shares in FTSE 250 listed semiconductor components maker IQE fell on Friday after management revealed it expected lower full-year earnings on slightly higher revenue, as it struggles with supply chain disruptions and short-term demand for a semiconductor laser.

However, Thursday saw US chipmakers post substantial gains, with the Philadelphia Semiconductor Index rising 5.4%. This followed positive earnings from Xilinix, Lam Research and Texas Instruments.  

Alphabet’s Google was fined €50m by the French data regulator CNIL, for a breach of the EU's data protection rules. CNIL said it had levied the record fine for "lack of transparency, inadequate information and lack of valid consent regarding ads personalisation". Google said it would appeal.

Elon Musk’s Tesla has curbed production for some of its most expensive vehicles. The electric-auto giant said it has trimmed production hours for its Model S sedan and Model X SUV. This will help shift Tesla’s production towards its cheaper Model 3, which the company has long promised would be key to attracting a mass-market audience.

Consumer campaigner Martin Lewis dropped his legal action against Facebook over a series of ads that ran on its platform, falsely claiming he backed several investment schemes. The MoneySavingExpert website founder had claimed the fake endorsements had caused him reputational damage. He said he had dropped the case because Facebook had agreed to introduce a scam ads reporting button. As part of the deal, Facebook will also give £3m to Citizens Advice.

Telecoms

Vodafone narrowly missed a consensus analyst forecast for third-quarter revenue after competition in southern Europe continued to bite and it cut prices in South Africa. Its European business is still declining, with service revenues falling 1.1%. The shares, which yield more than 9%, are close to a ten-year low as some investors believe its dividend is unsustainable.

Controversial Chinese group Huawei said it will overtake Samsung to become the world’s biggest smartphone maker in the next two years. Vodafone also said it would “pause” the installation of new Huawei equipment in its core networks across the world. Concerns that the company’s equipment could be used for spying by the Chinese regime led to a number of countries closing their doors to its products. The company is banned from bidding for US government contracts; New Zealand and Australia have blocked local telecoms operators from using its equipment in their fifth-generation networks – and Germany is mulling a similar ban. In the UK, BT Group has removed Huawei components from a system it is developing for the emergency services. Huawei executives insist this is unnecessary, arguing the private company obeys regulations in all countries in which it operates. 

Energy

After surging since Christmas Eve, the oil price slipped this week. Brent crude futures lost 2.4% over the week by mid-session on Friday, trading at around $61.18 a barrel.  

Mining

BHP Group, which recently changed its name from BHP Billiton, said the forced derailment of a fully-laden iron ore train in the Pilbara region of Western Australia and unplanned production outages at its Olympic Dam and Spence copper mines would cost it $600m. November's train wreck derailment hit BHP's iron ore output by 6m tonnes, and was by far the main factor in the overall lower-than-expected volumes in the final three months of 2018.

Retail

Dixons Carphone’s Christmas trading update was well received, despite posting a 7% fall in mobile phone sales. The news reflects a growing trend in the phones market after Apple cut its sales forecast earlier this month. Sales of smart tech, supersize TVs and gaming were strong.

WH Smith has posted a 6% rise in total sales in the 20 weeks to January 19, as sales at its high street stores fell and its travel business rose. There was a 2% fall in high street like-for-like sales, but like-for-like sales across its travel division rose 3%.

Pets at Home had a good Christmas and its shares rose sharply. In a trading update for the 12 week period from 12 October, 2018 to 3 January, the company said that group revenue grew 6.3% to £237.2m when compared with the same period in the previous year.

Administrators of Patisserie Holdings named the 71 outlets that will close following the company’s collapse. KPMG said that 902 jobs will go due to the closure of 27 Patisserie Valerie stores, 19 Druckers and 25 Patisserie Valerie concessions. However, KPMG said it is "business as usual" at the remaining 122 outlets.

Consumer

Private equity group Apollo made a £3.3bn recommended bid for plastic packaging giant RPC. Each RPC shareholder will get 782p cash for every share they own, 15.6 per cent up on the 683.6p closing price on 7 September, the last day before talks were confirmed. However, some investors argued that the bid was too low.

Fever-Tree Drinks defied its critics by “comfortably” beating market expectations as its US business grew strongly. The maker of upmarket tonic waters said sales rose 39% last year to £236m, narrowly beating analyst expectations of £234m. Sales in the UK leapt 52%. US revenue rose by a fifth, boosted by an exclusive deal with Southern Glazer’s Wine and Spirits, North America’s largest wine and spirits distribution business.

Frankie & Benny’s owner The Restaurant Group posted a dip in like-for-like sales during 2018, but said that it has been seeing positive growth since the World Cup as its pubs continued to outperform the sector. The group also remained upbeat on its recent £500m acquisition of Wagamama, which it said “continued to trade well over the festive period”.

Daily Mail and General Trust (DMGT) said revenue growth slipped 2% in the three months to the end of December, impacted by disposals in its business-to-business division. Revenue rose 2% on an underlying basis. The Daily Mail’s parent company also maintains its full-year guidance, as revenue rises for its online and TV offerings offset a decline in print sales.

Irn-Bru maker AG Barr guided to higher full-year revenue, noting concern over future regulations as well as the current business uncertainty in the run up to Britain’s imminent departure from the EU.

Brewer Fullers will sell its entire beer business, which includes London Pride and Cornish Orchards, to Japanese company Asahi for £250m. The deal also involves a strategic alliance between Fuller’s and Asahi. Fullers will focus on its hotels and pubs business, which generates 87% of its operating profits. JD Wetherspoon and Marston’s also posted like-for-like sales growth in their most-recent quarterly update.

Healthcare

Indivior said a US district court had granted the British drugmaker a temporary restraining order, stopping rival Alvogen from launching cut-price versions of its blockbuster opioid addiction treatment Suboxone.

Travel

British Airways owner IAG said it will not make a new bid for Norwegian Air and would sell its remaining stake in the budget airline, sending Norwegian's shares sharply lower.

US airlines rallied after American Airlines and Southwest Airlines issued upbeat guidance for 2019 and beat Wall Street’s profit estimates in the final quarter of last year.

Property

John Redwood, Charles Stanley’s Chief Global Economist, looks at the relative strength of the UK commercial property market here.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

 

 

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