Technology stocks sell-off; Brexit deal in sight; and Democrats take the House of Representatives

13 November 2018

The Weekly Note is brought to you by the ALPHA : r² discretionary service team.

Market news

European markets are cautiously rallying today despite widespread selling of technology stocks, which started in America but has spread across the globe. The Dow Jones industrial average fell over 2% yesterday after updates from Apple’s suppliers indicated disappointing demand for the new iPhone. Sentiment today is boosted by reports that the US and China are to resume talks aimed at easing trade tensions ahead of the G20 summit at the end of the month.

Last week, the S&P 500 gained 2.2% despite comments from the Federal Reserve suggesting another interest rate hike in December. US markets rallied into the mid-term elections, which resulted in the Democrats taking control of the House of Representatives. The focus on the divergence of US monetary policy from other major economies led the Dollar Index up 0.4% last week, while the US Index of Consumer Sentiment remained near decade highs.

Sterling, however, held its ground against the dollar amid optimism that a Brexit deal could soon be agreed with Brussels. Theresa May’s deputy said that a deal is “almost within touching distance” and could be sealed within 48 hours, but with outspoken critics from both Europhiles and Eurosceptics within her party, the harder test may be agreeing with the cabinet and parliament.

Meanwhile, the UK economy expanded 0.6% in Q3, the highest quarterly growth rate in two years, which was driven by early momentum from the services sector in the summer. The performance was in line with consensus, but forecasts for Q4 are lower given present levels of uncertainty.

In Italy, conflicts over economic outlook between Brussels and Rome prompted more declines in bond prices, further widening the spread between Italian and German bonds and putting the euro under downward pressure.

The oil market reached official bear territory last week, despite hitting four-year highs just last month. Since then, oil prices have fallen around 20% as surplus inventories have emerged at the same time as heightened fears over a slowdown in global growth. The latest OPEC meeting hinted at potential curbs next year to stabilise prices.

 

Economic data*

Share	Closing Values at 1/10/18	Year high	Year low
FTSE 100	7,053	7,904	6,852
FTSEurofirst	1,425	1,588	1,371
DAX	11,325	13,597	11,051
DJ Industrial Average	25,387	26,952	23,243
S&P 500	2,726	2,931	2,565
NASDAQ	7,201	8,133	6,631
Hang Seng	25,793	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.45	101.59
2 Year	0.75	102.09
5 Year	1.03	98.73
30 Year	1.91	90.94

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.28	0.33
Euro	1.12	0.13
Japanese Yen	113.83	0.24
Canadian Dollar	1.32	-0.10

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	70.12	-0.94	-1.34
Light Crude	59.93	-0.96	-6.6
Gold LBMA	1,200.58	-0.14	-0.01

 

* Source: Thomson Reuters

** From previous day close

 

Stock focus

Vodafone shares are up over 8% today despite the company freezing its interim dividend. Some feared the dividend was in danger of being cut, while its half-year revenue was better than expected despite falling 5.5%. Organic earnings rose, while new chief executive Nick Read outlined his plan to cut costs and simplify the operating model.

AstraZeneca announced this morning that it will sell the US rights to its drug Synagis to a Swedish company for an initial payment of $1.5bn. Last week, shares rallied after the pharmaceutical giant said that sales from a selection of new medicines meant it was finally on the road to growth.

The FTSE 100 credit checking company Experian has reported better organic revenues than expected, announcing this morning that first half sales growth was 8%. It expects full-year growth to be at the top end of its guidance, despite currency headwinds.

Melrose Industries released a bullish update this morning, reinforcing performance expectations for 2018 and reiterating its confidence that “the GKN businesses offer an outstanding opportunity”. Shares in Melrose have slipped by 28% this year since its hostile takeover of GKN.

Diageo, the world’s biggest drinks group, revealed yesterday that it is selling 19 brands to Sazerac, a privately-owned US company, for $550m. Diageo is sharpening its focus on the premium sector in America and said the proceeds would be added to an existing share buyback programme.

Provident Financial revealed last week that its consumer credit division has been fully authorised by the Financial Conduct Authority. The division consists of Satsuma, an online instalment loan business, and Home Credit, which provides small unsecured loans.
First-half profits at Tate & Lyle were hit by a large one-off charge for streamlining its business, but posted a small rise in underlying earnings. Pre-tax profits declined 30% to £113m, while adjusted profits rose 2%, the same pace as sales on a constant currency basis. The multinational agribusiness backed its full-year guidance.

 

Date	Category	Country	Event	Reuters poll	Prior estimate
13/11/18	Prices	Germany	Germany-Inflation Final - CPI Final YY	2.50%	2.30%
13/11/18	Labour Market	United Kingdom	UK releases monthly data on unemployment and pay growth - ILO Unemployment Rate	4%	4%
13/11/18	Labour Market	United Kingdom	UK releases monthly data on unemployment and pay growth - Avg Wk Earnings 3M YY	3%	2.80%
13/11/18	National Account	Japan	Japan - GDP for July-September - GDP QQ Annualised	-1%	1.90%
14/11/18	Consumer Sector	China (Mainland)	China to release economic activity indicators for October - Retail Sales YY	9.10%	9.20%
14/11/18	Prices	United Kingdom	United Kingdom-Inflation - CPI YY	2.50%	2.40%
14/11/18	National Account	Eurozone	Euro Zone-GDP Flash - GDP Flash Estimate YY	1.70%	2.20%
14/11/18	Industry Sector	Eurozone	Euro Zone-Industrial production - Industrial Production YY	0.30%	0.90%
14/11/18	Prices	United States	United States-CPI - CPI YY, NSA	2.50%	2.30%
15/11/18	Consumer Sector	United Kingdom	United Kingdom-Retail Sales - Retail Sales YY	3%	3%
15/11/18	Consumer Sector	United States	United States-Retail Sales - Retail Sales MM	0.50%	0.10%
16/11/18	Prices	Eurozone	Euro Zone-Inflation - HICP Final YY	2.20%	2.10%

Source: Thomson Reuters

 

Walker Crips
Old Change House
128 Queen Victoria Street
London EC4V 4BJ

020 3100 8000
www.wcgplc.co.uk
client.services@wcgplc.co.uk

 

Important information

This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a
transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips.

Walker Crips Investment Management is a trading name of Walker Crips Stockbrokers Limited which is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.