US-China tensions build ahead of G20 summit; May urges MPs to embrace deal

27 November 2018

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Market news

Most equity markets are slightly lower today in the face of further jostling between the US and China. With the respective presidents due to come face to face at the G20 summit in Argentina this weekend, investors are betraying a few nerves after Donald Trump’s latest threat to expand the scope of tariffs on Chinese imports “if we don’t make a deal”.

Last week, the S&P 500 fell 3.8%, erasing this year’s gains in the process, as concern grew over the outlook for global growth. Persisting uncertainty with regards to Brexit arrangements added to negative sentiment and encouraged Europe’s Stoxx 600 index to fall 1.0% while the FTSE 100 retreated 1.9%.

Meanwhile, sterling has dropped below $1.28 due to political tension in the UK. Focus is on the government’s prospects of getting the withdrawal agreement through parliament. The EU must achieve a similar feat at a summit of the region’s leaders, but it is thought that the continent has the better side of the deal. The UK parliament has a vote on December 11th and Theresa May has urged her cabinet to persuade MPs to embrace the deal.

In Europe, Italian debt rallied last week at the prospect of more austere fiscal policy after the European Commission rejected preliminary budget plans from Italy’s populist coalition government. Yesterday, however, the government said it would stick to its plans, setting up a potential standoff with the EU. Separately, the euro area Flash Composite Purchasing Managers’ Index, a measure of business activity in Europe, came in at 52.4, its lowest since late 2014.

Japan’s Topix index rose 0.7% overnight, helped by financial and telecoms stocks, but the country is still struggling to generate any meaningful inflation. Japan’s core consumer price growth stalled in October, rising 1% year-on-year, the same as the previous month. It means the key inflation marker sits only half way towards the Bank of Japan’s target.

Finally, Brent crude oil has suffered another week of losses, currently managing to just remain above $60 a barrel. Last week’s decline was somewhat moderated by Trump voicing support for OPEC price targeting.

Economic data*

Share	Closing Values at 1/10/18	Year high	Year low
FTSE 100	7,036	7,904	6,852
FTSEurofirst	1,411	1,588	1,371
DAX	11,335	13,597	11,009
DJ Industrial Average	24,640	26,952	23,345
S&P 500	2,673	2,931	2,581
NASDAQ	7,082	8,133	6,631
Hang Seng	26,332	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.4	102.0
2 Year	0.8	102.0
5 Year	1.0	99.0
30 Year	2.0	89.7

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.28	-0.57
Euro	1.13	-0.09
Japanese Yen	113.59	-0.03
Canadian Dollar	1.33	0.02

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	60.48	0.47	0.78
Light Crude	51.63	0.15	0.29
Gold LBMA	1,222.28	0.46	0.04

 

* Source: Thomson Reuters

** From previous day close

 

Stock focus

This morning’s main story is that Thomas Cook has released a second profit warning, just two months after causing the City to reduce its forecasts following a first warning. Shares are down more than 21% at time of writing as the market digests the airline’s admission that “2018 was a disappointing year”, blaming the UK’s heatwave for a lack of passengers.

More positively, shares in Greggs have jumped 13% today after announcing that bumper sales in October and November mean that profits in 2018 should be stronger than previously expected. The bakery chain said that sales increased by 9% in the previous eight weeks and that its expanded Christmas range should continue momentum.

Shaftesbury, the London West End-focused property developer, has reported a fall in profit this morning which it partly attributed to lower valuation gains. The company was positive about underlying performance, however, saying it was “largely unaffected by widely-reported headwinds affecting the national economy and consumer confidence”.

Pennon Group has reported an 8.7% rise in first-half pre-tax profit this morning, generated out of a 3.1% rise in revenue. The FTSE 250 water-to-waste company said it was on track to meet its full-year expectations of earnings and cost savings.

Capita revealed last week that it has agreed a strategy to reduce its pension deficit, a plan that will take four years and cost £176m. Current boss Jonathan Lewis was heavily critical and too short-term focused when he arrived in January. He claimed that the pension agreement was “an important milestone in Capita’s transformation”.

Centrica’s share price fell as much as 8% last Thursday, to its lowest level in six months, after revealing a significant loss of customers. The owner of British Gas lost 372,000 home energy customers in the four months before November, a 3% fall since June.

 

Date	Category	Country	Event	Reuters poll	Prior estimate
27/11/18	Surveys & Cyclical	United States	United States-Consumer confidence - Consumer Confidence	135.9	137.9
28/11/18	Surveys & Cyclical	Germany	Germany-GfK consumer confidence - GfK Consumer Sentiment	10.5	10.6
28/11/18	National Account	United States	United States-Corporate Profits Prelim - Corporate Profits Prelim	2%	2.40%
28/11/18	Consumer Sector	Japan	Japan-Retail Sales - Retail Sales YY	2.60%	2.20%
29/11/18	Labour Market	Germany	Germany-Unemployment - Unemployment Rate SA	5.10%	5.10%
29/11/18	Surveys & Cyclical	Eurozone	Euro Zone-Sentiment - Business Climate	0.96	1.01
29/11/18	Surveys & Cyclical	Eurozone	Euro Zone-Sentiment - Consumer Confid. Final	-3.9	-2.7
29/11/18	Prices	Japan	Japan-CPI Tokyo - CPI Core Tokyo YY	1%	1%
29/11/18	Labour Market	Japan	Japan-Unemployment rate - Unemployment Rate	2.30%	2.30%
30/11/18	Surveys & Cyclical	United Kingdom	United Kingdom-GfK consumer confidence - GfK Consumer Confidence	-11	-10
30/11/18	Prices	United Kingdom	United Kingdom-Nationwide house price - Nationwide house price yy	1.70%	1.60%
3/12/18	Surveys & Cyclical	China (Mainland)	China (Mainland)-PMI - Caixin Mfg PMI Final	50	50.1

Source: Thomson Reuters

 

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