Trade war put on hold; Article 50 could be revoked; online Black Friday sales increase by 30.8%

4 December 2018

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

Market news

European equities are broadly lower today, ensuring that yesterday’s trade-truce rally was short-lived. Global stocks had started the week in a buoyant mood following reports that the presidents of the US and China, who met at the G20 summit in Argentina at the weekend, had agreed to temporarily refrain from escalating the trade war. In the absence of any further detail, however, Asian markets retreated overnight, none more so than Japan’s Topix index, down 2.3%.

The US yield curve, made up of different yields of Treasury bonds, has inverted for the first time in a decade. The yield curve is closely watched by investors and an inversion – when short-term yields rise above longer-term yields – is seen as a potential predictor of a US recession. The dollar has weakened, particularly against the Japanese yen and Chinese renminbi.

Meanwhile sterling is outperforming today after a senior member of the European Court of Justice said that the UK could ‘unilaterally revoke Article 50’ and stop the Brexit process. This is contrary to previous declaration by the EU and Theresa May, who insisted that all 27 EU member states would have to agree.

According to the Bank of England, Britain’s biggest banks have survived stress tests that show they could withstand a hard Brexit or another financial crisis and still perform a lending function. Barclays and Lloyds suffered the most in the simulation, but the Bank said that there were no “capital inadequacies”.

Black Friday, the week-long discounting phenomenon, produced mixed results for high-street and online retailers in the UK. Visits to physical stores fell by 6.5% compared to last year, while overall online sales growth was 30.8%.

French President Emmanuel Macron has been forced to give in to the worst riots the country has seen in decades, scrapping plans to increase fuel prices. It is a surrender that Macron had previously said he would never make and he has been critical of his predecessors for succumbing to protests.

Finally, oil prices are rising this week, with hope building of an OPEC production cut being agreed when it meets later this week.

Economic data*

Share	Closing Values at 1/10/18	Year high	Year low
FTSE 100	7,062	7,904	6,852
FTSEurofirst	1,425	1,588	1,371
DAX	11,465	13,597	11,009
DJ Industrial Average	25,826	26,952	23,345
S&P 500	2,790	2,931	2,581
NASDAQ	7,442	8,133	6,631
Hang Seng	27,260	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.3	102.9
2 Year	0.7	102.1
5 Year	0.9	99.3
30 Year	2.0	88.6

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.27	0.71
Euro	1.14	0.46
Japanese Yen	113.65	-0.76
Canadian Dollar	1.32	-0.22

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	61.69	1.48	2.4
Light Crude	52.95	1.3	2.46
Gold LBMA	1,231	9.01	0.73

 

* Source: Thomson Reuters

** From previous day close

 

Stock focus

IG Group, the financial derivatives trading platform, has warned that it expects revenue in the first half of its fiscal year to fall 6% from record levels. IG blame new measures from the European Securities and Markets Authority, which are aimed at preventing investors from taking on risks they could not afford.

In an update this morning, Ferguson revealed that its first-quarter profit rose by 9.9%, led by a boost from its dominant US business. The world’s largest heating and plumbing equipment supplier is banking on its North American operations to drive growth as its British unit suffers from a slowing demand for house repairs.

Victrex, the UK polymer maker, revealed this morning that it is stockpiling extra raw materials ahead of Brexit. It has also secured more warehousing for finished goods in Europe and China. As for results, the company posted a 15% rise in full-year profit from a 12% rise in revenue, 98% of which comes from outside the UK.

Executive pay at Royal Dutch Shell, the oil giant, will be tied to targets for reducing carbon emissions. Shell had previously warned that binding targets would be “foolhardy”, but has now bowed to significant shareholder pressure.

Uber is considering a multibillion-dollar deal to acquire an electric scooter start-up which allows people to hire them and then park them anywhere. The taxi company is reportedly looking at Lime and Bird, two companies which have had success in Silicon Valley. Both have denied any interest.

Sales at the UK pub chain Greene King have been boosted by Brexit “boredom”, its chief executive has claimed. Britons, fed up with Brexit commentary, have been heading for a drink instead, helping like-for-like sales in the six months to October increase by 2.7%.

 

Date	Category	Country	Event	Reuters poll	Prior estimate
4/12/18	Surveys & Cyclical	United Kingdom	United Kingdom-PMI Construction - Markit/CIPS Cons PMI	52.5	53.2
5/12/18	Surveys & Cyclical	France	France-PMI Services/Composite - Markit Comp PMI	54	54.1
5/12/18	Surveys & Cyclical	Eurozone	Euro Zone-PMI Services - Markit Composite Final PMI	52.4	53.1
5/12/18	Surveys & Cyclical	United Kingdom	United Kingdom-PMI Services - Markit/CIPS Serv PMI	52.5	52.2
5/12/18	Consumer Sector	Eurozone	Euro Zone-Retail Sales - Retail Sales YY	2.10%	0.80%
5/12/18	Labour Market	United States	United States-ADP - ADP National Employment	195k	227k
6/12/18	Surveys & Cyclical	Japan	Japan-All Households Spending - All Household Spding YY	1.40%	-1.60%
7/12/18	Industry Sector	France	France-Industrial output - Industrial Output MM	0.70%	-1.80%
7/12/18	Labour Market	Eurozone	Euro Zone-Employment - Employment YY	1.30%	1.50%
8/12/18	External Sector	China (Mainland)	China (Mainland)-Trade - Exports YY	10%	15.60%
9/12/18	Prices	China (Mainland)	China (Mainland)-Inflation - CPI YY	2.40%	2.50%
10/12/18	Surveys & Cyclical	China (Mainland)	China (Mainland)-Money and lending - Outstanding Loan Growth	13%	13.10%

Source: Thomson Reuters

 

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