Garry White, chief investment commentator, looks at the market-moving events that have shaped the UK equity markets this week (21 to 25 May 2018).
Shares in Harry Potter publisher Bloomsbury soared after special editions of Harry Potter and the Philosophers Stone, and Fantastic Beasts and Where to Find Them helps its childrens division increase profits by a quarter. There was yet more gloomy news from the high street following a profit warning at Halfords, coupled with falling sales at Pets at Home and B&Q-owner Kingfisher.
The FTSE closed at another record high on Wednesday, boosted by a weakening pound, but was down 0.5% over the week by mid-session on Friday.
Economics
The UK's economy grew at the worst rate since 2012 in the first quarter, with GDP up by just 0.1%, according to the second, unrevised, estimate. The Office for National Statistics said it expected “a continuation of a pattern of slowing growth, in part reflecting a slowing in the growth of consumer-facing industries". Household spending grew by 0.2%, while business investment fell 0.2% between the fourth quarter of 2017 and the first quarter of this year.
Bank of England governor Mark Carney warned that weak economic data and Brexit uncertainty might hold back interest rate increases, helping the pound to hit a 2018 low. The dovish tone was increase after an unexpected fall in UK inflation to a 13-month low. Inflation fell for a second consecutive month in April, with annual CPI up 2.4%, down from 2.5% in March. Expectations were for the data to be unchanged.
There was some good news for Chancellor Phillip Hammond after UK government borrowing in the month of April fell to a ten-year low. Public sector net borrowing fell by £1.6bn year-on-year to £7.8bn, lower than the £8.6bn expected by economists.
The minutes of the latest Federal Reserve rate-setting meeting showed that officials were generally upbeat about the prospects for the US economy. Unemployment was expected to fall further, while inflation was expected to rise to the central banks 2% target. The minutes implied the Fed should be on track to keep hiking interest rates gradually.
Geopolitics
US President Donald Trump pulled out of a highly-anticipated summit meeting with Kim Jong-un in Singapore next month, accusing the North Koreans of bad faith and lamenting that “this missed opportunity is a truly sad moment in history.” He said the specific reason for the withdrawal was the “tremendous anger and open hostility” in recent public statements.
The US administration was also active on the sanctions front. It imposed sanctions on several Iranian and Turkish companies and targeted four Iranian airlines. There were also new sanctions on Venezuela following the re-election of the country's socialist president, Nicolás Maduro, with the vote widely condemned as fraudulent.
President Trump also continued with his trade-war rhetoric, despite a vague agreement between the US and China to continue talking to try and reduce the trade imbalance between the two countries. Trump launched a national security investigation into car and truck imports that could lead to new tariffs similar to those imposed on imported steel and aluminium in March. Although this could be a major concern for Germany, the move was likely aimed partly at pressuring Canada and Mexico to make concessions in talks to update Nafta that have languished in part over auto provisions. However, European carmakers shares were hit by the news.
Fitch warned that Italys new populist government posed a risk to the countrys credit rating. The Italian president accepted law professor Giuseppe Conte as the nomination for prime minister in a bid to end 11 weeks of political deadlock. John Redwood, Charles Stanleys Chief Global Strategist, looks at the market implications of the new Coalition government in Italy between Five Star and Lega here.
Emerging markets
Chinese yuan-denominated shares will be included in MSCIs emerging markets benchmark from the start of June, as the rapidly-growing country makes another step in the opening up of its economy to international capital. To find out why this matters, click here.
The surging US dollar and this years spike in global borrowing costs may cut off capital flows to emerging markets and engulf a lengthening list of heavily indebted economies, according to the Institute of International Finance. The body warned that the twin currency crises in Turkey and Argentina may be just the opening drama of a much broader rout, as unprecedented levels of dollar leverage hit home.
Cryptocurrencies
The US Department of Justice has reportedly opened an investigation into cryptocurrency price manipulation on crypto exchanges. The investigation is in conjunction with the Commodity Futures Trading Commission, a regulatory body that, among other things, licensed Bitcoin futures contracts.
Criminals have stolen about $1.2bn in cryptocurrencies since the beginning of 2017, according to estimates from the Anti-Phishing Working Group.
Technology
Elon Musk is unhappy with the press for negative comments about his electric vehicle maker Tesla and made his feelings very clear on Twitter. To look at the current issues around the company click here.
Facebook chief executive Mark Zuckerberg was questioned by members of the European Parliament. Mr Zuckerberg refused to answer almost all of the questions posed, instead accepting an offer to submit written answers to questions.
Taxi group Uber managed to post a profit in its first-quarter results, but this is down to gains of $2.9bn after it merged its businesses in Russia and Southeast Asia with local competitors.
In a sign of the internets impact on big media groups, the market value of streaming service Netflix exceeded the Walt Disney Co for the first time ever, making it the largest media company in the world.
Energy
Brent crude prices touched $80 a barrel, but fell over the week after Saudi energy minister Khalid Al-Falih said Opec and its allies were likely to gradually boost oil output in the second half of the year. There was also a surprise rise in US oil stocks. Brent crude futures fell 1.6% over the week by mid-session on Friday to trade at around $77.30 a barrel. US gasoline prices were approaching $3 a gallon, the highest in four years.
Despite the improving financial situation in the oil industry, BP continued with its cost-cutting programme. The company said it will cut 3% of its jobs in exploration and production, as part of a restructuring of its global upstream business to make the division more efficient and competitive.
Mining & commodities
Midcap Petra Diamonds saw its shares sink by around a fifth after management revealed is was looking to raise £133m in a rights issue to reduce debt so it didnt breach its banking covenants. The new shares will be priced at 40p, a 35.6% discount to the stocks closing price on Wednesday.
Egypt-focused gold miner Centamin also saw its shares plunge after a drastic cut to its full-year production guidance and higher cost expectations because of lower-grade ore at its flagship Sukari.
Russian Oligarch Oleg Deripaska, an individual target of his US sanctions because of his closeness of Vladimir Putin, resigned from his non-executive directorship of aluminium giant Rusal, the company he founded. Rusal produces 7% of the worlds aluminium.
Supermarkets
Tesco revealed plans to close its Tesco Direct website that sells general merchandise, putting 500 jobs at risk. The grocer said the non-food website was a "small, loss-making part of the business" and had "no route to profitability".
J Sainsbury could face legal action from the union Unite after the supermarket said it was pressing ahead with a plan to cut paid breaks, annual bonuses and premium pay for Sundays, leaving thousands of workers out of pocket.
Other retail
Retail sales rose by a better-than-expected 1.6% in April as consumers resumed spending after unseasonably cold weather earlier in the year. Petrol sales surged 4.7% after falling 6.9% in March after widespread snow disruption. Only department stores reported a decline, with sales volumes down 0.9%. However, Rob Kent-Smith of the Office for National Statistics said the retail sector remained subdued, with sales in recent months largely unchanged.
Marks & Spencer shares rose despite a relatively downbeat set of annual figures, with profits hit by its store closure plans. To discover why click here.
Sales at B&Q owner Kingfisher reported a 4% fall in sales at stores open for more than a year in the first quarter, hit by snowy weather in March. Meanwhile, rival Homebase was sold by Australias Westfarmers, to turnaround investment firm Hilco for just $1. The Australian group took a write down of $1bn earlier this year following its disastrous foray into the UK market. However, new ownership could mean rising competition for B&Q.
Halfords shares slumped after it issued a profit warning. Management said profits were likely to be flat this year, held back by a lack of price rises in cycling, currency moves and increased investment.
Shares in Pets at Home slipped after profits fell by more than 12% last year, hit by rising costs.
Things are looking better in the luxury goods sector. Shares in US group Tiffany & Co soared by around a fifth to an all-time high after the group posted a strong set of first-quarter figures. The luxury jeweller benefitted from dollar weakness which resulted in foreign shoppers flocking to its outlets in places such as New York. US-peer Ralph Lauren also posted a better-than-expected set of fourth quarter numbers. Its strategy of limiting department store sales and cutting discounts appears to be paying off. This is of interest as FTSE 100 group Burberry is pursuing a similar strategy of moving further upmarket to become “firmly in luxury”.
Financials
A puzzling report in the Financial Times said that Barclays was exploring a merger with Standard Chartered. Many in the market were cynical about the story. However, there was some good news for Barclays after charges brought against the bank by the Serious Fraud Office over a $3bn loan made to Qatari investors have been thrown out by a court.
Shares in Germanys Deutsche Bank fell after management said it would cut more than 7,000 jobs from its 97,000 workforce and dramatically scale back its investment banking activities.
Media
US cable TV giant Comcast said it was considering a takeover offer for Rupert Murdoch's 21st Century Fox, setting the stage for a takeover battel with The Walt Disney Co. Disney has agreed to pay $52.4bn for Fox, but Comcast said it was in the "advanced stages" of preparing a better bid. This It would also include a 39% stake in Sky, for which Comcast tabled a separate bid in April.
Peppa Pigs popularity in China proved a boost for Entertainment One, after full-year pre-tax profits doubled. This was despite the show being banned on some Chinese platforms after the porcine character became a cultural icon among the “poorly educated”.
Bloomsbury Publishing posted record annual revenues, boosted by continuing sales of JK Rowlings Harry Potter classics and TV chef Tom Kerridges Lose Weight for Good book.
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