Garry White, chief investment commentator, looks at the market-moving events that have shaped the UK equity markets this week (2 to 6 July 2018).
The World Cup is “distracting” for participants in global markets, according to Citigroup. "We find that football is indeed distracting, subtly impacting market depth, traded volumes and execution cost,” the US investment bank said. Using data from this summer's tournament in Russia and the cup held in Brazil in 2014, Citi found that traded volumes could fall by as much as 50 per cent during games, while the cost of executing trades increased sharply.
The FTSE 100 fell 0.4 per cent over the week by mid-session on Friday, as the trade war between China and the US officially kicked off. The US put tariffs on $34bn of Chinese goods and Beijing retaliated in kind.
Economics
Sterling rose after Bank of England Governor Mark Carney has “greater confidence” that the UK economy will bounce back in the second quarter. He said recent data indicated a poor first quarter represented “erratic weakness”.
The UK services sector reported its fastest rise in activity since last October. The August purchasing managers' index (PMI) from IHS Markit/CIPS showed activity rose to 55.1 in June, up from 54.
The minutes of the last meeting of the US Federal Reserves rate-setting committee showed members of the committee discussed whether a recession was likely and expressed concern that global trade tensions could hit the US economy.
Geopolitics
The trade war has begun. Donald Trumps tariffs on $34bn of Chinese goods came into force on Friday, 6 July. The state-backed China Daily newspaper said that: “The Customs Tariff Commission of the State Council announced it would levy additional tariffs for 545 items worth about $34bn, including agricultural products, vehicles and aquatic products.”
Garry White notes that US farmers are on the front line of Trumps trade spat here.
Theresa May was holding crunch talks over Brexit with the cabinet at the Prime Ministers country residence, Chequers. She was looking for the approval of her blueprint for the UK's future relationship with the EU. This followed a warning from leaders of a number of businesses, including Airbus and Jaguar Land Rover, that a bad Brexit deal could damage their businesses in the UK.
John Redwood, Charles Stanleys Chief Global Strategist, looks at next weeks NATO meeting and asks whether markets worry about the west and Russia here.
Technology
Shares in FTSE 250 listed cyber-security group Sophos fell by a fifth after it warned of slowing growth. The WannaCry computer virus that broke out last year boosted sales significantly in comparable periods of 2017.
Shares in satellite technology group Inmarsat plunged on Friday after management rejected a second bid from US rival EchoStar that valued the business at £3.2bn. “EchoStar continues, however, to seek engagement with the board of Inmarsat on a constructive basis, with a view to agreeing the terms of a recommended offer,” the company said.
Blue-chip group Micro Focus agreed to sell its SUSE open-source enterprise software business to Swedish buyout group EQT Partners for $2.535bn, lifting its shares.
The Tesla bears were winning this week, with shares in the electric vehicle maker headed-up by Elon Musk falling almost 10% since last Friday. This was despite claims from the company that, after months of delays, it had hit the milestone of producing 5,000 of Model 3 vehicles in a week. Tesla remains one of the most shorted stocks on Wall Street.
Uber Technologies is in preliminary talks with rival Careem to combine their Middle Eastern ride-hailing services, reports suggested.
John Redwood looks at the impact of technology performance on markets here.
Energy
Oil prices saw their biggest weekly slump in more than a month following a surprise gain in US crude inventories. The trade issues between Trump and China also impacted prices. Brent crude futures fell 3% over the week by mid-session on Friday to trade at about $77 a barrel.
BP and ConocoPhillips announced an asset swap that will see the UK oil giant increase its stake in a major North Sea development and its US peer will grow in Alaska. US oil major Chevron put its assets in the Central North Sea up for sale. The Alba, Alder, Britannia, Captain, Elgin-Franklin, Erskine and Jade platforms are included in the plans. The operations employ 610 staff and 220 contractors.
Mining
Glencore shares fell after it was revealed that the mining and trading group faced a potential investigation by US authorities for alleged money laundering, after being ordered to hand over documents to the Department of Justice. The subpoena relates to compliance with the Foreign Corrupt Practices Act and US money laundering laws. A few days later management unveiled a $1bn share buyback.
Indian billionaire Anil Agarwals Volcan Investments is considering a plan to acquire Anglo Americans South African business by merging it with Vedanta Resources via a share swap, reports suggested. Mr Agarwal, through Volcan, already owns a 19.35% stake in the Anglo American parent.
The sell-off in lithium-related equities is overdone, according to Goldman Sachs. The US investment bank said it believes investor concerns about a wave of supply of the electric car battery material from new mines are unfounded, it will be harder to develop new lithium mines than most people think, and demand for lithium could rise fourfold by 2025 due to rising sales of electric cars.
Supermarkets
J Sainsbury, Britains second-largest supermarket, said sales growth slowed over the past three months because it pushed through price cuts. In April, the grocer agreed a £7.3bn takeover of Walmart owned Asda.
An alliance was struck between Carrefour and Tesco to combine global purchasing to help them cut prices and expand their own-label ranges. I will give the companies more pricing power buying from global branded goods companies such as Unilever, Nestle and Procter & Gamble.
Other retail
Chancellor Philip Hammond admitted that business rates are hitting the high street too hard, but stopped short of making any immediate changes to the system.
More powers for local authorities and an immediate overhaul of the business rates system are needed to salvage the high street, a report produced by former Wickes and Iceland chief executive Bill Grimsey concluded. It also said that the industry and local authorities needed to accept that there was too much retail space.
Primark-owner Associated British Foods said profits will be better than market expectations this year because it has escaped the worst of the discounting frenzy forced upon many competitors. Primark's trading update for the first 40 weeks of its financial year to 23 June showed total sales 6 per cent ahead of the equivalent period last year.
Shares in Superdry jumped after the fashion retailer announced its second special dividend in two years, after delivering double-digit growth in sales and profits in its full year results.
Topps Tiles, which is regarded a bellwether of the housing market, reported a 2.3 per cent fall in like for-like revenues for the 13 weeks to July. The fall was less severe than the equivalent period last year when sales were down 4.7 per cent.
Consumer
Shares in gambling platform group Playtech slumped after it said its average daily revenue in Asia continues to be impacted by an increasingly competitive background, with a “particularly aggressive pricing environment from new entrants”.
Financials
Banks could have to pay out “billions” more in PPI claims following a court ruling in Manchester. People who were not mis-sold PPI policies may be able to claim all of their commission payments, despite the policy being legitimately sold.
Another bank was fined for past misdeeds. Credit Suisse will pay $77m to settle US bribery probes into its Hong Kong unit, which attempted to win banking business by offering jobs to friends and family of Chinese officials.
Engineering
Turbine maker Rolls-Royce said it will sell its loss-making commercial marine business to Norways Kongsberg for £500m as part of its efforts to streamline business and get its finances in order.
Property
In a trading update ahead of half-year results next month, house builder Persimmon said its revenues grew 5pc to £1.8bn over the six months to June.
Losses at estate agency Purplebricks rose following expansion overseas. Its full-year pre-tax loss rose to £26.1m from a loss of £6m. The company launched its business in the US last September after it expanded into Australia in 2016, and has since moved into the Canadian market.
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