US mid-terms crucial for Trump's presidency

6 November 2018

 

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

Market news

Investor focus is on the US mid-term elections today, which are considered crucial for the rest of President Trump’s presidency. Trump’s Republican party currently controls both houses of Congress, but the voting will determine whether or not the Democrats will take control of the House of Representatives. Such a result could create legislative deadlock in Washington, making it difficult for Trump to implement his policies.

Markets have traded cautiously this week and a popular view is that a win for the Republicans could result in higher yields, as it could facilitate the continuation of inflationary policies. Last week, global equities had some respite from recent selling, with optimism emerging from friendlier rhetoric between China and the US. The S&P 500 closed 2.44% higher amid third-quarter corporate earnings results, of which a majority exceeded expectations.

In Europe, the Stoxx 600 rose 3.35% last week as Germany in particular was boosted by strength in exporters. There has been reason for optimism with regards to Brexit negotiations, too, with reports suggesting that the UK has won concessions from the EU that would avoid a hard border in Northern Ireland. There are also reports that the wider deal is further advanced than feared and that a Canada-style free trade agreement is a possible solution. Sterling has rallied above $1.30 as a result.

Although progress has been made on a deal to give the UK’s financial services sector access to EU markets after Brexit, currently uncertainty is still taking its toll on the economy. In October, the broader services sector stalled to its slowest pace since extremely cold weather reduced activity earlier this year. The purchasing managers’ index (PMI) for services fell from 53.9 to a seven-month low of 52.2 in October.

The UK’s Monetary Policy Committee unanimously voted to keep the Bank of England’s base interest rate on hold at 0.75% last week, but signalled that rates could rise faster than the market expects. The trajectory of rates likely depends on the conclusion of Brexit, however, meaning any change is unlikely before there is a defined deal in place.

Finally, oil prices have slipped again in the past week, largely owing to fears over supply increases. The US formally imposed sanctions on Iran yesterday but granted temporary waivers to eight countries including China and Japan.

 

Economic data*

Share	Closing Values at 1/10/18	Year high	Year low
FTSE 100	7,026	7,904	6,852
FTSEurofirst	1,399	1,588	1,371
DAX	11,335	13,597	11,051
DJ Industrial Average	24,443	26,952	23,243
S&P 500	2,641	2,931	2,565
NASDAQ	7,050	8,133	6,631
Hang Seng	24,586	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.40	102.08
2 Year	0.72	102.19
5 Year	0.98	98.96
30 Year	1.84	92.40

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.28	-0.15
Euro	1.14	0.00
Japanese Yen	112.36	0.37
Canadian Dollar	1.31	-0.16

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	77.34	-0.35	-0.45
Light Crude	67.04	-0.29	-0.43
Gold LBMA	1,229.35	-5.08	-0.41

 

* Source: Thomson Reuters

** From previous day close

 

Stock focus

Operating profits at Associated British Foods rose a disappointing 3% in the most recent year as lower EU prices exacted significant damage on its sugar business. Profits at the sugar business more than halved, but a strong performance by its fashion chain Primark helped lift overall group results. A 10% dividend increase has helped the share price higher today.

Imperial Brands also announced its full-year results this morning, showing a 5.7% rise in profit to £2.4bn. The tobacco company told investors that it would be increasing its investment into cigarette alternatives, in an attempt to catch up with rivals Philip Morris and British American Tobacco.

Wm Morrison revealed this morning that its like-for-like sales grew by 5.6% in the 13 weeks to November 4th, while the core retail business rose 1.3%. The supermarket noted that the most recent figures now mean that it has completed three years of positive sales growth.

BT Group’s shares surged last week despite a dividend cut, as the telecoms giant announced that it expects full-year earnings to reach the top end of its guidance range. Cost savings drove a 24% rise in first-half profits, but revenue fell 2%, partially due to regulated price reductions in its Openreach network.

Specialty chemicals company Croda International enjoyed a 4.2% rise in sales in the last quarter and said it remained on track to hit market expectations this year after “another strong, consistent quarter of growth”.

BHP Billiton confirmed last week that it is planning a $10.4bn hand out to shareholders via share buybacks and a special dividend. The buyback had been promised for months since the company sold its US shale oil and gas assets to BP. The mining company continues to face an attack on its strategy by activist investor Elliot Management.

Royal Dutch Shell recorded a massive jump in profits in its third quarter, underlining the recent signs of strength in the sector amid strengthening oil and gas prices. Reported earnings jumped 51% to £4.33bn. Shell also announced a share buyback worth up to £1.9bn.

 

Date	Category	Country	Event	Reuters poll	Prior estimate
6/11/18	Surveys & Cyclical	France	France-PMI Services/Composite - Markit Comp PMI	54.3	54
6/11/18	Surveys & Cyclical	Germany	Germany-PMI Services - Markit Comp Final PMI	52.7	55
6/11/18	Surveys & Cyclical	Eurozone	Euro Zone-PMI Services - Markit Composite Final PMI	52.7	54.1
7/11/18	Prices	United Kingdom	United Kingdom-House prices - HalifaxHousePrice 3M/YY	1.20%	2.50%
7/11/18	Consumer Sector	Eurozone	Euro Zone-Retail Sales - Retail Sales YY	0.70%	1.80%
7/11/18	Surveys & Cyclical	Japan	Japan-Current account NSA - Current Account NSA JPY	JPY 1772.6b	JPY 1838.4b
8/11/18	External Sector	China (Mainland)	China (Mainland)-Trade - Exports YY	11%	14.50%
9/11/18	Prices	China (Mainland)	China (Mainland)-Inflation - CPI YY	2.50%	2.50%
9/11/18	National Account	United Kingdom	United Kingdom-GDP Prelim - GDP Prelim YY	1.50%	1.30%
12/11/18	Government Sector	China (Mainland)	China (Mainland)-Money and lending - M2 Money Supply YY	8.40%	8.30%
12/11/18	Surveys & Cyclical	China (Mainland)	China (Mainland)-Money and lending - Outstanding Loan Growth	13.30%	13.20%
13/11/18	National Account	Japan	Japan-GDP Quarterly - GDP QQ	-0.30%	0.50%

Source: Thomson Reuters

 

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

020 3100 8000
www.wcgplc.co.uk
[email protected]

 

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.