May under fire; Spain threatens veto over Gibraltar; US inflation increases to 2.5%

20 November 2018

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

Market news

Global technology stocks are setting a negative tone for the second consecutive week, after concerns over slowing iPhone demand and the impact of tariffs between the US and China caused a sharp sell-off for the sector on Wall Street yesterday. There are fears that chipmakers could suffer from the US-China trade war, while losses in Europe have been less severe. The FTSE 100 has slid c.0.5% this morning, retreating back below 7,000 points.

Otherwise, focus has been largely directed at Theresa May and the intense criticism of the withdrawal deal that the prime minister has agreed with Brussels. Multiple high-profile cabinet ministers resigned in protest last week, including the Brexit secretary. Critics accuse her of conceding too much ground, leaving the UK at the mercy of EU rules and potentially bound by the Northern Irish ‘backstop’ issue.

There have been multiple calls for a vote of no confidence against May, but nothing tangible has emerged yet. The withdrawal agreement would need to pass through UK parliament and an EU summit, where Spain has threatened to use its veto if there is not clarification of Gibraltar’s status. Sterling fell sharply at the end of last week, limiting the FTSE 100’s losses to around 1%, while the Euro Stoxx 600 index fell over 2% during the week.

The Confederation of British Industry, however, urged parliament to back the agreement, saying it is better than a ‘no-deal’ situation. The comments were made at the CBI’s annual conference yesterday, where May was welcomed warmly.

Elsewhere, headline inflation in the US came in at 2.5% in October, year-on-year. The pace of 0.3% for the month itself was driven by food and energy prices. Crude oil prices actually started declining in October, but there is generally a lag between the industrial benchmarks and retail petrol prices.

Crude oil prices have not stopped falling since October, either. An eighth consecutive week of rising US supplies saw prices, which reached bear territory last week, fall again. Concerned investors are hoping for news of supply cuts at OPEC’s December meeting.

Economic data*

Share	Closing Values at 1/10/18	Year high	Year low
FTSE 100	7,001	7,904	6,852
FTSEurofirst	1,399	1,588	1,371
DAX	11,245	13,597	11,051
DJ Industrial Average	25,017	26,952	23,345
S&P 500	2,691	2,931	2,581
NASDAQ	7,028	8,133	6,631
Hang Seng	25,840	33,484	24,541

 

UK Gifts	% Yield	Price
10 Year	1.38	102.29
2 Year	0.69	102.18
5 Year	0.91	90.27
30 Year	1.94	90.28

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.28	-0.11
Euro	1.15	-0.19
Japanese Yen	112.54	-0.11
Canadian Dollar	1.32	0.02

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	66.79	-0.7	-1.05
Light Crude	57.2	-0.45	-0.79
Gold LBMA	1,223.98	0.43	0.04

 

* Source: Thomson Reuters

** From previous day close

 

Stock focus

The partnership between Renault, Nissan and Mitsubishi is in disarray after the arrest of its chief executive, Carlos Ghosn. Ghosn has been detained in Japan on suspicion of tax evasion and misuse of corporate funds, including under-reporting his compensation and purchasing luxury properties in his hometowns with company money.

EasyJet’s earnings were restricted by heavy losses from the takeover of some of Air Berlin’s operations, but its pre-tax profits for the year still increased by 15%. Over the year it carried a record 88.5m passengers, helped by struggling competitors.

Halma revealed its interim results this morning, warning that Brexit could cause short-term supply chain issues in March, including a disruption to customer buying patterns. Meanwhile, first-half profits at the FTSE 100 safety, health and environment technology group jumped by 23%.

Banking group CYBG reported a full-year loss of £164m this morning, following nearly £400m of charges related to PPI mis-selling. Underlying profits rose by 13%, however, just below analysts’ forecasts.

Polypipe, the plastic piping and ventilation system manufacturer, said this morning that its revenue has increased 10.2% in the four months through October. Organic growth in residential sales has driven recent performance, while the closure of a factory in the Middle East will boost margins in the region.

BHP Billiton has agreed to pay around £300m to solve a dispute with Australia’s tax authorities, but insisted that it was “no admission of tax avoidance”. The world’s biggest mining company has agreed to changes that will result in higher tax receipts in the future, however.

Royal Mail’s share price has dropped off promptly since announcing that half-year profits more than halved, despite revenue increasing by 1%.  Delivering its first-half results last week, the company defiantly said that it had a range of actions in place to improve performance and would update investors in March.

 

Date	Category	Country	Event	Reuters poll	Prior estimate
20/11/18	Prices	Germany	Germany-PPI - Producer Prices YY	3.30%	3.20%
20/11/18	Surveys & Cyclical	United Kingdom	United Kingdom-CBI trends - orders - CBI Trends - Orders	-7	-6
21/11/18	Government Sector	United Kingdom	United Kingdom-Public Sector Borrowing - Public Sector Net Borrowing Excluding Banks	GBP 6.15b	GBP 4.12b
21/11/18	Labour Market	United States	United States-Jobless - Initial Jobless Claims	215k	216k
21/11/18	Industry Sector	United States	United States - Existing Homes Sales - Exist. Home Sales % Chg	1%	-3.40%
21/11/18	Prices	Japan	Japan-CPI Nationwide - CPI, Core Nationwide YY	1%	1%
22/11/18	Surveys & Cyclical	Eurozone	Euro Zone-Consumer confidence - Consumer Confid. Flash	-3	-2.7
23/11/18	National Account	Germany	Germany-GDP Detail - GDP Detailed YY NSA	1.10%	2.30%
23/11/18	Surveys & Cyclical	France	France-PMI Flash - Markit Comp Flash PMI	53.9	54.3
23/11/18	Surveys & Cyclical	Germany	Germany-PMI Flash - Markit Comp Flash PMI	53.2	52.7
23/11/18	Surveys & Cyclical	Eurozone	Euro Zone-PMI Flash - Markit Comp Flash PMI	53	52.7
27/11/18	Surveys & Cyclical	United States	United States-Consumer confidence - Consumer Confidence	136.2	137.9

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.