FTSE 100 falls amidst Brexit uncertainty; Eurozone manufacturing sector enters downturn; US-China negotiations continue.

26 February 2019

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

Market news

London’s FTSE 100 Index has broadly fallen this week due primarily to the rising possibility of a no-deal Brexit. However sterling moved higher against the US dollar for much of the week, even as ratings agency Fitch put the UK’s AA credit rating on negative watch as uncertainty surrounding Brexit mounts. Theresa May is expected to request a three-month delay to the 29 March 2019 Brexit deadline after talks between the UK and the European Union failed to produce a breakthrough. May’s intention is to reopen the withdrawal agreement struck between the two sides in November – a proposal that the EU has rejected. She has already delayed the next big vote on her deal to as late as 12 March 2019.

Across the pond in the US, stocks have moved higher, albeit modestly. This has helped the Dow Jones Industrial Average mark its longest streak of weekly gains in nearly a quarter of a century. One of the primary drivers of the week’s gains seems to have been the release of minutes from the Federal Reserve’s latest policy meeting, which appears to have highlighted a continued “wait and see” approach for future rate hikes. Indications also suggest that they would stop shrinking the central bank’s balance sheet by the end of the year; a drawdown that has slowly been removing liquidity from the financial system since late 2017.

European bourses also broadly rose last week, despite a continuation of worrying data from the eurozone. IHS Markit’s Purchasing Managers’ Index for manufacturers showed that the eurozone’s manufacturing sector entered its first downturn since mid-2013, hitting 49.2 in February (less than 50 signifies contraction). The closely watched poll of purchasing managers showed that manufacturers have been hit hard by weak global demand and political uncertainty. In Germany, the Ifo Institute added fuel to the flames by reporting that business sentiment across Europe’s largest economy has fallen to a four-year low, amid mounting pessimism about current economic conditions and the country’s future. However, Germany’s economy did not fall into recession last year thanks to higher state spending and a booming construction market.

In Asia, despite disappointing economic data in Japan, the Nikkei 225 rallied again, leaving it with a c. 7% gain thus far for 2019. This comes as negotiations between the US and China, a story that continues to dominate general sentiment, shifted to a more positive tone.  In China, stocks posted a weekly gain, with a growing perceived likelihood that a bilateral trade deal will be made before a temporary truce ends on 1 March 2019.

Economic data*

Share	Closing Values at 18/2/19	Year high	Year low
FTSE 100	7,184	7,904	6,537
FTSEurofirst	1,463	1,560	1,291
DAX	11,505	13,204	10,279
DJ Industrial Average	26,092	26,952	21,713
S&P 500	2,796	2,931	2,351
NASDAQ	7,554	8,133	6,190
Hang Seng	28,772	31,978	24,541

 

UK Gifts	% Yield	Price
10 Year	1.18	104.10
2 Year	0.76	101.39
5 Year	0.91	100.46
30 Year	1.71	95.22

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.31	0.40
Euro	1.14	-0.02
Japanese Yen	110.06	-0.18
Canadian Dollar	1.32	0.18

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	64.76	-0.04	0.06
Light Crude	55.48	-0.14	-0.25
Gold LBMA	1,327.06	-1.84	-0.14

* Source: Thomson Reuters

** From previous day close

 

Stock focus

Standard Chartered’s pre-tax profit surged to $3.9bn (£3bn) in 2019, the global bank said this morning, after previously warning it had set aside nearly $1bn for regulatory fines in the US and Britain.

Shares in housebuilder Persimmon have fallen sharply after the company’s continued participation in the Help-to-Buy scheme came under scrutiny. A source close to the housing minister James Brokenshire said he was “increasingly concerned” by the company’s practices. These included its use of leasehold contracts, the quality of its buildings and its leadership.

Associated British Foods, the owner of Primark, has said it expected to report a 2% fall in like-for-like sales at the retail chain for the half year to 2 March 2019, compared with the same period last year. Overall sales have picked up by 4% though, helped by adding new stores or increasing the size of existing ones.

Profits at Hiscox have surged, trebling over the last year despite another year of natural disasters and other catastrophes resulting in a high number of claims for the London-listed insurer. The company said it was reaping the benefits of action it had taken over the past few years to restructure its London Market business.

Educational publishing giant Pearson reported an 8% rise in adjusted operating profit for 2018, despite seeing underlying revenue fall by 1%. The Group has said it expects company-wide sales to stabilise this year, before growing again in 2020 and beyond.

Shares in the UK’s largest online estate agent, Purplebricks, plunged by 40% last week after the company slashed its revenue forecasts and announced the surprise departure of both its US and UK bosses. The company blamed slower-than-expected growth in its fledgling US business and “headwinds” in Australia.

Sainsbury’s shares fall significantly last week after the UK’s competition watchdog cast doubt on its plan to buy Asda. Customers could see higher prices and less choice if the two grocers combined, the Competition and Markets Authority (CMA) said. It said it could block the deal or force the sale of a larger number of stores, or even one of the brand names.

 

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 Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.