Consumers scale back spending; Greece’s reform programme bears fruit; Debenhams issues profit warnings.

5 March 2019

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

Market news

European bourses are drifting this morning, lacking some direction after US stocks reversed early gains to finish lower yesterday, casting some doubt over the hopes that a Sino-American trade deal could be completed by the end of the month. The S&P 500 ended the session 0.4% lower, while the dollar was also in the spotlight after President Trump’s weekend comments which criticised the Federal Reserve and talked up a weaker dollar.

Further signs of economic stress in the UK were revealed yesterday, when sales figures from both the British Retail Consortium and Barclaycard confirmed that households scaled back their spending last month. It has also been revealed that activity in the building industry has contracted for the first time since snowy conditions disrupted construction 11 months ago. It has been unseasonably warm of late and the delay of projects this time has been put down to Brexit uncertainty.

Conservative Brexiteers have told Theresa May that they are still some way from accepting her Brexit plan, even though they have softened their stance of late. The message comes just before Brussels is expected to reject a request for more concrete promises on the backstop. Next Tuesday there is due to be a “meaningful vote” in the House of Commons and there are only 24 days left before the scheduled Brexit date.

The UK’s dominant service sector has provided some welcome positive news this morning, however. IHS Markit’s Purchasing Managers’ Index has revealed a small upturn for service sector output, reading 51.3 versus a contractionary forecast of 49.9. Sagely, IHS Markit warned against overly-optimistic interpretations; the data suggests that the economy will grow by just 0.1% in Q1.

Elsewhere, Greek assets were in favour yesterday after Moody’s increased the country’s credit rating by two levels, claiming that Greece’s reform programme “was starting to bear fruit”. Yields on sovereign debt touched 12-year lows and the Athens General was the best performing equity index in Europe yesterday. On the other side of the world, banks and dairy stocks helped New Zealand’s equity market reach record levels.

Finally, UBS has estimated that China could see $67bn of inflows into its “A” shares after MSCI, the global indices provider, announced it was quadrupling its weighting in them. Shanghai’s CSI 300 index rose as much as 3.7% yesterday before settling lower. It is widely believed that other index compilers will follow suit.

Economic data*

Share	Closing Values at 18/2/19	Year high	Year low
FTSE 100	7,134	7,904	6,537
FTSEurofirst	1,473	1,560	1,291
DAX	11,593	13,204	10,279
DJ Industrial Average	25,820	26,952	21,713
S&P 500	2,793	2,931	2,351
NASDAQ	7,578	8,133	6,190
Hang Seng	28,962	31,978	24,541

 

UK Gifts	% Yield	Price
10 Year	1.27	103.17
2 Year	0.78	101.35
5 Year	0.98	100.10
30 Year	1.78	93.86

 

FOREX versus US Dollar	Last	% Change**
British Pound	1.32	-0.05
Euro	1.13	-0.11
Japanese Yen	111.74	0.19
Canadian Dollar	1.33	0.29

 

Commodities	Price (USD)	Change**	% Change**
Brent Crude Oil	65.67	-0.40	-0.61
Light Crude	56.59	-0.38	-0.67
Gold LBMA	1,286.42	-1.65	-0.13

* Source: Thomson Reuters

** From previous day close

 

Stock focus

Ashtead Group enjoyed a 19% increase in rental revenue in the three months to the end of January, reaching £1bn. Operating profit for the FTSE 100 rental business grew by 21%, making it a satisfactory exit for CEO Geoff Drabble, for whom these were the final results.

Debenhams has unveiled another profit warning this morning, withdrawing its fiscal 2019 earnings guidance and blaming macroeconomic uncertainties and increased financing costs. Shares sunk as much as 6.6% this morning. The department store is currently trying to agree a deal with its lenders to overhaul its balance sheet.

GVC Holdings, the parent company of betting outfits Ladbrokes and Sportingbet, has reported a strong start to the year including a net gaming revenue increase of 11%. For its full year results, it made a pre-tax loss but a large increase in revenue due to 2018’s takeover of Ladbrokes. It also revealed Brexit-related plans to move some platform servers to Ireland.

Direct Line has also stepped up its Brexit contingency plans, ring-fencing more money to protect against a market crisis. Meanwhile, it was announced that annual pre-tax profits rose by 8.1% but gross written premiums dropped by 5.3% as it withdrew from partnerships with Sainsbury’s and Nationwide.

Wizz Air said on Monday that its passenger numbers increased by 13% compared to February last year, following the addition of five new routes. Its load factor was higher than last year at 94.2%, but the total customers was down compared to January. Overcapacity and higher oil prices have hurt the airline industry recently.

Last week, William Hill revealed a large loss of £722m for 2018, despite a 2% increase in revenue. The bookmaker blamed a one-off non-cash impairment charge of £883m, due to an impending rule change that will slash the maximum stake on fixed-odds betting machines from £100 to £2. Otherwise, it described high street trading as “resilient”.

 

Walker Crips
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128 Queen Victoria Street
London EC4V 4BJ

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www.wcgplc.co.uk
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