US economy adds fewest jobs since 2017; ECB revises down growth forecast; new stimulus announced to boost China’s economy.

12 March 2019

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Market news

The Brexit vote in the House of Commons later today, on whether to back Theresa May’s revised deal, was at risk until a last-minute amendment was agreed with the EU last night. The change sets out a procedure by which Britain could suspend the Irish backstop if the EU acted in bad faith during future trade negotiations. The EU also pledged to dedicate resources to finding a technological, innovative alternative to the backstop.

Sterling rallied around 2.5% versus the dollar over the course of Monday, on expectations that the prime minister’s deal may be closer to being accepted. Sterling has since softened, as many still expect the deal to be defeated today. The government’s chief legal adviser, Geoffrey Cox, announced this morning that the legal risk ‘remains unchanged’. If MPs vote against today, there is due to be a vote tomorrow on whether to pursue a no-deal Brexit and potentially a third vote on Thursday on extending Article 50.

The FTSE 100 began the day in negative territory but has been steadily rising since, as sterling has fallen, while other European equity markets are showing a fairly sedate mixture of movements this morning. Yesterday, US equities rallied to break a five-day losing streak which saw the S&P 500 fall 2.1% last week.

A weak US jobs report weighed on domestic equities, as well as unpromising global economic data. The US economy added the fewest jobs in 17 months in February, betraying a deceleration in the underlying growth rate on top of a seasonal effect.

The ECB revised down growth and inflation forecasts further than expected, claiming that Eurozone growth momentum had weakened substantially. Simultaneously, however, it explained that it now expects interest rates to remain where they are beyond the end of this year, limiting the damage for European stocks last week - the Euro Stoxx 50 index fell 1.1%.

Beijing also made a dovish policy announcement, revealing new stimulus to boost China’s economy in
the face of cyclical headwinds and the damaging trade war with the US. Combined, the economic data and
central bank policy news sent Global sovereign yields
lower last week.

Economic data*

* Source: Thomson Reuters

** From previous day close

Stock focus

Boeing’s share price opened more than 10% lower yesterday morning after one of its aeroplanes crashed in Ethiopia on Sunday, killing all 157 passengers. It was the second crash in five months involving Boeing’s 737 Max aircraft. Shares recovered about half their losses before the close, but multiple countries have grounded the planes or withdrawn access to their airspace.

Interserve is trying to rally support for a rescue plan that would involve lenders writing off debts in exchange for equity from its retail investors. The cleaning and catering company is one of the government’s biggest contractors and employs 68,000 staff, but accumulated debts over £600m after a failed move into creating energy from waste.

Deutsche Bank is in talks with its German rival Commerzbank, discussing a potential merger which would be one of the biggest banking deals in history. There has been speculation for months and unofficial backing from Germany’s finance minister. A merger could address the banks’ weaknesses but will likely result in thousands of job losses.

Provident Financial, the sub-prime lender, has spoken out strongly against a takeover bid by rival firm Non-Standard Finance (NSF). Provident said that the £1.3bn proposal is “strategically and financially flawed” and that NSF does not have the requisite banking and credit card experience. The chief executive of NSF was formerly chairman of Provident for 22 years.

Ryanair has announced that if the UK leaves the EU later this month without political and trading arrangements, then its British shareholders will lose their voting rights and be barred from buying new shares. It said that the decision was made to protect its EU flying license, the rules of which require Ryanair to be majority-owned by EU investors.

Domino’s Pizza reported a fall in profits last year, as rising costs abroad outweighed strong domestic sales. Like-for-like sales in the UK climbed 4.6%, but its Swiss and Swedish operations made losses and its Norwegian expansion “presented challenges” beyond expectations. Pre-tax profits fell 22% to £61.9m for the year to December.

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