UK equities boosted by Boris bounce

17 December 2019

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

Market news

UK equities enjoyed their best day in over three years yesterday, buoyed by Boris Johnson's landslide victory in the general election last week. The Conservative majority of 80 seats is the party's strongest position since Margaret Thatcher was in charge in the 1980s. For investors and businesses, some of the uncertainty has been removed. Voters rejected Labour's nationalisation plans and the Tories' majority is seen as positive for the economy. The FTSE 100 rose 2.25% yesterday. 

Domestic-facing companies which rallied yesterday are in retreat today, however, following news that Johnson intends to block parliament from extending the Brexit transition period beyond 2020. Sterling, which jumped over 2% on election night, has fallen back to its previous level. The EU has reiterated that there is not enough time for a comprehensive trade agreement.

Elsewhere, US equities ticked gently higher again yesterday after reaching fresh record highs last week. The phase one trade deal with China was confirmed by both sides last week, whereby no new tariffs are being introduced in exchange for Chinese purchases of American agricultural products. Phase two is likely to be more difficult, however, and there is scepticism about the actual impact on businesses of this preliminary agreement. 

China's economic activity data was relatively upbeat in November. Industrial production rose 6.2% year-on-year, it was recently revealed, significantly better than the consensus of 5.1%. Retail sales also surprised to the upside, rising 8.0% compared to last year. A Single's Day promotion has been cited as a significant contributing factor. 

UK labour market figures for the three months to October revealed that the unemployment rate has fallen to 3.8% and that the employment rate reached a record high of 76.2%. Job creation has flattened in recent months, however, which has contributed to wage growth slipping 0.1% to 3.5%

Stock focus

Unilever is near the bottom of the FTSE 100 movers this morning after cutting its growth expectations in an unscheduled trading update. The company warned investors that underlying sales growth in 2019 will miss its own target range of 3%-5%. Unilever blamed challenging market conditions in West Africa and South Asia but said that earnings would not be impacted. 

Trainline has been one of the stocks to benefit most from a `Boris bounce' in the last few days, now that the threat of Jeremy Corbyn's plans to nationalise the railways has subsided dramatically. The ticket booking company has rallied over 13% since election day, and now sits around 45% higher than the level it floated at in June. 

Boeing has announced that it will be suspending its production of 737 Max aeroplanes, its bestselling model that has been grounded since March after two fatal crashes. The US aviation watchdog has said it will not certify the plane to fly again until next year. The American company also employs about 2,500 staff in the UK and has over 200 British suppliers. 

Cineworld has announced the £1.6bn acquisition of Cineplex, Canada's biggest cinema operator which has a 75% share of the market. It follows the $5.8bn purchase of Regal Entertainment last year and will make Cineworld the leading operator in North America. 

Ola, an Indian company with backing from Japan's Softbank, is looking to disrupt London's intensely competitive taxi market. It has promised to wage a price war in the capital, starting in January, and hopes to benefit from the problems faced by Uber, which has just appealed against the decision to remove its London license. 

The Weekly Note has a new look!

Subscribe today and email [email protected] to register your interest, and receive the full Weekly Note in your inbox every Tuesday.