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FTSE 100 Turns South As Retail Sales Numbers Raise Prospect Of A November Rate Hike

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Garry White, chief investment commentator, looks at the market moving events that have shaped the UK equity markets this week (16 to 20 April 2018).

The FTSE 100 rose 1.3 per cent over the week by mid-session on Friday, as dovish comments from the Bank of England resulted in a fall in the pound. There was more bad news from some high street stalwarts and commodity prices continued to rise because of trade war fears.

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Economics

Dovish comments by Bank of England governor Mark Carney threw some serious doubts on the prospect of a May interest-rate hike. Mr Carney drew attention to the “mixed data” from the UK economy this week and said he didn’t want to be “too focused on the precise timing” of when rates might next rise. His comments resulted in a sharp slide in sterling. Ahead of the comments, the market had priced in an 85 per cent chance of an increase at the May meeting.

The comments followed data that showed inflation in the UK falling by more than expected in March to a one-year low. Annual consumer price inflation fell to 2.5 per cent from 2.7 per cent in February. Economists had expected the figure to be flat at 2.7 per cent. However, UK wages rose faster than inflation for the first time in almost a year in February, rising 2.8 per cent.

Michael Saunders, an external member of the BoE’s rate-setting committee, said the apparent slowdown in the UK economy is likely to be a blip, suggesting he will vote again for interest rates to rise again next month.

China said its economy grew 6.8 per cent in the first quarter of 2018, ahead of a consensus estimate of 6.7 per cent. This is ahead of government targets and marks the third-straight quarter of 6.8 per cent growth in the world's second-largest economy.

Geopolitics

Targeted bombing in Syria of suspected chemical weapon sites by US, French and British troops is not now expected to escalate, easing geopolitical tensions.

Hopes mounted of an easing of tensions on the Korean peninsula, as a hotline between the leaders of North and South Korea went live on Friday. President Donald Trump offered a bullish view of his planned talks with Kim Jong Un, but said he was prepared to walk away from talks too.

Chinese group

ZTE said a US ban on the sale of parts and software to the company announced earlier in the week as part of Donald Trump’s actions on trade was unfair and threatened its survival. Management vowed to safeguard its interests through all legal means.

John Redwood, Charles Stanley’s Chief Global Economist, argues that markets will most likely have to live with the trade war story for longer here.

Energy

Reports suggested that Saudi Arabia was now targeting an oil price in the range of $80 to $100 a barrel helped boost the oil price. This was taken as a sign that Riyadh will seek no changes to a supply-cutting deal even though the agreement's original target is now within sight. Brent crude prices rose 4.3% over the week by mid-session on Friday.

Mining and commodities

Donald Trump’s tariffs on Chinese aluminium imports continued to boost the price. Futures traded on the London Metals Exchange are up by around a quarter in April so far. The Kremlin said the “temporary” nationalisation of Oleg Deripaska’s

Rusal was on the table. It was unclear what the move would achieve as the company is under US sanctions. Alumina prices also hit an all-time high above $700 a tonne.

Nickel prices climbed to a three year high on following speculation that another round of US sanctions could include the base metal.

Technology

The battle for UK trading software group

Fidessa took another turn after Ion Investments said it had approached the FTSE 250 group with a potential offer that would trump an agreed £1.4bn bid with Switzerland’s

Temenos.

Fears over global smartphone sales mounted after Asian-listed chipmaker

Taiwan Semiconductor Manufacturing Co (TSMC),

Apple’s main supplier, said current-quarter sales would be about $1bn lower than analysts’ expectations. Apple posts its first-quarter results on 1 May 2018.

IBM shares fell sharply after its quarterly figures, despite earnings beating expectations, as profit margins slipped.

Video-streaming service

Netflix posted a well-received set of first-quarter numbers. For more on the results and the company’s outlook click here.

The Hong Kong Stock Exchange is targeting IPOs after rule changes. Companies with dual-class shareholding structures and biotech firms with no revenue will be able to apply for listing on the Hong Kong stock exchange from April 30 under new listing rules. It had previously not allowed listings by companies with dual-class share structures, making it less attractive to big technology firms, many of which use such structures.

Healthcare

Rare disease drug maker

Shire rejected a $63bn cash-and-share bid from Japan's

Takeda Pharmaceutical. Irish-based Botox-maker

Allergan also confirmed it was considering an offer for Shire after, sending shares in its shares lower. However, later press reports suggested that Allergan had decided not to pursue an offer following feedback from shareholders.

Retail

It was a mixed week on the high street, with Primark-owner

Associated British Foods saying that the UK high street was “not remotely dead”. Like-for-like sales at Primark rose 3 per cent at established UK stores in the six months to 3 March 2018. However, weak sugar prices have been hitting the conglomerate’s food business.

There was also good news from

JD Sports, which saw a boom in profits, particularly online, where sales rose by around a third. The “athleisure” retailer posted a 24 per cent jump in pre-tax profit to £294.5m. Turnover rose 33 per cent, climbing above £3bn for the first time in the company’s history to reach £3.2bn.

Most other news was downbeat. UK retail sales fell sharply in March owing due to a slump in petrol sales when the “beast from the East” storm hit Britain. The volume of sales fell 1.2 per cent in March from February, with petrol sales down 7.4 per cent, according to the Office for National Statistics. Analysts had been expecting a decline of 0.5 per cent. Sales were down 0.5 per cent between January and March quarter-on-quarter, the worst performance in a year.

Shares in troubled department store

Debenhams slid sharply after interim profits slumped 85% following a difficult Christmas and a sale slump caused by snowy weather in March. As a result, management cautioned that full-year pre-tax profits would be at the lower end of market expectations of between £50m and £61m.

Mothercare chairman Alan Parker stepped down just weeks after the troubled retailer’s chief executive was asked to leave following a decline in sales, as crunch talks with creditors continue.

House of Fraser, which is privately owned by Chinese conglomerate Sanpower, appointed turnaround specialists KPMG to advise it on a restructuring plan which could involve store closures and job losses. All action is on the table, including an insolvency process called a Company Voluntary Arrangement (CVA).

Consumer

Shares in Dettol and Durex maker

Reckitt Benckiser fell after the group posted like-for-like sales growth in the first-quarter of 2 per cent, below expectations of 2.6 per cent. The group is attempting to return to growth this year after a cyberattack and a botched product launch.

Rival

Unilever said sales dropped 5.2 per cent to €12.6bn during the first quarter, as it took a hit from unfavourable currency translations. However, underlying sales, which stripped out these moves, were up 3.4 per cent across the group and 5.1per cent in emerging markets. The board upped its quarterly dividend to shareholders by 8 per cent and unveiled a €6bn share buyback, returning money from the sale its spreads business to investors.

Shares in

Whitbread, which owns Costa Coffee and Premier Inn, jumped on reports of growing pressure to split the company in two. It was revealed that activist investor Elliott Advisors had become Whitbread's largest shareholder with a 6 per cent stake.

Shares in funeral operator

Dignity jumped by almost a fifth after the group said "simple" funerals represented only 15 per cent of its services, less than it had expected after it slashed prices earlier this year. The trading outlook for the year was now better than expected.

Property

Shopping centre owner

Hammerson is no longer urging its shareholders to vote in favour of its acquiring rival

Intu. It comes months after it announced an all-share offer for Intu, owner of the Trafford Centre in Manchester. The proposed £3.4bn takeover would have created the UK's biggest property company, worth £21bn, but management are now cold on the deal.

Financials

Barclays chief executive Jes Staley will be fined by UK regulators for breaching rules when he tried to identify a whistleblower at the bank. Barclays said there was no suggestion Mr Staley acted with “a lack of integrity”. The New York Department of Financial Services is still investigating.

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Source : http://www.cityam.com/284411/last-week-city-commodity-prices-jump-and-puffa-jackets

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