Garry White, chief investment commentator, looks at the market-moving events that have shaped the UK equity markets this week (8 to 11 May 2018).
The recent tech wobble appears to have run its course as Apple shares surged to a new all-time high and Facebook clawed back all the losses seen in the wake of the Cambridge Analytica scandal. There were a number of bids for UK companies this week, with the owner of Clydesdale Bank and Yorkshire Bank making a takeover approach for Virgin Money, Shirefinally agreeing to an offer from Japan’s Takeda and Vodafone announcing a transformative deal that will take it from mobile phone operator to a European cable and broadband TV giant.
The FTSE 100 rose 1.7% over the week by mid-session on Friday.
As expected, the Bank of England left interest rates on hold and played down the current “economic soft patch”. In sharp contrast to overwhelming expectations a few weeks ago that they would raise rates, policymakers voted 7-2 to keep them at 0.5%. The Bank trimmed its inflation forecasts and cut its growth outlook, but Governor Mark Carney said he expected the economy to recover speedily, despite signs of more cautious consumers.
In a surprise move, Argentina will start talks about a financing deal with the International Monetary Fund (IMF). The country has been suffering some financial turmoil, with interest rates recently hitting 40%. President Mauricio Macri said IMF aid would "strengthen growth" and help avoid crises of the past. It is 17 years after Argentina defaulted on its debts and 12 years since it severed ties with the IMF.
President Trump said he was unilaterally withdrawing from the Iran nuclear deal, unravelling the signature foreign policy achievement of his predecessor Barack Obama. Adding to concerns over regional stability, Israeli fighter jets bombed military bases and munitions warehouses in Syria in revenge for Iranian attacks on the Golan Heights earlier in the week. For an examination of the impact of Trump-Iran standoff on markets click here.
Is Trump's determination to get improved terms of trade for the US leading us into a global trade war? John Redwood, Charles Stanley’s Chief Global Economist, take a look here (video).
Italy's anti-establishment Five Star Movement and right-wing League party said they had made significant steps to forming a government, more than two months after a general election. The prospect of a populist, Eurosceptic government has worried investors.
Scandal? What scandal. Mark Zuckerberg could confidently count his billions again afterFacebook shares returned to their pre-Cambridge Analytica rout this week.
Apple shares also hit an all-time high, demonstrating the sector’s resilience following its recent wobble, despite news that European smartphone shipments fell an unprecedented 6.3% year-on-year in the first quarter of 2018, the largest-ever single-quarter decline, according to a report from market analysis firm Canalys.
Cyber security firm Avast Software shares fell slightly following their debut on the London Stock exchange. It was the biggest IPO on the exchange since July 2017.
In a move that must have pleased Russia’s Vladimir Putin and Saudi Prince Mohammed bin Salman, Donald Trump’s withdrawal from the Iran deal prompted a rally in the oil price. Brent crude futures rose 3.4% over the week by mid-session on Friday to trade at around $77.45 a barrel.
Predicting the oil price can be a bold move – but this did not deter analysts at Bank of America Merrill Lynch from making a punchy forecast. They said oil prices look set to temporarily hit $90 a barrel during the first half of next year and risked spiking to as much as $100 a barrel, depending on geopolitical events and a collapse in Venezuelan output.
Mining and commodities
Russian aluminium group Rusal warned of expected harm to its business from US sanctions, warning that all forecasts were now “unreliable”. Washington has announced sanctions on Russian billionaire Oleg Deripaska and several companies in which he is a large shareholder, including Rusal, En+ Group and GAZ Group, in response to Russia’s “malign activities”.
Shares in Randgold Resources, the FTSE 100’s only pure gold play, fell sharply after it reported a disappointing first quarter. Profits slumped by almost a quarter as production costs rose and following strikes at two of its mines in Africa.
Gold miners have been generally weak as the price remains subdued as interest rate rises in the US look set to dampen demand for the metal and as the rising oil price implies that production costs across the sector are going to rise. Garry White argues that gold’s place in a portfolio is actually pretty limited here.
The owner of Clydesdale Bank and Yorkshire Bank, CYBG, has made a takeover approach forVirgin Money which values the lender at £1.6bn. A combination of CYBG and Virgin Money would create the largest "challenger bank" to the UK's biggest lenders. The regulator also said it was looking at share-price movements before the deal was announced after Virgin Money shares gained around 15% in the week before the announcement was made.
Royal Bank of Scotland shares jumped after it settled with the US Department of Justice, ending an investigation into sales of financial products in the run-up to the financial crisis. The bank agreed to pay a $4.9bn fine, lower than the $6bn that had been expected. The move will potentially allow the government to sell down more of its stake in the bank – and possibly the reintroduction of dividend payments.
UK regulators fined Barclays chief executive Jes Staley £642,430 for a breach of conduct after he tried to uncover the identity of a whistleblower.
A first-quarter update from Wm Morrison boosted its shares after like-for-like sales beat City forecasts, rising 3.6%. This was the tenth-consecutive quarter of comparable sales growth reported by the UK’s fourth largest grocer.
A huge sigh of relief was breathed in the Shires and London suburbs after Waitrose-ownerJohn Lewis Partnership denied reports that it had been in discussions with tech behemothAmazon over a potential sale of the upmarket supermarket. Some retail analysts have predicted that Amazon may eventually buy an established UK grocery chain to beef up its physical store presence in the country.
UK retail sales in April how biggest decline in 23 years, falling 3.1% year-on-year, according to data from the British Retail Consortium. The figures were hit by the timing of Easter, but still regarded as weak.
Next shares jumped after the retailer upped its full-year guidance after sunny weather lifted its first-quarter sales.
However, it wasn’t so super at Superdry, as its shares fell sharply after the clothing group said sales its store sales fell by 6% to £86.1m in the 16 weeks to 28 April 2018.
There was also a negative statement from pie and pasty retailer Greggs, shares in which tumbled after the company warned full-year profits could be flat after the “Beast from the East” weather system forced the temporary closure of several stores and added to overall weaker trading in early spring.
Pub operator JD Wetherspoon shares also fell after its third quarter update revealed a slowdown in sales. However, Chairman Tim Martin appeared to focus more on making the case for leaving the EU customs union in the statement.
Carpetright has managed to secure £15m in emergency funding, pushing its CVA closer to final approval. The loan will be provided by Meditor, Carpetright’s biggest shareholder with just under 30%.
BT Group's share price fell sharply after it revealed plans to cut 13,000 jobs and quit its London headquarters as the board looked to reduce costs. Chief Executive Gavin Patterson said radical action was “absolutely critical” to ensure the company could deliver the next-generation fibre and mobile networks Britain needed.
Daily Mail & General Trust, the owner of the Daily Mail newspaper, is in line for a £640m windfall following the sale of ZPG, the company behind property website Zoopla for £2.2bn by venture capital group Silver Lake. The newspaper group owned a 29.8% stake in the company.
ITV is expecting advertising revenues to rise 2% in the first half of the year thanks to strong online growth and the World Cup in June. The shares rallied in relief.
Vodafone has struck an €18.4bn deal to buy Liberty Global’s cable TV and broadband businesses in Germany and Eastern Europe. The deal will transform Vodafone from a mobile phone operator into a cable and broadband TV giant across Europe.
Shire agreed to a takeover by Japanese group Takeda after it raised its offer to £46bn, making it the biggest deal in the pharmaceutical sector since 2000. The company had made four previous offers for the group but the cash element of the deal was regarded as too low.
Barratt Developments gave a reassuring update, despite lingering concerns about the UK housing market. Total forward sales are at record levels, up 2.5% to £3.3bn. Its net cash position at 30 June is expected to be better than previous guidance at around £550m, but down on the same period last year when it stood at £723.7m.
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