Amazon sparks consumer fears and Woodford Patient Capital appoints Schroders

Garry White rounds up the events that have shaped equity markets this week (21 to 25 October 2019).

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  1. Garry White

Hopes that an interim agreement in the trade war between Washington and Beijing will be signed next month helped markets in the early part of the week, but gloomy guidance on Christmas sales from Amazon prompted concerns about the health of the consumer.

The FTSE 100 rose 1.6% over the week and the mid-cap FTSE 250 fell 0.8% by mid-session on Friday.


Prime Minister Boris Johnson wants a general election on 12 December to break Britain’s Brexit impasse, conceding for the first time he will not meet his “do or die” deadline to leave the European Union next week. In a letter to opposition Labour leader Jeremy Corbyn, Mr Johnson said he would give parliament more time to approve his Brexit deal but lawmakers must back a December election, Johnson’s third attempt to try to force a snap election. Parliament will vote on Monday but the outcome remains unclear.


The Board of Woodford Patient Capital Trust has appointed Schroders to run the investment trust from which fund manager Neil Woodford resigned last week. Investors welcomed the news, with shares rallying by nearly 30% to a reduced, though still wide, discount of around 38% to net asset value.

Chairman, Susan Searle, said Schroders had been chosen after a competitive review based on, “Its careful and considered long-term approach to investment, backed by its substantial research resources in both public and private assets”.

While clarity on a new manager is a boost for holders of the trust, Schroders inherits a number of challenges. It must balance the highly illiquid nature of the portfolio with limits on bank borrowing and the amount it can hold in unquoted companies.


Beijing and Washington continued to talk up the prospect of an interim deal. US national economic adviser Larry Kudlow told Fox Business Network that a planned hike in US trade tariffs on Chinese exports that was set to kick-in mid-December may be shelved. He linked it to continued progress in trade talks. China made some commitments about agricultural purchases.

However, US Vice President Mike Pence may have thrown a spanner after he criticised the US National Basketball Association (NBA) in a speech attacking Chinese diplomatic and trade policies. Mr Pence accused both the NBA and the sports equipment firm Nike of "kowtowing" to Beijing and "muzzling" criticism of China. It comes in the wake of a diplomatic row over an NBA team manager's support for anti-Beijing protests in Hong Kong.

Christine Lagarde, who will soon take over as head of the European Central Bank, said the trade war will have a big impact on the global economy. “It's certainly going to give a big haircut to the global economy. And if you shave off... almost a percentage point of growth that means less investment, less jobs, more unemployment, reduced growth,” she said. Ms Lagarde said US President Donald Trump had the power to lift some of the trade uncertainty which was hurting the global economy.

China is seeking $2.4bn in retaliatory sanctions against the US for non-compliance with a World Trade Organisation (WTO) ruling in a tariffs case dating to the Obama era. China went to the WTO in 2012 to challenge US anti-subsidy tariffs, known as countervailing duties, on Chinese exports including solar panels, wind towers, steel cylinders and aluminium extrusions, exports that China valued at $7.3bn at the time. The US said at the time that it did not view the WTO findings as valid and that the judges had applied “the wrong legal interpretation in this dispute”.

Shares in toy-maker Hasbro plunged after its third-quarter earnings fell short of Wall Street estimates.  The threat of tariffs on toys imported from China ramped up shipping and warehousing costs, management said. The company is also facing structural headwinds in demand for its toys, as customers switch to video games or games on their tablets, phones, and computers from traditional toys and board games.

Shares in Texas Instruments fell sharply, dragging down other chipmakers after the group unveiled worse-than-expected guidance for the fourth quarter. Its Chief Financial Officer, Rafael Lizardi, blamed the outlook on ongoing trade uncertainties with China and customers holding back purchases.

Is the world seeing the emergence of yet another trade war? According to Malaysian Prime Minister Mahathir Mohamad, the boycott by Indian traders of one of his country's top exports amounts to just that. This followed criticism by Mr Mahathir of New Delhi’s actions in disputed Kashmir.


UK public borrowing shot up by a fifth in the first six months of the financial year. The UK public sector had to borrow £9.4bn in September to cover its spending. That was £600m more than in the same month in 2018 and the first September year-on-year borrowing increase for five years, the Office for National Statistics said. Borrowing during the first half of the financial year – April to September – was £40.3bn, 21.6% higher than during the same period last year.

Mario Draghi, the outgoing president of the European Central Bank (ECB), warned that slowing global growth and Brexit uncertainty pose a risk to growth in the Eurozone economy amid concerns that Germany remains on the brink of recession. Speaking in Frankfurt after his final ECB policy meeting before stepping down, Mr Draghi said the ECB was concerned that the economy of the 19-member currency bloc, which has slowed this year along with much of the global economy, faced “protracted weakness” going into 2020. The ECB left rates and monetary policy unchanged.

Germany’s central bank fears that its economy has kept shrinking. In its monthly report, the Bundesbank predicted German GDP may have contracted in the third quarter of 2019. If this turns out to be the case, it would mean Europe’s largest economy had contracted for two quarters in a row and was in a technical recession.

The Peoples Bank of China surprised the markets by not cutting its benchmark interest rate. The central bank last cut rates in September. The question now is whether China believes it's unnecessary to reduce interest rates, given better-than-expected September data, or whether it wants to keep the interest rate cut 'bullet' for the future in case trade tensions escalate further.

Japan's exports fell 5.2% year-on-year in September. The drop was ahead of the 4% expected by economists and was the country's tenth consecutive month of falling exports.    


There was another twist in global cyber-espionage this week. It was revealed that Russian hackers piggy-backed on an Iranian cyber-espionage operation to attack government and industry organisations in dozens of countries while masquerading as attackers from the Islamic Republic. The Russian group, known as “Turla” and accused by Estonian and Czech authorities of operating on behalf of Russia’s FSB security service, used Iranian tools and computer infrastructure to successfully hack into organisations in at least 20 different countries over the last 18 months, British security officials said.

The number of wealthy Chinese people has overtaken the number of rich Americans for the first time, according to a report by Credit Suisse. The bank’s annual wealth survey found there were 100 million Chinese people among the world’s top 10% of richest people, compared with 99 million in the US.

The Hong Kong government withdrew the controversial extradition bill that sparked months of protests and violence. Security secretary John Lee said on Wednesday: "I now formally announce the withdrawal of the bill.” The bill allowed extraditions from Hong Kong to mainland China. Protests are expected to continue.

Canadian Prime Minister Justin Trudeau won a second term, securing enough seats to form a stable government with support from smaller parties. His Liberal Party’s progressive policies will likely continue with the backing of the New Democratic Party, giving the coalition an 11-seat majority in Parliament. Initial market reaction to the result has been relatively muted.


The listing of Saudi oil behemoth Aramco was postponed after advisers said they need more time to lock in cornerstone investors, reports suggested. The Reuters report also suggested that Aramco was unable to answer valuation questions fully during initial talks with investors.

Failed unicorn IPO WeWork’s co-founder Adam Neumann did very nicely out of SoftBank's rescue deal for the US shared office company. He will sell a chunk of his shares for $1bn, get a $185m consultancy fee and a $500m credit line so he can pay back loans to banks. Meanwhile, 2,000 WeWork employees are potentially facing redundancy after the flotation was pulled as investors balked at the stratospheric valuation and company structure. Garry White looks at unicorns here.

Copper miner Taseko is preparing to list in London as it seeks to woo more investors who can fund its expansion. The company – which is already listed on the Toronto and New York stock exchanges – runs Canada’s second-largest copper mine, and is about to start production at another site in Arizona.

ESR Cayman, which is backed by private-equity firm Warburg Pincus, relaunched its flotation that aims to raise as much as $1.6bn. ESR manages a range of property-focused funds and its own property investments and would be Hong Kong’s second-largest IPO in 2019 after the listing of AB InBev’s Asia-Pacific unit.

Another Australian IPO was pulled this week. Online estate agent PropertyGuru decided not to proceed with its IPO, citing market uncertainty.


Just Eat’s merger with rival food delivery group was crashed by a rival £4.9bn hostile bid from investment group Prosusm, the internet assets division of South African conglomerate Naspers. However, Just Eat’s board rejected the all-share offer worth 710p a share, in favour of the all-share offer already agreed. However, takeaway’s share price has fallen since the deal was announced so this is worth just 594p and it’s all in equity.

Shares in Covent Garden owner Capital & Counties jumped after high-end property tycoon Nick Candy confirmed he is considering a possible offer for the group. Candy Ventures, the investment vehicle owned by Mr Candy, has said it is in early talks for a possible cash offer for the group.

The American private equity giant attempting to buy defence group Cobham is ready to commit to protect British jobs and investment as it seeks to allay concerns over its £4bn takeover of the defence and aerospace company, reports suggested. The reports noted that Advent International will promise the government that it will maintain UK employment at current levels at least, invest in research and development in Britain and keep the Cobham brand.

Micro Focus’ share price fell to a 19-month low after a potential buyer ruled out an acquisition of the troubled British IT group. Open Text denied a report from the previous week that said the Canadian company was weighing up a bid.

Billionaire cable mogul John Malone’s plan for a $6.4 billion sale of UPC Switzerland fell apart after would-be purchaser Sunrise Communications concluded its shareholders won’t support the move. Sunrise Chief Executive Officer Olaf Swantee said Tuesday in an interview that the deal was “dead.”

Profit/sales warning

Cillit Bang maker Reckitt Benckiser cut its full-year revenue growth forecast to between 0% and 2% from an already reduced 2% to 3%, blaming weak demand for flu medicines in the US and baby formula in China. It also warned that profit margins will decline following slower demand in the US and China for its health products that include Dettol, Durex and Clearasil. During the third quarter, Reckitt Benckiser said like-for-like sales grew 1.6%, below estimates for a 3.2% increase.

Another supplier to the building trade issued a profit warning, following on from recent alerts from SIG and Grafton Group. Forterra, which makes pre-cast concrete, paving and bricks, said it now expects its full-year profit will come in "modestly" below what it reported in 2018.

Industrial group 3M cut its full-year earnings guidance, citing weakness in Asia.

Ford cut annual profit guidance, as the carmaker was hit by lower sales in China.

Caterpillar cut its 2019 profit guidance after third-quarter profits fell 13.5%. The company said it had been hit by weak demand in its construction and resources units.

Auction website group eBay trimmed its annual guidance as it continued with its strategic review.

While not strictly a profit warning, Dutch brewer Heineken reduced its guidance. Management said profit this year would be at the bottom end of its previous guidance after an unexpected dip in third-quarter sales in the Americas partly offset strong growth in Asia.

FTSE reshuffle

Prudential completed its demerger of M&G, formerly its UK and European savings and insurance business and fund management arm. Investors in Prudential are entitled to one new share in M&G as part of the split. The shares were included in the FTSE 100 on Wednesday, which meant that there had to be a reshuffle. Just Eat shares were demoted to the FTSE 250 and Sirius Minerals, which has had financing problems relating to its potash mine development in Yorkshire, was demoted to the small-cap index.

Company focus: Boeing

Aircraft maker Boeing’s crisis over its 737 Max aircraft accelerated after a 2016 message exchange was released which suggested the company had known about problems with the flight control system years before it became implicated in two fatal crashes. In the messages, which were between two lead technical pilots on the Boeing 737 Max Program, one complained the system was “running rampant” and difficult to control.

Credit Suisse and UBS downgraded their rating on Boeing shares after the reports were released, noting it was likely that the company would have to take more charges in its accounts over the incidents.

Boeing’s third-quarter profits and revenues took a hit from the debacle.  Earnings fell 43% on revenues that slipped 21%. Plane deliveries in the period slumped 67%.

European regulators expect to clear Boeing’s grounded 737 Max to return to service in January at the earliest, following flight trials by European test pilots scheduled for mid-December, Europe’s top aviation safety official told Reuters.

The report on the Lion Air Boeing 737 Max crash report was released on Wednesday. Mechanical and design problems with the flight control system were among the causes of last year's accident, families of the victims flying on the Indonesian airline were told.


Amazon shares lost about $80bn in value in after-hours trading on Thursday, as investors were disappointed with its festive sales guidance. Management expects sales will be up between 11% and 20% in the fourth quarter, which some interpreted as a negative potential slowdown in consumer spending. Third-quarter profits were hit by increased shipping costs as the company continued to push its one-day shipping service to its Prime members.

Twitter shares slumped by almost a fifth in the wake of disappointing quarterly numbers. The social network reported lower than anticipated revenues and higher costs and said it expected advertising technology bugs to continue to drag on profits.

Microsoft beat market expectations in its first-quarter figures, boosted by its Azure cloud service. Profits were up 14% year-on-year.

Wirecard, the German payments company, said it hired KPMG to conduct an independent review after the Financial Times reported that its finance team inflated performance figures. The report caused Wirecard’s shares to slump by a fifth.

Democrat Elizabeth Warren wants to break up big technology companies such as Google, Facebook and Amazon should she win the White House next year. Garry White argues this would hand a major advantage to China here.

Social media group Snap disappointed with its fourth quarter revenue guidance.

An Iranian hacking group was itself hacked by a Russian group to spy on multiple countries, UK and US intelligence agencies revealed. The Iranian group – codenamed OilRig – had its operations compromised by a Russian-based group known as Turla. The Russians piggybacked on the Iranian group to target other victims. Events such as these mean a splitting of the internet between East and West is looking like a likely scenario. Garry White looks at the issue here.


Goldman Sachs reckons that next year oil prices will stay at around $60 a barrel – provided  there are no “meaningful” shocks.

The US Treasury Department renewed a license allowing Chevron, the last US operating energy company in Venezuela, to continue drilling in the country for another three months until 22 January. The Trump administration appears to be split on whether keeping a US company operating in the country will help with a swift recovery when President Maduro is ultimately ousted, or whether its presence is helping keep Maduro in power as it helps the regime pay its debts.

Oil services company Halliburton reported a 32% drop in third-quarter profit to $295m after a slowdown in shale drilling in the US. Revenue for the three months to 30 September fell by 10% to $5.55bn.

Mining & commodities

Unrest in Chile, the world’s largest producer of copper, has hit production at Antofagasta. The trouble was sparked by a rise in transport prices but grew into something bigger as thousands took to the streets over austerity and inequality. Management said it would hit output by about 5,000 tonnes.

Rio Tinto said it had found a large source of lithium for electric car batteries while looking for gold in piles of waste rock in California. The miner said it could become the largest producer in the US if it can successfully process the rock on a larger scale.

BHP Group, which is at the vanguard of an industry drive to reduce its carbon footprint, said it will take a $780m provision this year to switch from coal to renewable sources of energy at its operations in Chile. The provision is the cost of cancelling its existing coal contracts.

Shares in Petra Diamonds fell after first-quarter revenues slipped 23% to $61.6m due to lower diamond prices and volumes. Diamond prices on a like-for-like basis decreased about 4% in comparison to the fourth quarter of its last financial year. Shares in the miner are down by almost 80% this year. 


Royal Bank of Scotland swung to a quarterly loss after being forced to put aside an extra £900m to cover a surge in payment protection insurance (PPI) complaints before the claims deadline. The extra charge means RBS slid to an operating loss of £8m for the three months to September, compared with a profit of £961m in the same quarter last year.

Barclays reported a rise in third-quarter pre-tax profit to $2.4bn from £2.2bn in the same three months last year. The bank also said that PPI compensation reached £1.4bn. Management said a worsening global economic outlook means it may be hard to meet its profit targets.

UBS, Switzerland’s biggest bank, beat market expectations in its third-quarter results – although net profits slipped 16%. The market had expected a fall in the order of 22%.

Standard Chartered chief executive Bill Winters is planning to take a pay cut in an effort to end one of the company’s largest corporate fallouts in recent years. This followed a shareholder rebellion over the bank’s remuneration policy. In May, more than a third of shareholders voted against a pay package for Winters that gave him a pension allowance of £474,000, which was 40% of his cash salary.


Artificial hip and knee maker Smith & Nephew said Namal Nawana has quit as chief executive, after just 17 months in the job, sending its shares lower. Former Roche Diagnostics head Roland Diggelmann will replace him at the helm. Mr Nawana is stepping down after a pay row which almost saw the company move its listing to the US so the chief executive could be paid more.

US drugs giant Eli Lilly raised its full-year guidance, partly because of growth in “newer medicines”.

GlaxoSmithKline will sell two travel vaccines to Bavarian Nordic for €955m, as it plans to invest more in cancer treatments. The pharma giant will sell Rabipur, which is a vaccine against rabies, and Encepur, a vaccine to prevent tick-borne encephalitis. GSK bought the treatments from Novartis in 2015.


More competition is set to emerge following reports that Uber Eats had struck a deal with Costcutter, the convenience store chain, to allow more than 1,700 shops to sell everyday items via the app. Customers will be able to buy staples such as milk, butter and bread from hundreds of local shops as Uber Eats, the loss-making takeaway app, makes its first foray into the competitive grocery arena. 

Other retail

Bonmarché collapsed into administration, putting almost 2900 jobs at risk. The administrator said the retailer would continue to trade with no immediate job losses or store closures, as it assessed options to secure its future and searched for a buyer.


Profit slipped at Premier Inn owner Whitbread in its latest half-year results, as the company grappled with a weak UK travel market after selling coffee chain Costa to Coca-Cola last year. Profits fell by 7%.

Impossible Foods applied to start selling its plant-based burgers in the EU as it looks to expand outside the US and Asia. The maker of the Impossible Burger filed an application to market soy leghemoglobin, the iron-containing molecule made with genetically-engineered yeast, according to the EU’s food safety authority.


Figures released by Rightmove suggested the seasonal bounce in Britain's house prices failed to materialise, as “thousands of potential sellers” held off putting their homes on the market. Price rose 0.6% year-on-year in October.

Autos & transport

German vehicles parts supplier Continental said that slower automobile production growth over the next five years had forced it to book a €2.5bn impairment. “We do not anticipate that global production of passenger cars and light commercial vehicles will experience any material improvement in the next five years, so we have revised our assumptions for the medium-term market development accordingly,” Chief Financial Officer Wolfgang Schaefer said in a statement.

Nissan Motor Co is likely to axe its Datsun brand, drop some unprofitable products and close a number of assembly lines worldwide as it seeks to boost profits by getting smaller, Reuters reported.

Revenues rose at Peugeot maker PSA in the third quarter, despite the gloomy auto market. The French carmaker benefited from demand for its pricier SUV models, which helped lift revenues by 1%.

Daimler repeated its warning that 2020 results will be “significantly below” that the level it expects in 2019.

Volvo warned of a squeeze in margins, blaming the slowdown in car sales and the trade war, despite third-quarter profits doubling.

Honda has announced plans to stop producing gasoline-only cars by 2022. The carmaker said it will "electrify" all of its models sold in Europe within the next three years – which includes making many models hybrid.

Harley-Davidson beat Wall Street expectations in the third quarter, despite a hit to the bottom line from a drop in US sales and higher costs from European tariffs.

Hyundai missed market expectation in its quarterly numbers, blaming sluggish sales in China.

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