China gives the market a chill

Garry White looks at the events that have shaped equity markets this week (28 October to 1 November 2019).

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  1. Garry White

Comments from Chinese officials that they doubted a long-term resolution to the trade war could be found hit global markets at the end of the week, popping the bubble of optimism that dominated trade between Monday and Wednesday. 

The FTSE 100 fell 0.6% over the week by mid-session on Friday, as the sterling rally continued. Because most earnings in the blue-chip index are generated in foreign currency, the FTSE 100 tends to be hit by strength in the pound.  However, the midcap FTSE 250 rose 0.2%.


The UK will hold a general election on 12 December in an attempt to solve the Brexit impasse.

Sterling had its best month in a decade, boosted by hopes that a no-deal Brexit had been avoided. However, Goldman Sachs said traders should beat a “tactical retreat” from sterling until the outcome of Britain’s Christmas election became clear.

Donald Trump said Boris Johnson’s Brexit deal will make it difficult for the UK to strike a trade deal with the US after it leaves the European Union.

Trade war

There was increasing optimism early in the week that an interim deal between Beijing and Washington could be signed next month. However, this was tempered towards the end of the week, following a report that Chinese officials had warned that they will not move on their key priorities and that they were concerned over President Trump’s decision making. The Chinese remain concerned about US President Donald Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks.


The Federal Reserve cut interest rates, lowering the target for its benchmark rate by a quarter point. This was the third cut in four months. Federal Reserve Chair Jerome Powell hinted the bank would hold off on further cuts.

Consumer confidence in the UK deteriorated slightly more than expected in October amid continued Brexit uncertainty, according to the latest survey from GfK. Its widely-watched consumer confidence index slipped to minus 14 from minus 12 in September, missing expectations for a reading of minus 13.

There was more weak factory data from around the world. Japan’s factory activity slumped to a more than three-year low and the Chicago PMI, which is a measure of factory activity in the US Midwest, fell to its lowest level since 2015. However, markets reacted positively to a Chinese private survey, released on Friday, which showed factory activity in the Asian nation expanded in October. The Caixin/Markit manufacturing PMI came in at 51.7, higher than the market had expected. Also, the UK manufacturing PMI from CIPS/Markit rose to 49.6 in October from 48.3 in September. This is the highest reading since April – although the sector continues to shrink.

Christine Lagarde started her job as President of the European Central Bank on Friday.


The US House of Representatives passed a resolution to formally proceed with the impeachment inquiry against President Donald Trump.

Protests in Hong Kong have dragged the territory into its first technical recession since the financial crisis. The economy shrank 3.2% in the three months to September quarter-on-quarter, the second consecutive quarter of contraction.

A controversial Russian law went into force on Friday that enables the country’s government to try to disconnect its internet from the rest of the world. The Kremlin said its “sovereign internet” law, was a security measure to protect Russia in the event of an emergency or foreign threat like a cyberattack. Garry White looks at the continuing fragmentation of the global internet here.

Profit/sales warnings

Banknote producer De La Rue may literally have a licence to print money, but not for itself. Its shares slumped this week after management warned investors that full-year profits would fall “significantly lower” than current market expectations.

Home builder Crest Nicholson warned that annual profit would fall by a third as prices flattened and as the company’s new leadership embarked on changes to the business. New chief executive Peter Truscott wants to develop more projects and rely less on land sales in the coming years.

Both Crest Nicholson and De La Rue had new chief executives start recently, a move often associated with a profit warning in a process known as “kitchen sinking”.

Car dealership Lookers issued a profit warning and announced two senior departures. Chief executive Andy Bruce and chief operating officer Nigel McMinn are both stepping down from the board. The company is currently being investigated by the Financial Conduct Authority over its sales practices. Third-quarter sales fell 3.2% year-on-year.

Germany’s Volkswagen cut its full-year sales outlook, warning of slowing demand for vehicles.

Staffing company Empresaria Group warned profits would fall this year, blaming a slowdown in hiring in Germany and the UK.

Energy services group Hunting slipped after warning a slowdown in the US onshore shale market would hit profits this year.


Saudi Arabia’s state-owned oil giant Aramco aims to announce the start of its IPO process on 3 November, Reuters reported.

UBS became the first foreign bank to sponsor an IPO on China’s relatively new Star market, where underwriters are required to invest in the listings they bring to market. Shanghai Haohai Biological Technology starred trading on the technology-related growth market on Wednesday.

Warehousing group ESR Cayman raised $1.6bn, making it Hong Kong's second largest IPO this year. The shares rose on their first day of dealings. 


Facebook shares rose after the social-networking giant reported better-than-expected earnings for its third quarter.

Pinterest shares slumped after its quarterly figures missed Wall Street expectations.

Twitter said it would ban all political advertising worldwide, saying that the reach of such messages "should be earned, not bought". Social media rival Facebook recently ruled out a ban on political ads.

South Korea’s Samsung posted third-quarter operating profit that was down 56%, as the company continued to struggle with sluggish demand for memory chips. However, management said chip sales should pick up in 2020, drawing a line under the prolonged industry downturn.

Shares in Japan’s Nintendo surged after its operating profit doubled both on a year-on-year and quarter-on-quarter basis, boosted by the launch of its latest games console – Switch Lite – on 20 September.


Oil prices slipped as rising US stockpiles and renewed doubts over a long-term trade deal between the US and China suggested supply will keep outpacing demand. Brent crude futures fell by 3.5% over the week by mid-session on Friday to trade at about $59.90 a barrel.

Royal Dutch Shell reported a 15% drop in third-quarter profit to $4.8bn on lower oil and gas prices, but still exceeded forecasts thanks to strong trading activities.

BP posted a sharp drop in third-quarter profit amid weaker oil and gas prices and lower production caused by “significant hurricane impacts”. Although this result was better than the market expected, a $2.6bn disposal-related charge pushed BP to its first quarterly net loss since the second quarter of 2016.


Rio Tinto said it expected costs to rise at its iron ore operations as it replaced aging infrastructure. Rio flagged higher sustaining capital expenditure of $1-$1.5 bn each year from 2020, compared with earlier guidance of around $1bn.


Britain’s biggest broadband provider, BT Group, said it has met earnings expectations for the first half of the financial year. Revenues were down 1% and profits 3%.

Shares in media outfit Future leapt after the company bought TI Media, the publisher of Country Life, Homes & Gardens and Woman’s Weekly magazines for £140m.


Third-quarter profits at Lloyds Banking Group were almost wiped out by a surge in PPI claims. The bank was forced to set aside a further £1.8bn, bringing its total for the mis-selling scandal to £22bn.

Standard Chartered beat expectations in its third-quarter numbers but warned about growing headwinds including falling global growth rates.

Inter-dealer broker TP ICAP posted a jump in third-quarter revenues and maintained its guidance for the full year.


Hong Kong retail sales by value fell 18.3% in September, compared with a decline of a revised 22.9% in August. This is significant for luxury goods companies such as Burberry which make a significant amount of their sales in the territory.

Embattled flooring retailer Carpetright is in talks about a takeover offer from its biggest creditor. Meditor has indicated it will offer 5p a share, valuing the retailer at £15.2m. The company has debt of £56m but needs about £80m to both pay off borrowings and give it sufficient cash to grow the business.

Clothing retailer Next reported third-quarter sales up 2%, slightly higher than guidance given in September.


This week marked the end of the lock-up period in Beyond Meat shares, which means insiders are able to sell the stock. Roughly 75% to 80% of the outstanding shares are available to trade after the lockup expiration and its shares fell sharply, despite posting its first quarterly profit. The company made $4.1m in the three months to September, compared with a $9.3m loss for the same period a year earlier. The company has a market capitalisation of $5.3bn.

Laboratory-grown meat made from animal cells is expected to come to market soon. But will consumers get a taste for what some have dubbed Frankenmeat? Garry White takes a look here.


UK car production fell by 3.8% in September because of political uncertainty at home and weaker overseas demand, according to the Society of Motor Manufacturers and Traders. Fears over a possible no-deal Brexit dampened demand in the UK, it said, while exports fell 3.4%.

Fiat Chrysler unveiled plans to merge with Vauxhall's owner PSA to create the world's fourth-largest car company. The two sides say they have yet to finalise all the details, but the 50-50 merger is expected to provide significant cost savings.


The weak London housing market is hitting sales at capital-focused estate agent Foxtons. Third-quarter revenues fell 7% to £32.5m and, for the first nine months of the year, were down 5% to £83.6m.

Airlines & travel

Boeing executives were questioned by the US House Transportation Committee over the two recent crashes of its 737 Max aircraft. Among the scathing documents revealed during the hearing was an email from 2015 showing that safety concerns were raised about a flight-control system on the model when the airplane was still in development. A Boeing engineer asked if a single sensor’s failure could cause the system, known by its acronym MCAS, to malfunction. This is what happened in the Lion Air and Ethiopian Airlines crashes. Chief executive Dennis Muilenburg rejected lawmakers’ assertions of wider problems with Boeing’s culture or the regulatory environment overseen by the Federal Aviation Administration. He insisted the company placed safety first.

Airline group IAG said the strike by pilots at British Airways in September cut its profits by €155m during the third quarter of the year. As a result, profits this year will be lower than in 2018.

Air France-KLM said slowing travel demand is likely to hurt ticket sales in the remainder of 2019, as the airline group posted lower-than-expected third-quarter earnings. The company blamed trade tensions and a litany of economic and geopolitical problems for dampening demand and fares.

Australian airline Qantas said on Friday it grounded three of its Boeing 737s over hairline cracks found in wing structures but expected to have them flying again this year.


GlaxoSmithKline raised its full-year outlook for the second time this year, citing robust sales of its shingles vaccine Shingrix.

Artificial knee and wound care company Smith & Nephew raised its annual revenue growth guidance for the third time this year, as it posted a rise in third-quarter revenue.

ConvaTec reported better-than-expected organic revenue growth of 4.6% in the third-quarter.

California-based biotech company Amgen beat expectations in the third quarter and upped its full-year guidance.

Germany’s Merck beat market expectations in its third-quarter results, helped by soaring sales of cancer drug Keytruda. 

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