Does a currency war approach?

Garry White looks at the events that have shaped equity markets this week (15 to 19 July, 2019).

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  1. Garry White

US second-quarter reporting season started, with around 10% of the S&P 500 posting results. The numbers were a mixed bag. The oil price fell sharply on growth concerns after Chinese quarterly GDP growth came in at the lowest level for 27 years.

The FTSE 100 fell 0.4% over the week by mid-session on Friday and the FTSE 250 was up 0.3%.

The first half of 2019 was characterised by the strongest and most broad-based asset price reflation that we have seen since 2009. Garry White looks at what is in prospect for the rest of the year here.


UK jobs data was upbeat. A record high of 32.75 million people were in employment up to the end of May, while 1.29 million were out of work, the lowest since at least 1992. Wage growth in the UK rose to 3.6% in the year to May 2019, the highest growth rate since 2008. This means wages growth has been outpacing inflation since March 2018.

UK inflation held steady at the 2% target last month, leaving the Bank of England under no pressure to raise interest rates. Downward influences from energy, accommodation and auto fuels were offset by food and clothing prices, as retailers discounted less aggressively than a year earlier.

There was more gloomy data from Germany. The mood among German investors deteriorated more sharply than expected in July, with the ZEW institute pointing to the unresolved trade dispute between China and the US as well as political tensions with Iran. ZEW said its monthly survey showed economic sentiment among investors fell to minus 24.5 from minus 21.1 in June. Economists had expected a less severe drop to minus 22.3.

The US consumer remains in rude health, which is positive for economic growth. The country’s retail sales increased more than expected in June, pointing to strong consumer spending. Retail sales rose 0.4% last month as households stepped up purchases of motor vehicles and a variety of other goods. Economists had expected a 0.1% rise.

China's economy grew at its slowest rate in 27 years in the second quarter of 2019, but the figure was in line with expectations. In the three months to June, the economy grew 6.2% year-on-year. In response, Donald Trump claimed that US trade tariffs were having “a major effect” on the Asian nation.

The trade war is hitting Singapore. The island nation saw exports fall for a second month in a row year-on-year, this time by 17.3% in June. This dramatic fall comes as Singapore's growth figures released last week showed a 3.4% decline in growth in comparison to the last quarter. Singapore is one of the most trade-dependent economies in the world, and is often seen as a global indicator for trade.


Markets had a wobble on trade war concerns after Donald Trump complained again this week that China wasn’t buying the large volumes of US agricultural goods that he claims President Xi Jinping promised to purchase. Meanwhile, there’s been no change in how the US treats telecommunications giant Huawei Technologies, a key demand of China.

There was continued talk about a currency war. “I do not want to suggest that the trade war is going to become a currency war – but it could,” James McCormack, global head of sovereigns at Fitch Ratings, said. He also noted that China may slow down trade negotiations, because it’s not in a hurry. “Mr. Trump is more in a hurry because he has an election next year,” Mr McCormack said. US Treasury Secretary Steve Mnuchin said there was “no change” to Washington’s stance on the dollar “as for now” amid speculation action would be taken to waken the currency.

Christine Lagarde resigned as managing director of the International Monetary Fund following her nomination to become head of the European Central Bank.


Sterling weakened this week on concerns over a no-deal Brexit. The currency touched a two-year low against the dollar below $1.24 before bouncing back above $1.25 after MPs passed a backbench amendment which sought to block any attempt by a future government to prorogue parliament to ensure a no-deal Brexit. The amendment, tabled by a cross-party group led by Labour’s Hilary Benn and the Conservatives’ Alistair Burt, passed by an unexpectedly high margin of 41 votes, with 315 MPs backing it and 274 opposed.  

The final husting for the Tory leadership – and the keys to number 10 – was held over the week. It is now a matter of days until it will be revealed which of Boris Johnson or Jeremy Hunt has won the race. Both candidates have not ruled out a no-deal Brexit. 

The Office for Budget Responsibility put a price on the impact to the public finances of leaving the European Union without a deal for the first time. The main measure of the deficit – the annual shortfall of tax revenue raised versus public spending – is expected to be £30bn higher from next year (2020-2021). It also said that a recession was likely in 2020 under a no-deal exit.

Ursula von der Leyen, the nominee to become the next president of the European Commission, said she would consider extending the 31 October deadline for the UK to leave the European Union. She said: “I stand ready for further extension of the withdrawal date should more time be required for a good reason.”

Profit warnings

Online fast-fashion group Asos plunged after it issued its trading update early. Management warned that profits would be sharply lower than expected due to issues with new warehouses which had damaged sales in the continent and in the US. The falls mean the market value of Asos is now lower than younger rival Boohoo.

Shares in Mike Ashley's Sport Direct fell sharply after it delayed its results, citing uncertainty about trading its House of Fraser chain, which it purchased last year for £90m. The company also said the delay was partly due to its auditor, Grant Thornton, facing increased scrutiny of its work for Sports Direct. Management also indicated that it may not achieve profits expectations.

Shares in Irn-Bru maker AG Barr slid after the company said it expected sales to drop by 10% this year and profits by up to 20% as it struggled against a strong year in 2018. It cited poor weather and "challenges" facing some of its brands in Scotland as it removed sugar from the recipe.

Mexican silver and gold miner Fresnillo cut production guidance and warned 2019 will continue to be a difficult year, as the amount of metal found in ore mined so far this year has been lower than expected. 

Shares in US-listed railroad operator CSX Corporation plunged after the company reported second-quarter 2019 earnings results that fell short of expectations and it reduced its full-year guidance


San Francisco officials said the City will withdraw a proposed “IPO tax” meant to target the spate of start-ups – including Uber and Lyft – that have gone public or are slated to make their initial public offerings this year. City authorities are trying to get a similar measure on the 2020 ballot as part of an effort to tax business more as the city contends with increasing income inequality and unaffordability.

DouYu International Holdings, China’s largest live-streaming platform, priced its Nasdaq flotation at the bottom of the indicated range as appetite for Chinese technology issues wanes during the trade war.  DouYu is backed by Chinese social media and gaming giant Tencent and raised $775m. This made it the largest Chinese IPO in the United States so far in 2019, eclipsing that of Luckin Coffee which raised $645m in May.

Healthcare software developer Phreesia surged as much as 53% above its offering price when it listed in New York on Thursday.

“Customer experience software” company Medallia priced its shares at $21 in its IPO offer, higher than the expected $16-$18 the company listed in its earlier filings. This suggested continued strong investor appetite for enterprise software listings.

US reporting season

Goldman Sachs beat Wall Street forecasts, as equity sales-and-trading revenue beat analysts’ expectations.

JP Morgan Chase reported earnings that exceeded analysts’ expectations, but this was helped by an income tax benefit that boosted results by $768m.

Citigroup also beat market profit forecasts as it contained costs and strength in consumer lending, which helped the third-largest US bank counter weakness in its trading business.

Morgan Stanley’s second-quarter earnings beat Wall Street expectations.

Bank of America posted its largest profit ever during the second quarter thanks to robust spending from households that offset trouble in financial markets.

Philip Morris beat second-quarter earnings and revenue estimates while hiking its full-year forecast. The news lifted tobacco stocks such as Imperial Brands, British American Tobacco and Japan Tobacco.

For the first time in more than three years, Microsoft’s Intelligent Cloud unit, which includes the Azure public cloud that competes with market leader Amazon Web Services, contributed more overall revenue than its other two segments: Productivity and Business Processes, which contains Office, and More Personal Computing, which includes Windows. The results topped expectations.

Shares in cybersecurity group Crowdstrike, which floated on Nasdaq in June, soared after a well-received second-quarter earnings report in which it raised full-year guidance.

Healthcare group Johnson & Johnson raised its full-year guidance, as demand for its cancer drugs Darzalex and Imbruvica helped it exceed estimates for second-quarter profit.

United Airlines reported a better-than-expected increase in second-quarter profit, driven by strong air travel demand and the ability to charge more for seats given supply constraints from the Boeing 737 Max grounding.

Domino’s Pizza reported its slowest US same-store sales growth in at least three years in the second quarter, driving shares lower and raising doubts about its strategy for fighting off competition from delivery apps.


President Trump has said his administration will look into alleged links between Alphabet’s Google and China. It follows a speech given by Peter Thiel, in which the billionaire tech investor asked whether Google's senior management considered itself to have been infiltrated by Chinese spies. Mr Thiel also questioned why Google had made “the seemingly treasonous decision to work with the Chinese military" but not that of the US. Google denied any such links and later in the week it was reported that the company had “effectively ended” its plans for a censored search engine in China, known as project dragonfly. This could lead to more speculation of a “splinternet”.

Facebook's plan for a cryptocurrency came under further attack at a hearing of the US Senate Banking Committee, where politicians called the company “delusional” and not trusted. Questioning Facebook executive David Marcus over Facebook’s intention to launch its Libra digital currency, Senator Sherrod Brown said the company had demonstrated "through scandal after scandal that it doesn't deserve our trust.”

European Union anti-trust regulators have opened an investigation into Amazon after allegations that it misuses "sensitive data" from independent retailers that sell on its website.

Netflix added fewer paid subscribers than expected in the last three months, with the streaming service blaming price rises. Shares in the company sank 10% after its announcement.

The European Commission fined Qualcomm €242m for "abusing its market dominance" in 3G baseband chipsets by charging prices below cost to force competitor, Icera, out of the market.

Apple plans to start trial production of its AirPods in Vietnam, according to a new report from the Nikkei Asian Review, as it looks to reduce its dependence on Chinese manufacturing.

The downgrade cycle in Apple may have ended after US broker Raymond James upgraded its rating on the stock to “outperform” from “market perform”, which said it has greater confidence on next year's 5G iPhone cycle.

Online auction site eBay beat estimates in its latest quarter as it attracted more customers. As a result, management upped full-year guidance.

The trade row between the US and China has impacted sales at SAP, the German business software giant. The group reported a 21% fall in operating profit to €830m.


The oil price plunged on concerns about a weakening economy. This was despite a spike on Friday after Donald Trump said the US “immediately destroyed” an Iranian drone that approached the USS Boxer near the Strait of Hormuz, though officials in Tehran denied losing such a device. Brent crude futures fell 6% over the week by mid-session on Friday to trade at about $63 a barrel.

Premier Oil reduced its forecast for its 2019 operating costs to $12 per barrel of oil equivalent (boe) from $13 boe and expects debt reduction to reach the upper end of its $250m to $350m target by the year-end.


There was good news for GlaxoSmithKline as a drug bought as part of a contentious £4bn deal has achieved encouraging results in the treatment of ovarian cancer. Zejula, which it bought in December as part of its acquisition of US group Tesaro, showed that it could be used earlier in treatment to help to prevent the cancer returning and in a broader patient population.


BHP Group met its revised target for iron ore production, but flagged $1 billion in productivity losses for fiscal 2019 in its quarterly production report, flowing from disruptions to operations across its commodities.

Anglo American revealed that second-quarter diamond production from its majority-owned De Beers business fell 14% as it follows a strategy of producing to market demand, and revised its diamond-production guidance downwards.

Shares in copper miner Antofagasta rose after a World Bank tribunal ordered Pakistan to pay damages of $5.8bn to Tethyan Copper, a joint venture between the company and Barrick Gold, in a dispute over a copper mine.


Experian’s shares edged lower after the credit information provider reported a slowdown in organic sales growth to 6% in the first quarter, at the low end of City expectations.

Retail & consumer

A surprise jump in retail sales last month was partly due to a surge in demand for second-hand goods at charity shops. The Office for National Statistics (ONS) showed retail sales volumes rose 1% in June overall compared to May. Economists had forecast a contraction.

Shares in fashion house Burberry soared this week on investor hopes the group had turned a corner, following a positive response to the latest designs from the new creative head, Riccardo Tisci. Investors interpreted this as a sign that a business revamp, intended to propel the British brand into the same league as Gucci and Christian Dior, is starting to work.

Shares in Ei Group, the pubs business formerly known as Enterprise Inns, jumped after announcing it would be bought by Slug & Lettuce-owner Stonegate.

Swiss group Swatch has reported falling sales and profits following a crackdown on unofficial sales of its watches online at steep discounts and political trouble in one of its most important markets, Hong Kong. The owner of the Omega and Longines brands said net income fell 11% in the first half and sales fell 4.4%.

Luxury brand Richemont reported a hit to business over ongoing protests in Hong Kong. The Swiss company said political unrest in Hong Kong, a key market for its watches, has knocked sales.

Watches of Switzerland, which listed in London in June, reported a near-trebling of annual profit, with revenue growth also strong. The shares are trading slightly above their 270p flotation price.

Debenhams could reportedly seek another £50m of financing this autumn, just months after creditors backed a turnaround plan that was to result in the closure of 50 stores and rent reductions for others.

Premier Foods issued a trading update in which it said it was making market share gains in seven out of eight top brands. Sales of Mr Kipling’s “exceedingly nice cakes” rose 10%.

In contrast to the problems at Irn-Bru maker AG Barr, Vimto maker Nichols brushed aside a “challenging” UK market to notch up rising half-year sales and profits.

In a trading update, Hotel Chocolat revealed that full-year sales had risen 14%.

Shares in US-listed food kit group Blue Apron soared by 50% after it announced a tie-up with Beyond Meat to bring plant-based proteins into its recipes. Beyond Meat shares continue to defy gravity and are trading at about $176 a share after listing at $25 apiece in May.


Volvo unveiled plans to cut fixed costs by more than $200m as it warned that pricing pressure and tariffs arising from the China-US trade war were denting profitability.

Travel and transport

Low-cost carrier easyJet poached a key executive from Ryanair. Peter Bellew, the Irish airline’s chief operations officer, is widely credited with turning around Ryanair’s operations after the disastrous winter of 2017-18, when thousands of flights were cancelled due to a shortage of pilots. He had left his role as chief executive of Malaysia Airlines to return to Ryanair. The news came alongside easyJet’s third-quarter results, which were in line with expectations.

Ryanair is cutting the number of summer flights it operates next year, blaming further expected delays before the Boeing 737 Max is allowed to fly again. The carrier said it could be as late as December before regulators clear the aircraft to return to the skies after two fatal crashes.

Boeing will set aside $4.9bn to compensate airlines for the disruption caused by the worldwide grounding of its 737 Max jet. The world’s biggest plane maker said this evening the after tax charge would slash its pre-tax profits by $5.6bn in the second quarter, when results are announced next week.

Shares in troubled travel and insurance group Saga rose after activist investor Elliott Capital Advisors revealed it had taken a 5.14% stake in the company.


London house prices slipped 4.4% in the year to May, their sharpest fall since 2009. The sharp slowdown in the capital dragged national price growth to 1.2%, the lowest level since 2013 and down from 1.5% in April, according to figures released by the Office for National Statistics.

Construction group Galliford Try said it continued “to trade well and expects to report full year profit before tax in line with the current range of analysts' expectations”.


The BBC and ITV announced the details of their Britbox streaming service, which aims to compete with Netflix. It will cost £5.99 per month in HD, launching between October and the end of December.

Shares in Reach jumped after it confirmed it is in early talks to buy assets from i newspaper owner JPI Media, which also owns regional titles. The Daily Mirror publisher warned there was no certainty the talks will lead to a deal.


Candidates for the Democratic nomination in next year’s Presidential election laid out their proposals on drug pricing. Senator Joe Biden said he “understands that the future of pharmacological interventions is not traditional chemical drugs but specialised biotech drugs that will have little to no competition to keep prices in check.” As a result, he plans to enact hard caps on prices for drugs manufactured by a single company. He also wants to cap annual price rises at the rate of inflation to prevent gouging. Senator Kamala Harris’ proposed taxing drugs sold at a price above a determined fair value at 100pc, as well as “march-in” rights to rescind a drug company’s patent and license it to a lower-cost rival for “the most egregious offenders”. Proposals from other candidates such as Elizabeth Warren and Bernie Sanders are of a similar vein.


Water bills in England and Wales are set to fall by an average of £50 between 2020 and 2025, under plans published by the industry regulator. Ofwat said companies including Pennon, Severn Trent and United Utilities would also have to invest an additional £6m each day in improving services for customers.

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