Last Week in the City

Henry Brennan, Investment Writer, looks at the market-moving events that have shaped the UK equity markets this week (August 14 to August 18, 2017).

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The FTSE 100 was up 0.1% over the week by mid-session on Friday. The index received a boost from better-than-expected news on UK wage growth and a fall in the unemployment rate but shares in airlines led the index lower on Friday, following terrorist attacks in Spain. Global markets were affected by the ongoing political turmoil in the US. There were also signs the US Federal Reserve is divided on the timing of future interest rate rises.

Economics

Figures released by the Office for National Statistics (ONS) on Thursday showed that the volume of retail sales in the UK increased by 0.3% in July, compared with the previous month. This was largely down to a 1.5% rise in the volume of food sales, which had fallen by 1.1% in June.

The UK unemployment rate fell to 4.4% in the 3 months to June 2017 – the lowest it has been since 1975. The employment rate reached a new record high of 75.1%.

UK CPI (Consumer Prices Index) inflation held steady in July, up 2.6% compared with a year ago and unchanged from June. Fuel prices fell by 1.3% between June and July 2017, the fifth successive month of price decreases.

According to the ONS, average weekly earnings grew by 2.1% year on year in the three months to June – above expectations but below price inflation. However, average earnings were found to have risen 2.6% in June 2017 when compared with June 2016, in line with inflation.

The Federal Reserve's monetary policy committee seemed to be divided over the timing of future interest rate rises in light of the fact that inflation remains weak. Minutes from the July meeting showed that some officials expressed concerns regarding the recent decline in inflation, while others were more worried about risks arising from a labour market that had already reached full employment.

Geopolitics

US President Donald Trump disbanded two business advisory councils after a number of corporate executives resigned in response to his comments about the violence in Charlottesville last weekend. The White House also confirmed that the President had decided to scrap plans to assemble an advisory council on infrastructure. The S&P 500 index recorded its biggest daily percentage drop in three months on Thursday amid renewed concerns that the Trump administration is losing its ability to push through its economic agenda.

A van drove into crowds in Barcelona, killing 13 people, in an attack police were treating as terrorism. A second attack occurred eight hours later in the town of Cambrils.

Energy

Brent crude futures were down 1.9% over the week by mid-session on Friday. US crude inventories fell by 9.2 million barrels in the week ending August 11, representing the seventh consecutive week of declines, according to figures from American Petroleum Institute.

Trade body the Energy & Utilities Alliance (EUA) announced it would back requests for an inquiry into the closure of Britain’s largest storage site for natural gas. Centrica announced in June it would be permanently closing Rough, a natural gas storage facility situated off the east coast of England. The EUA says this will result in greater volatility for gas prices this winter.

Mining

BHP said it had approved $2.46bn for the Spence copper mine in northern Chile, which will extend its lifespan by more than 50 years. BHP Chief Executive Officer Andrew Mackenzie said the project supports BHP’s strategy to deliver near-term, valuable copper production.

Activist investor Elliott Advisers, meanwhile, announced it had increased its stake in BHP to 5% as it ratchets up its campaign for reform at the Anglo-Australian miner. Read more here.

Financials

The £11bn merger between Standard Life and Aberdeen Asset Management completed on Monday. The company will trade as Standard Life Aberdeen with £670bn under administration.

Admiral Group came under pressure on Wednesday after the insurer posted a 2.1% rise in first-half pre-tax profits but also noted that it is still feeling the knock-on effects relating to changes in the way that personal-injury compensation is measured (according to the so-called ‘Ogden scale’).

Industrials

Infrastructure group Balfour Beatty achieved a near 70% increase in first half year profits. Underlying pre-tax profits rose to £22m in the six months to the end of June, up from £13m during the same period last year.

Retail

Kingfisher shares slipped to the bottom of the FTSE on Thursday after it posted a disappointing second-quarter update, which represented its third-consecutive quarter of falling sales. Group sales at stores open for more than a year fell 1.9%, representing a deterioration from the 0.6% seen in the first three months of the year. It was also significantly worse than the City’s consensus expectation for a 0.8% fall. Read the full story here.

Supermarkets

Asda reported its first underlying sales growth in three years as net sales increased 3.9% in the second quarter of 2017. The supermarket enjoyed one of its most successful Easter trading periods on record in 2017, with sales up 16%.

Healthcare

Shares in Hikma Pharmaceuticals fell on Thursday after the drugmaker lowered its guidance for the generics business. The group has now revised down its revenue expectations for the full year, from $2bn-$2.1bn to $2bn.

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