Last Week in the City: Brexit uncertainty hits housebuilders and banks

Garry White, chief investment commentator, looks at the market-moving events that have shaped the UK equity markets this week (November 12 to 16, 2018).

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  1. Garry White

The FTSE 100 fell 0.1% over the week by mid-session on Friday, as the pound was volatile on Brexit uncertainty. Although a deal was agreed between Theresa May and the EU, it remains unclear whether it will get through parliament and Mrs May’s leadership may also be challenged through a no confidence vote.

Economics

UK retail sales fell unexpectedly in October. Sales were down 0.5% last month, easily missing expectations of a 0.2% rise and another sign of how slowing consumer confidence is hitting the sector. In slightly better news, the Office for National Statistics revised up the figure for September, to show a 0.4% fall – not quite as bad as the 0.8% fall in its first estimate.

US retail sales rose 0.8% in October, coming in stronger than the 0.5% expected by economists. The figure was a big improvement on September, when sales dipped 0.1%.  The Commerce department said car sales boosted the figures, as did sales of building materials, likely driven by rebuilding efforts in the aftermath of Hurricane Florence.

The German economy contracted for the first time since 2015 in the third quarter. Europe's largest economy shrank by 0.2% between July and September, as global trade disputes had a knock-on effect for Europe's largest economy.

Brexit

It was a significant week in the Brexit negotiations. The EU and Theresa May agreed a draft deal which was backed by the cabinet on Wednesday. However, there were a number of resignations from minister arguing the deal did not meet the mandate of the 2016 referendum. It remains unclear whether the deal will be able to get through parliament, raising the prospect of a “hard” Brexit with no deal with Europe. The Prime Minister has now said we have a choice between her deal, no deal, or no Brexit at all.

The resignations over the proposed deal sparked a fall in sterling and a sell-off in UK-facing companies. Banks such as Royal Bank of Scotland and Barclays and house builders such as Berkeley and Persimmon were hit hard. Airlines such as easyJet and Ryanair also fell on concerns that a no-deal Brexit may result in grounded flights. Rolls-Royce said it was continuing with its contingency plans due to the uncertainty. Companies with a substantial amount of foreign earnings, such as Diageo, Unilever and Evraz, gained.

Technology

Shares in Apple briefly entered a bear market, as Investors grow concerned that the company will suffer declines in iPhone unit sales over the next couple of years. A number of Apple suppliers cut their revenues forecasts this week, including the UK’s IQE, Austria’s AMS, US groups Qorvo and Lumentum, as well as Japan Display. The iPhone maker also announced it was following Netflix, launching a partnership with film studio A24, which produced the Oscar-winning movie Moonlight.

Uber posted a loss of more than $1bn (£780m) in its latest quarter as growth in bookings continued to slow in the run-up to its stock market flotation next year. The company, which has never made a profit, is expected to target a valuation of $120bn when it lists on the New York stock market next year – three times the value of the carmaker Ford.

Shares in Nvidia plunged after the company's third-quarter financial results came in significantly lower than expected. The chipmaker specialises in making hardware for video-game consoles and the mining of digital currencies such as bitcoin and management blamed the weak results on a “crypto hangover”.

Snap, developer of the Snapchat app, has been subpoenaed by the US Justice Department and Securities and Exchange Commission for information about its March 2017 IPO. Snap said it believed that the federal regulators "are investigating issues related to the previously disclosed allegations asserted in the class action about our IPO disclosures."

Energy

The oil price continued to fall on over supply fears. Brent crude future fell 3% over the week by mid-session on Friday to trade at around $68 a barrel.

Mining

Glencore is having more problems in the Democratic Republic of Congo. Its key business in the country is now embroiled in a row with the government over export duties and its Katanga operation is now unable to export copper or cobalt because the country accuses it of failing to pay duties on 6,650 tonnes of copper.

Financials

Warren Buffett’s Berkshire Hathaway has made a big bet on US investment banks. Berkshire took a $4bn stake in JP Morgan Chase in the last quarter, regulatory filings revealed. The investment group also grew its investment in Bank of America, Goldman Sachs, BNY Mellon and US Bancorp, though the company slightly lowered its stake in Wells Fargo.

Prudential reported a 17% rise in new business profits for the first nine months of the year as it continues to cash in on its fast-growing Asia arm.

Property

UK house builders were hit hard by uncertainty over Brexit. Taylor Wimpey warned that its stellar run of sales growth may come to an end next year as uncertainty around Brexit weighs on the housing market. However, sales rates since July were 8% year-on-year year and its forward order book jumped 9% over the last 12 months to £2.4bn.

Estate agency Foxtons said it had closed six of its London branches as it struggled to sell homes in a “challenging” property market in the capital. The estate agency said it had recently closed its offices on Park Lane in central London, Barnes, Beckenham, Enfield, Loughton and Ruislip.

Healthcare

There was some disappointment for AstraZeneca after a combination of two immunotherapy drugs to treat lung cancer did not meet the main goal in an important late-stage study.

BTG shares surged after management raised guidance for its pharmaceuticals division following a “very strong” October for its CroFab snake bite anti-venom.

Supermarkets

Sales at Asda, currently owned by Walmart but in the process of merging with J Sainsbury,  were up for a sixth straight quarter, thanks to strong sales of own-label products and growth in new customers. Third quarter underlying sales rose 3.7%.

Other retail

Reports that a number of suppliers had stopped working with Debenhams due to cuts in its credit insurance and fears of missed payments sent its shares sharply lower.

House of Fraser announced plans to close another four of its stores, all of which are located within Intu shopping centres. Sports Direct – which took over House of Fraser in August in a pre-pack administration deal – said it had “various meetings” with Intu and “adopted a flexible approach”.

Greetings card retailer Card Factory posted solid third-quarter results ahead of the busy Christmas trading period. Revenues are up 3% in the year to date.

Consumer

A cut in the maximum stake on fixed-odds betting terminals (FOBTs) will be brought forward to April 2019 after the government backed down in the face of a growing rebellion. The news hit gaming groups such as William Hill and Ladbrokes Coral Group.

Media

Vodafone’s third quarter results were well received after the company maintained its chunky dividend. There have been concerns that the indebted company may need to reduce the payment, but the company said it was confident that cost cuts would help maintain the payment. The group also pledged to reduce operating costs by €1.2bn by 2021 and review its tower assets to drive returns after its organic revenue grew by 0.8% in the first half.

Defence

QinetiQ, the defence technology company allegedly named after “Q” in the James Bond franchise, said that “significant” orders mean the company was “well placed” to meet its performance expectations for 2019. However, interim profits fell 10%.

Industrials

Half-year profits at Royal Mail tumbled after the company failed to cut costs as quickly as hoped. Interim pre-tax profit more than halved, despite a 1% rise in revenues to just over £4.9bn. The shares closed below their privatisation price.

Luxury sports car group Aston Martin said it sold 1,776 cars in the third quarter, up from 891 in the same period last year, with motorists in America, Asia-Pacific and China driving demand. Revenues rose by 81pc to £282m, and pre-tax profit was £3.1m, compared with just £300,000 last time round. However, the shares fell as investors grew concerned about long-term targets.

Outsourcing

Capita shares plunged after it was criticised by the NHS over its handling of a system error. It was revealed that more than 40,000 women did not receive letters of invitation or reminders regarding NHS cervical cancer screenings from Capita between January and June this year.

An update from joint venture partner Renewi that said Interserve had missed a key construction deadline for a waste-to-energy facility in Derby helped send its shares sharply lower. The news prompted a former shareholder to cast doubt on its future, warning the company could face a similar fate as collapsed outsourcing rival Carillion.

Utilities

SSE, the Scottish power group, and power station owner Drax were hit by a landmark European Court of Justice ruling that deemed the UK energy subsidy scheme unlawful.

Travel

Struggling airline Flybe put itself up for sale and confirmed it was in talks with a number of potential purchasers. 

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