Markets seek stimulus

Garry White looks at the events that have shaped equity markets this week (19 to 23 August, 2019).

This content is more than 6 months old now, please visit the news area of this site for more recent content

  1. Garry White

Global markets rose, paring recent losses, as investors looked to central banks to produce more stimulus measures to support growth. As a result, this weekend’s annual meeting of central bankers in Jackson Hole, Wyoming will be keenly watched, with a speech by Federal Reserve Jerome Powell in the spotlight following sharp criticism of central bank policy by Donald Trump.  

Signs of a slowdown in manufacturing continued to emerge, with the US manufacturing sector contracting for the first time since 2009. Germany’s Bundesbank concedes that the country may suffer a technical recession.

Foreign buyers used the cheap pound to launch offers for UK companies. Pubs operator Greene King and Entertainment One, which makes the Peppa Pig children’s TV series, both received offers.   

The market took Boris Johnson’s Brexit talks with European leaders positive and the pound rallied. This resulted in the FTSE 100 falling 0.7% over the week by mid-session on Friday, but the FTSE 250 bounced 2.9%.


The UK is on track to miss its borrowing targets this financial year after July’s budget surplus was lower than expected. The gap between spending and borrowing came in at £1.3bn in July, down from a £3.5bn surplus a year ago. Economists had expected the national coffers to swell by £2.7bn, as July is a big month for self-assessment tax payments. The gap is due to government spending rising faster than government income.

Bank of England Governor Mark Carney said he did not think negative interest rates were an option yet in the UK. “At this stage we do not see negative rates as an option here. I am not criticising others that have used them, but we don’t see it as an option,” Mr Carney told website Central Banking. The search for Mr Carney’s successor continues, ahead of his departure in January 2020.

The German economy could continue to shrink over the summer, as industrial production dropped amid a dearth of orders, the Bundesbank said, suggesting that the euro zone’s biggest economy is now in a recession after growth slipped 0.2% in the second quarter.

However, there was some good news for the embattled Eurozone. The region’s manufacturing sector activity showed an unexpected improvement this month, according to the latest manufacturing activity survey from IHS/Markit. However, the figure stayed in the contraction territory. The Eurozone manufacturing purchasing managers index (PMI) came in at a two-month high of 47.0 in August vs 46.2 expected.

July inflation in the Eurozone was the weakest seen in more than two years, underscoring the difficulties the European Central Bank (ECB) has in trying to stimulate the economy as member states keep a tight lid on spending. Inflation slowed to 1% year-on-year, down from 1.3% in June and an initial estimate of 1.1%. ECB Governing Council member Madis Muller acknowledged that the Eurozone inflation was too low and said that a decision on further stimulus could come in September.

The minutes from the last Federal Reserve meeting, when rates were cut by 25 basis points, showed officials that voted to lower interest rates three weeks ago agreed that the move shouldn’t be viewed as an indication that there is a “pre-set course” for future cuts. The summary indicated that policymakers viewed the move as a “mid-cycle adjustment”. However, some on the policy committee pressed for a 0.5 percentage point cut, rather than the 0.25 percentage point reduction announced. Others resisted any change at all.

The Trump administration rejected the idea that the US economy was heading for a recession after an “inversion” in the bond market signalled one could be approaching. President Donald Trump, who is running for re-election next year, said: "I don't think we are having a recession, we are doing tremendously well. Our consumers are rich, I gave a tremendous tax cut and they are loaded up with money.”

However, the US manufacturing sector contracted for the first time since the financial crisis in August. A preliminary reading of the manufacturing PMI fell to 49.9 in August from 50.4 in July. A score of less than 50 indicates contraction.

The People’s Bank of China said it will start releasing a new reference rate for bank loans, a further step in a long-awaited reform to interest rates that's set to bring lower borrowing costs to the economy. The central bank will announce the new loan prime rate (LPR) on the 20th of each month and requires commercial lenders to set the price for new loans to businesses and households "mainly" with reference to the LPR.


Italian politics once again proved volatile. Prime Minister Giuseppe Conte resigned after Interior Minister Matteo Salvini called for a no-confidence vote in the government. Mr Conte called Mr Salvini’s decision to end the coalition “reckless”, suggesting his actions are “liable to tip the country into a spiral of political uncertainty and financial instability”. Mr Salvini, leader of the far-right League party, responded by renewing his call for elections, declaring that he “would do it all again”.

Tensions eased somewhat in Hong Kong, but the situation still could deteriorate following months of pro-democracy protests. Garry White looks at the potential fallout for markets should the situation in Hong Kong escalate here

The dispute between Japan and South Korea accelerated. Seoul announced that it would scrap a key intelligence-sharing pact with Tokyo, saying that it did not meet South Korea’s “national interests” to maintain the deal amid the intensifying spat between the two countries.

The favourite to be Argentina’s next leader claimed that a loan from the International Monetary Fund (IMF) cannot be paid back. A shock primary poll recently indicated that a left-wing ticket of Alberto Fernandez and former President Cristina Fernandez de Kirchner will win elections in October and defeat current leader Mauricio Macri. Last year, Mr Macri agreed a $5.7bn loan from the IMF.

Trade war

US president Donald Trump said that he has spoken with Apple chief executive Tim Cook about the impact of US tariffs on Chinese imports. The president said Mr Cook “made a good case” that tariffs could hurt the iPhone maker.  According to President Trump, the pair spoke about competition between Apple and South Korean rival Samsung, with Mr Cook arguing that tariffs would be detrimental to his company, as Samsung products would not face the same levies. This is the second time in two weeks the president appears to have accepted tariffs do harm to US consumers after he postponed tariffs on consumer items from China until December so there wouldn’t be any price rises before Christmas.  

President Trump also believes he has a strong positon in any trade dispute with the EU. “Dealing with the European Union is very difficult; they drive a high bargain,” President Trump said. “We have all the cards in this country because all we have to do is tax their cars and they’d give us anything we wanted because they send millions of Mercedes over. They send millions of BMWs over.” Garry White looked at the issue here.

Did the Trump regime pass an olive branch to Beijing? The Commerce Department extended Chinese tech giant Huawei’s licensing process for three months as a gesture of “good faith”. This will allow some “rural telephone companies” that are reliant on Huawei “a little more time to wean themselves off,” according to US Commerce Secretary Wilbur Ross.


Prime Minister Boris Johnson met French President Emmanuel Macron and German leader Angela Merkel. Talks continue to appear to have reached a stalemate, but both European leaders gave warm words about finding a solution to the impasse. Analysts at BNP Paribas now put the probability of a no-deal exit at 50%, up from its previous estimate of 40%.

The latest Commitment of Traders report from the US Commodity Futures Trading Commission indicated that investors had reduced their bearish position on the pound for the first time since the start of June.

German discounter Lidl has reportedly told British suppliers that it wants them to pay for EU import tariffs to keep shelves stocked in its Irish stores, in the event of a no-deal Brexit.


Payments processor Mastercard is putting together a team of cryptocurrency experts, reports suggested. The move comes after a June announcement that the group was teaming up with Facebook to develop the social media giant's cryptocurrency, called Libra.

EU antitrust regulators want to know whether Facebook's proposed Libra cryptocurrency and its use of consumer data pose possible anti-competitive constraints, reports suggested.


Saudi Aramco has asked major banks to submit proposals for potential roles in its planned flotation. The formal IPO process follows Saudi Arabia’s Crown Prince Mohammed bin Salman’s (MBS) comments in June that the government remained fully committed to the IPO, expecting it to take place between 2020 and early 2021, after it was postponed last year. However, it is still believed that MBS wants a valuation of $2 trillion; a level that most observers think is not achievable.

Japanese software start-up Uhuru will list on the Aim market in London later this year. The “internet of things” start-up raised $4.5m from Softbank last year, and also counts Salesforce, Dentsu and Mitsui & Co as investors.


Britain's largest pub and brewery company Greene King agreed to a takeover by a Hong Kong-based conglomerate. CK Asset Holdings, founded by Hong Kong's richest man Li Ka-shing, will pay £2.7bn for the 220-year old brewery company and take on its debt, worth an additional £1.9bn. Shareholders will receive 850p a share, a roughly 50% premium. The company’s property portfolio is thought to be an attractive part of the deal for Mr Li, but the move was regarded as a vote of confidence in a post-Brexit UK as the company is UK facing.

Entertainment One, the film and television company behind Peppa Pig, had an all cash offer for the company worth £3.3bn from Hasbro, the American toy giant behind franchises including My Little Pony and Transformers.

Press reports suggested that a French-led consortium is in advanced talks to buy a big chunk of Rolls-Royce‎’s civil nuclear operations as part of a deal that will continue the transformation of one of Britain's most important industrial  groups. Framatome, ‎which is majority-owned by the French energy group EDF, is close to sealing a deal to buy Rolls-Royce's international instrumentation and control division.

NMC Health shares surged following reports that two groups, including one backed by China’s Fosun, were competing to buy a 40% stake in the company worth up to $1.9bn.


US and Asian investors have more than doubled their investment into British tech start-ups in the first half of this year. Figures compiled for the Government's digital economy found British tech companies attracted $6.7bn in foreign investment since the start of 2019. More than half of that came from American and Asian investors, with major deals including the $800m investment into finance start-up Greensill by Japan's SoftBank and Deliveroo's $575m recent fundraising.

Apple is reportedly in the final stages of signing off on new advanced screens for its iPhones from China's top display maker, BOE Technology Group. The tech giant is attempting to cut costs and reduce its reliance on South Korea's Samsung.

US supermarket behemoth Walmart is suing Elon Musk’s Tesla for alleged “widespread negligence” that led to solar panels made by the electric car giant catching fire. Walmart wants Tesla to remove the panels from more than 240 of its US stores after they were judged to be responsible for fires at seven locations. Dozens more showed hazards such as loose wiring, according to filings at the New York State Supreme Court.

This week marked 15 years since Google (now rebranded as Alphabet) listed in New York. It is now the world’s fourth largest company by market cap. It market value has risen from $23bn at flotation to about $830bn now.

US cybersecurity group Splunk reported adjusted quarterly profit of 30 cents a share, well above the 12 cents a share consensus estimate. The cybersecurity company’s revenue also exceeded Wall Street forecasts, and management raised its full-year revenue guidance.

Chinese e-giant Alibaba has reportedly delayed a $15bn Hong Kong listing, scared off by protests that have rocked the city for more than two months. There is no formal timetable for when the listing will happen, but the company may go to market in October. The completion of the listing will depend on if protests die down and market conditions become more favourable.

Chinese microblogging site Weibo reported better-than-expected second-quarter earnings and sales, thanks to strong user growth. Search engine Baidu jumped after it earnings beat market expectations. It saw growth in its mobile product and streaming service while its core advertising business stabilised.


Brent crude futures rose 2.3% over the week by mid-session on Friday, trading at about $60 a barrel.

Russia's Rosneft, one of the world's top oil producers and exporters, has notified customers that future tender contracts for oil products will be denominated in euros not dollars, Reuters reported. The move has been interpreted as an attempt to offset any potential negative impact of US sanctions on Moscow. Rosneft, which accounts for over 40% of oil output in Russia, produced 45.8 million tonnes of oil products at home in the first six months of this year - from diesel and gasoline to fuel oil and petrochemicals. The bulk of oil products for export are sold at tenders. Garry White argued recently that the Trump regime’s weaponising of the dollar would ultimately hurt America here.

Fracking group Cuadrilla was forced to halt fracking at its shale gas site near Blackpool on Wednesday night after triggering the largest tremor recorded at the location.


The iron ore price hit a sixth-month low this week, down more than 30% in August, following a surge in the first part of the year. This has led to recent weakness in the large cap miners such as Rio Tinto and BHP Billiton. Last month, Garry White argued that a mining sector correction may be coming.

Chilean copper miner Antofagasta’s interim results were boosted by a jump in production and lower costs, with management confirming it expected to produce record amounts of product this year.


The latest grocery market share figures from research group Kantar showed year-on-year supermarket sales were flat during the 12 weeks to 11 August as the tough comparisons with 2018’s strong summer continue. Lidl bagged its biggest ever share of UK grocery spending as larger supermarket rivals lost ground during a poor stretch of summer weather. 

Other retail

The CBI said UK retail sales in August dropped at the fastest rate since December 2008.The business group said that its monthly gauge of retailers fell to minus 49 in August from minus 16 in which is the second weakest reading since records began in 1983.

Laura Ashley, once famous for its chintzy designs, reported a full-year pre-tax loss of £14.3m, down from a profit of £100,000 in their equivalent period of last year. Chairman Andrew Khoo blamed the loss on underperformance in the retailer’s homeware division.

Across the Atlantic, there was some surprise good news from the retail sector, indicating the US consumer remains robust. Target, Lowes, Urban Outfitters and Home Depot all beat Wall Street expectations in their second-quarter results.


There was some bad news for AstraZeneca relating to trials of a lung cancer treatment. Patients given Imfinzi with tremelimumab did not show better overall survival rates than those on standard chemotherapy, the company said. However, its blockbuster diabetes drug Farxiga showed it can reduce the risk of death by heart attack in a late-stage study.

Aircraft & airlines

Icelandair became the latest airline to take the troubled Boeing 737 Max aircraft off its schedule until 2020, even as Boeing works toward a return of the aircraft this year.

Qantas will run test services of its planned 19-hour flights to determine whether passengers and crew can withstand the marathon journeys. The airline wants to operate non-stop services from Sydney to London and New York as soon as 2022.

Autos & logistics

Italian media reported speculation that a merger between Fiat Chrysler and Renault was once again on the cards. To achieve the goal, the French government could halve their interests in Nissan which may convince the Japanese company to accept its alliance partner joining the FCA group, the report said.

Trucking group Eddie Stobart said its chief executive, Alex Laffey, was standing down with "immediate effect" and the company's shares are to be suspended as it reassesses its accounts. Six weeks ago Eddie Stobart revealed that following a review of its accounts, its earnings for last year were £2m lower than previously reported.


Mitie Group sold its catering and hospitality business Gather & Gather for £85m in cash to catering specialist CH&CO. The sale follows a strategic review of the catering operation that concluded it would fit better within a specialist food business.


UK house purchases sales reached their highest point since 2015 during the usually quiet summer period. The number of agreed sales rose by 6.1% year-on-year in the month to 10 August, according to property website Rightmove, which claims to track nine in 10 UK house purchases.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.


More from author

  1. Garry White

    Trump is now a moderate when it comes to China policy

    Date: 23rd Aug 2019 11:56am

    As the candidates vying for the Democratic Party nomination in China lay out their st...

  2. Garry White

    Supply chains at risk

    Date: 23rd Aug 2019 11:56am

    Garry White looks at the events that have shaped equity markets this week (17 – 21 Fe...

  3. Garry White

    The biggest winner from coronavirus is Donald Trump

    Date: 23rd Aug 2019 11:56am

    Donald Trump’s America First policy wants to smash supply chains and bring manufactur...

Most read articles

  1. Markets seek stimulus

    Supply chains at risk

    Date: 23rd Aug 2019 11:56am

    Garry White looks at the events that have shaped equity markets this week (17 – 21 Fe...

  2. Markets seek stimulus

    Coronavirus complacency eases

    Date: 23rd Aug 2019 11:56am

    Garry White looks at the events that have shaped equity markets this week (10 – 14 Fe...

  3. Markets seek stimulus

    Markets shrug off coronavirus worries

    Date: 23rd Aug 2019 11:56am

    Garry White looks at the events that have shaped equity markets this week (3 – 7 Febr...

Investment involves risk. You may get back less than invested.