Oil spikes and WeWork scraps IPO

Garry White looks at the events that have shaped equity markets this week (16 to 20 September, 2019).

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  1. Garry White

Central banks took a dovish tone this week, providing a fillip for equity markets. However, this was tempered by gains in the oil price following a serious attack at a Saudi oil facility. There were hopes that a Brexit deal could be agreed after positive comments from Jean-Claude Juncker and trade talks between China and the US restarted.

The FTSE 100 fell 0.2% over the week by mid-session on Friday and the FTSE 250 was unchanged.


EU Commission President Jean-Claude Juncker told the European Parliament "time is running out" to secure a Brexit agreement and the risk of a no-deal Brexit was still “very real”. However, a preview of an interview with Sky News, which will be broadcast on Sunday, sent the pound to its highest level in two months. Mr Juncker said that a Brexit deal could be reached by 31 October, the date the UK is currently scheduled to leave the European Union. “I think we can have a deal,” Mr Juncker reportedly said. “I am doing everything to have a deal because I don’t like the idea of a no-deal because I think this would have catastrophic consequences for at least one year.”

The Supreme Court will publish its ruling on Boris Johnson’s prorogation of parliament early next week. The three-day hearing included a submission from former Prime Minister John Major.

Boris Johnson has to set out his Brexit plans to the EU before the end of September, according to Finland's prime minister. Antti Rinne said he and French President Emmanuel Macron agreed the UK needed to produce the proposals in writing soon, adding if not, "then it's over".

Trade war

Deputy-level US-China trade talks started in Washington on Thursday, paving the way for high-level talks in October. US Trade Representative Robert Lighthizer also said that he was seeking a “real agreement” that addresses intellectual property and technology transfer issues. He gave no indication as to whether an interim deal with a more limited scope would be signed first, as suggested in some parts of the media.

President Trump notified Congress about a partial trade deal. He said there is an agreement with Japan over agriculture and digital trade. Those deals will be finalised and sent to Congress in the coming weeks.

Chinese businesses have become net sellers of global assets this year for the first time since companies from the Asian nation started participating in global M&A a decade ago. Chinese companies have agreed to sell about $40bn of assets, according to data form Dealogic. This is up from $32bn for the whole of 2018. Chinse companies have spent just $35bn buying overseas companies so far in 2019.

Singapore’s non-oil exports fell for a sixth consecutive month in August, with electronic shipments down by a quarter. Exports fell 8.9% year-on-year last month, a slight improvement on the 11.4% drop seen in July.

South Korea went ahead with plans to drop Japan from its so-called "white list" of trusted trade partners. Tighter trade regulations took effect on Wednesday and include longer permit applications for certain South Korean exports to Japan. The move is a tit-for-tat response to Tokyo's decision earlier this month to do the same to Seoul. The dispute is spilling over into trade. Unless it is resolved, the consequences for smartphone makers could be serious – Garry White takes a look at the issue here.

MPs in Austria have dealt a blow to the EU's trade deal with South America, demanding a government veto on the deal. The draft free trade agreement took 20 years to complete. France and Ireland have already warned they will reject the deal if Brazil does not do more to curb fires in the Amazon rainforest. Austrian groups say the deal must do more to tackle environment issues.


The trade war between the United States and China has plunged global growth to its lowest levels in a decade, the Organization for Economic Cooperation and Development (OECD) said as it slashed global growth forecasts. The OECD said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond. The global economy will see its weakest growth since the financial crisis this year, slowing from 3.6% last year to 2.9% this year before a predicted 3.0% in 2020, the OECD said. Its previous estimate in May was for growth this year of 3.2% and 3.4% in 2020.

The Bank of England struck a dovish tone on interest rates but kept them on hold at this week’s meeting. The central bank kept its benchmark interest rate at 0.75% but for the first time said there was “entrenched uncertainty” over Brexit and “domestically generated inflation will be reduced.

UK inflation slipped to its lowest point in three years in August, dragged down by falling computer game prices. The annual rate of consumer price growth was 1.7%, down from 2.1% in July.

Chinese Premier Li Keqiang said it was "very difficult" for China's economy to grow at a rate of 6% or more because of the high base from which it was starting and the complicated international backdrop. China faces “certain downward pressure” due to slowing global growth as well as the rise of protectionism and unilateralism, Mr Li said in an interview with Russian media. The statement came as data released from Chinese factories remained downbeat, with a key reading of the country’s manufacturing output slumping to a new 17-year low in August. Industrial production grew at 4.4% last month, down from 4.8% in July and below analysts’ expectations of 5.2%.

US manufacturing output jumped in August, boosted by a surge in the production of machinery and other goods. Manufacturing production rose 0.5% last month after an unrevised 0.4% drop in July, the Fed said. Economists polled by Reuters had forecast manufacturing output rising 0.2% in August.

Sentiment among German investors improved more than expected in September, according to the ZEW institute, but it warned that the outlook for the economy remained negative due to trade disputes and Brexit uncertainty. ZEW said its monthly survey showed economic sentiment among investors rose to minus 22.5 from minus 44.1 in August. Economists polled by Reuters had expected a slight improvement to minus 37.0.

The Bank of Japan kept monetary policy steady. In an expected move, the BoJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields to around 0%.

Japan's exports edged down for the ninth month in a row in August, dragged down by autos and car parts.

Bank funding

It’s never good to see banks short of cash. The US central bank has pumped more than $200bn into the financial system this week – the first time there's been such an intervention since 2008. Interest rates in the so-called "repo market" had shot up to 10% in some cases – although the cost of borrowing in that market more typically hovers around the benchmark rate set by the Fed – around 2%. The explanation appears to be in part caused by a combination of two events that dried up liquidity. Companies had to withdraw funds from money market accounts to pay quarterly tax bills and banks and investors that bought the $78bn of US Treasury notes and bonds sold last week had to settle up. Therefore it is not regarded as the start of a significant liquidity crunch.  


France’s Emmanuel Macron and Germany’s Angela Merkel signed a secret deal in an attempt to ease Franco-German friction over arms exports, notably to Saudi Arabia, reports suggested. The agreement is designed to stop Berlin from blocking the sale of French weapons that contain German parts to countries with questionable human rights records. Last year, Germany imposed a ban on arms sales to Saudi Arabia following the murder of journalist Jamal Khashoggi. That’s an issue because some parts for the Eurofighter Typhoon, co-produced by Airbus and other European aerospace companies, are made in Germany.

Germany needs to increase its defence spending and rethink a ban on arms exports to Saudi Arabia to avoid damaging its global reputation, the chief executive of aerospace giant Airbus, Guillaume Faury, said. “Germany needs to ramp up its capacity in defence,” Mr Faury said. “Not only in the amount of money it’s investing, but also on the role it’s taking in the world defence arena.”

Israel’s Benjamin Netanyahu is struggling to hold onto power after inconclusive elections. Rival Benny Gantz refused to serve under him in a government of national unity. On Friday morning, Gantz’s Blue and White alliance was two seats ahead of the Israeli prime minister’s Likud party, according to results published by Israeli media, with 97% of the vote counted.

Emerging markets

India cut its corporate tax rates in an effort to spur investment and boost growth in the country's faltering economy. Finance Minister Nirmala Sitharaman said the base corporate tax rate would be lowered to 22% from 30%. The surprise move triggered a stock market rally, with the Sensex index jumping 4.5% immediately after the announcement.

Brazil cut interest rates to a record low of 5.5% and suggested more rate cuts are in the pipeline.


To the surprise of very few in the market, the We Work IPO has been pulled. Parent We Company planned to list soon, but management said it now expected to complete the listing by the end of this year as concerns mount over the company’s valuation and business prospects. Japan’s SoftBank, the office-rental company’s biggest investor, had pressed WeWork to put off the stock offering amid doubts about the business. In January, SoftBank made its last investment at a valuation of $47bn. The company was more recently expected to be valued at only about $15bn in a listing and perhaps even less, people familiar with the matter have said. Investors have been uncomfortable with the corporate governance and other issues. In an effort to keep its IPO on track, We Work last week took steps to limit founder Adam Neumann’s control of the company after an IPO, as well as other measures to improve its corporate governance. As a result, investors are now waiting for Softbank to write down the valuation of We Company, as well as its stakes in IPO flops Uber and Slack.

Airbnb confirmed its intention to become a publicly-traded company next year. The holiday home rental company revealed that revenue hit more than $1bn in the second quarter of 2019, but it gave no details on profitability.

Anheuser-Busch InBev's big Asia IPO is now less ambitious. The world's biggest brewer said that it hopes to raise as much as $4.8bn when it lists its Asia business in Hong Kong. That's roughly half of the $9.8bn the group was hoping to raise when it first proposed a public offering. It scrapped those plans in July, citing market conditions.

Bankers hired for Saudi Arabia’s state-owned oil company Aramco’s IPO are likely to stick to their schedule to pitch the deal to analysts, despite an attack on one of its facilities last weekend that slashed the company’s oil output by half. Some presentations to analysts are expected to be held as soon as next week, with speculation that an initial listing of 1% of the company will happen in Riyadh later this year.  The Financial Times reported that wealthy Saudi families are being “bullied” by the state to pump cash into its IPO as cornerstone investors. This is believed to be part of the plan to get a $2 trillion valuation

After much anticipation Endeavor Group Holdings, owner of the WME talent agency, which has had Marilyn Monroe, Elvis and Charlie Chaplin on its books, looks set for an IPO in the autumn with a valuation of about $8bn. The global entertainment company expects to raise some $600m.

Shares in Trainline, one of this year’s most successful UK IPOs, plunged on Friday as investors cashed in some of their gains. Private equity group KKR and other investors sold shares equivalent to 14% of the group’s share capital to institutional investors. Following the falls, the shares are still up 26% since flotation.

Website infrastructure and security company Cloudflare went public on 13 September. The IPO priced at $15/share, which was above the initial range of $10-$12 per share. Since flotation, the shares are up 25%.


Shareholders in defence giant Cobham overwhelmingly supported a controversial £4bn takeover by US private-equity giant Advent. The takeover was opposed in a vocal campaign by former Cobham senior managers and some members of the family of its late founder Sir Alan Cobham. They claimed the deal could jeopardise national security and feared it would threaten major UK job losses. Indeed, after the shareholder vote, Whitehall intervened. The government said it wanted to “support private sector innovation whilst safeguarding public interest.” The Competition and Markets Authority (CMA) will now investigate the deal and carry out a review on the national security implications of the transaction.

JD Sports' takeover of Footasylum is facing greater scrutiny after the competition watchdog warned it could result in “a worse shopping experience for customers”. The CMA will refer the £90m deal to a "phase 2" investigation, taking a more in-depth look at the tie-up.

UK insurance services firm Charles Taylor agreed to a £261m takeover, representing a 34% premium to its undisturbed share price. Management described the offer from private equity house Lovell Minnick as “compelling”.

The head of the London Stock Exchange mounted a staunch defence of its £22bn takeover of data business Refinitiv in his first comments since the Hong Kong exchange launched a bid for the exchange. David Schwimmer said the Refinitiv deal was a transaction LSE felt “very good about” because it was “a very strong fit strategically”.

Profit warnings

Eddie Stobart Logistics warned its underlying profits for 2019 will be “significantly below” expectations. Last month the haulage group suspended its shares and announced its chief executive Alex Laffey was standing down with immediate effect after it discovered a multi-million pound accounting error. Management also confirmed reports it had received a takeover offer from one of its shareholders. The shares remain suspended.

Investec warned that interim profits were likely to fall due to “challenging” conditions, with earnings per share up to 18% below the previous year.

Recruiter Staffline swung to a near £8m loss in the first half of 2019 as it warned of a slowdown in new business contracts that would see its annual operating profit fall to £20m. Mangement admitted a delay in publishing its last set of annual results “created uncertainty” among customers. Auditor PwC resigned shortly after.

In the US, FedEx, regarded as an economic bellwether, cut its full-year outlook. The delivery company on Tuesday posted a slight revenue decline and a 12% drop in operating income for the three months ending 31 August after the group lost a contract with Amazon. The cut in earnings guidance was blamed on losing a “large customer,” as well as global trade tensions and a weakening global economic outlook.


Apple challenged a $14bn tax charge from the European Commission in the EU’s second-highest court, escalating the landmark tax fight between the iPhone maker and the EU regulator. In August 2016, EU Competition Commissioner Margrethe Vestager ordered Apple to pay back taxes to Ireland, saying the company had received “illegal” tax benefits over the course of two decades. Both the Irish government and Apple have appealed the order. A decision isn’t likely for months.

Facebook unveiled its plan to create an “independent oversight board” to make decisions over how the network is moderated. The social media giant insisted the panel, which will hear its first "cases" in 2020, will have power to override decisions it makes over contentious material and influence new policy. The idea, dubbed the Facebook “supreme court”, will eventually comprise of 40 people around the world.

Microsoft authorised another $40bn for share buybacks and said it will up its quarterly dividend by 5 cents to 51 cents a share.


The oil price spiked after cruise missiles and drones inflicted substantial damage on the world's largest oil processing plant at Abqaiq. Donald Trump has not definitely stated that Iran was behind the strikes, but others in his administration have pinned blame on Tehran. Iran has denied responsibility for Saturday's attack, which knocked out more than half of crude output from the world's top exporter – 5% of global oil supply – and cut output by 5.7 million barrels per day. Iran’s foreign minister warned that any strike would lead to “all-out war.” Brent crude futures rose 7.2% over the week by mid-session on Friday to trade at about $64.50 a barrel.

Tullow Oil plans to drill three or more oil exploration wells in Guyana next year, its chief executive Paul McDade said, after the FTSE 250 group announced its second oil discovery in the country this year.


Is this the end of the line for Sirius Minerals? The miner has long been trying to develop a fertiliser mine near Whitby in North Yorkshire, saw its shares slump again after it abandoned its £500m bond sale for good. In August, the company postponed the sale due to “market conditions”. However, management said the debt offering was "now unlikely to be achievable” due to “market conditions, the ongoing uncertainty surrounding Brexit and the political environment in the United Kingdom”. This left funding for the project in doubt and management have scaled back construction work and plan a strategic review of the project. Under the terms of its funding agreement signed with JP Morgan earlier this year, Sirius agreed to issue bonds worth $500m to unlock the full $2.5bn revolving credit facility.

Diamonds appear to have lost their sparkle in 2019. Weak gemstone prices resulted in annual profits at Petra Diamonds falling by more than a fifth. Its shares are now down more than 80% in the year-to-date.

Two current and one former trader in precious metals at JP Morgan Chase have been charged with manipulating futures markets in what prosecutors described as a massive, multi-year conspiracy run out of the bank. The US Justice Department said three men ripped off market participants and even clients as they illegally moved prices for gold, silver, platinum and palladium.


The latest grocery market share figures from market researcher Kantar showed year-on-year supermarket sales returned to growth during the past 12 weeks. While overall sales grew by 0.5%, volume sales remained flat. “As we move closer to 31 October, it seems talk about stockpiling might be just that, because we’re not seeing any evidence of it at the moment. In fact, households bought 0.9% fewer items during the past 12 weeks than they did last year,” Kantar said.

German discounter Aldi plans to open a new store in the UK every week on average for the next two years, investing £1bn in the process. UK sales rose 11% in 2018 to £11.3bn, but profits were dented by its investment in expansion in London and pricing.

Ocado Retail, a joint venture between Ocado and Marks & Spencer, released a trading statement. In the 13 weeks to 1 September, retail revenue rose 11.4% - which it said was "in line with guidance" – and while average orders per week is up, the average order size is down 0.8%, “reflecting slightly greater frequency of purchase”.

Other retail

UK retail sales defied expectations and fell in August, as British shoppers bought fewer goods than in July. Retail sales fell by 0.2% in August month-on-month after a 0.4% rise in July, figures from the Office for National Statistics (ONS) showed. Economists had expected zero growth.

High street stalwart Next reported a rise in pre-tax profits and sales in the first half of the year, as the retailer shrugged off tough trading conditions on the high street. However, its shares fell after management flagged a weak start to the autumn season as a result of the warm weather.

B&Q owner Kingfisher posted a disappointing set of interim figures, as the UK and France continued to underperform. The retailer also said that its outgoing chief executive Véronique Laury was struggling to sell the group’s Russian and Iberian businesses. Ms Laury, who is due to step down on 24 September, is attempting to offload the division before her departure. She will be succeeded by Carrefour executive Thierry Garnier.

Footwear retailer Schuh, owned by US group Genesco, is the latest retailer to seek rent reductions after it drafted in a consultancy, Capa, to explore how it can save money across its 132-strong store estate, according to The Times.

French Connection said it expected the sale process of the British clothing retailer to be completed by the end of the year, as it reported a smaller first-half operating loss on growth in its wholesale business in the US.


Demand for birthday cakes featuring Disney characters licenced to the group helped to boost sales at bakery group Finsbury Food. The AIM-list food producer said it sold a bumper amount of Toy Story 4 and Avengers: Endgame cakes in the year to June 29.


Car dealership Pendragon scrapped its dividend after deep price cuts to offload used car inventory pushed it to a loss in the first half of the year. The company said it expects annual loss to come in at the bottom of its expectations, blaming weak consumer confidence due to heightened political and Brexit uncertainties.

The European Union – especially Germany – has relied on the mass production of cars for its success. But things are changing as an ever greener EU creates winners and losers.

Travel & transport

Package holiday group Thomas Cook secured an extra week to hammer out a £1.1bn rescue deal with China’s Fosun, reports noted. A meeting had been scheduled for this Wednesday to agree terms but is set to be pushed back until next week as the travel company battles to survive. However, press reports on Friday suggested the company could go bust within days after the group’s bankers said the company needed to find £200m of contingency funding before they would secure its lifeline. Shares in the group are down by about 90% in the year to date.

Saga posted a sharp fall in profits during the first half of this year, as challenges in its travel business dragged down the over-50s tourism and insurance giant. Pre-tax profits tumbled by more than 50% year-on-year – and the interim dividend was reduced to 1.3p from 1.7p.

British Airways pilots have called off the next strike in their dispute, which had been scheduled for 27 September. A recent two-day stoppage called by the pilots' union, Balpa, forced IAG-owned BA to cancel almost all its flights. The strike followed failed negotiations between the union and the airline over a pay offer of 11.5% over three years. Balpa said it was now time for a period of reflection before the dispute “escalates further and irreparable damage is done to the brand”.

Ryanair saw off an investor revolt over pay plans that could earn its controversial chief executive Michael O'Leary £99m in bonuses. The resolution passed with 50.5% of the vote. Its pilots also staged a 48 hour walkout this week over pay. Mr O'Leary has been awarded 10 million shares which will pay out in five years if he doubles Ryanair's profit or share price.


Perdue Pharma, controlled by members of the billionaire Sackler family, filed for Chapter 11 protection from bankruptcy as part of its efforts to deal with thousands of lawsuits that accuse the company of fuelling the US opioid crisis. The move is designed in part to resolve more than 2,000 lawsuits filed against the OxyContin maker over its alleged role in the opioid epidemic. Last week, the firm reached a tentative deal to settle most of those lawsuits. But some states remain opposed to the proposed settlement.


Royal Bank of Scotland confirmed Alison Rose as its new chief executive, making her the first woman to lead one of the UK's big four banks. Ms Rose, who joined the bank 27 years ago as a graduate trainee, will replace the incumbent Ross McEwan in November.

Mitsubishi Corp, one of Japan’s biggest trading houses, said a Singapore-based unit had lost $320m through unauthorised trading of crude oil derivatives. It is the first loss of its kind in Mitsubishi’s history, a company spokesman said.


MPs attacked the government’s £12bn Help to Buy scheme, claiming that the policy has supported homebuyers who could already afford to buy a property and has failed to boost the provision of affordable housing or reduce homelessness. Three fifths of buyers who took part in Help to Buy did not need it to buy a home, according to a damning report by the Commons’ public accounts committee. It said that the “large sums of money tied up could have been spent in different ways to address a wider set of housing priorities and focus more on those most in need”.

The annual rate of growth of UK house prices slowed to its worst rate since September 2012, as prices fell 2% in the South East and by 2.9% in the North East of England. For the country as a whole, prices were up an average of 0.7%.

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