Sainsbury hits 30-year low

Garry White looks at the events that have shaped UK equity markets this week (23 to 26 April, 2019).

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  1. Garry White

Competition regulator blocked the merger of supermarkets Sainsbury and Asda, sending shares in the former to their lowest level since 1988. Donald Trump once again threatened trade action against Europe after Harley Davidson blamed EU tariffs for a profit slump and it was revealed that once famous investor had lost $130m on an ill-advised bitcoin trade. Controversial murder suspect John McAfee also said he would reveal the real identity of bitcoin’s founder Satoshi Nakamoto, but backed off within 24 hours.

The FTSE 100 was down 0.4% over the week by mid-session on Thursday. The FTSE 250 was essentially flat.

In the latest in our series of articles on inherited wealth, Kate Fanning, Outreach and Engagement Officer for The Fund for Global Human Rights, discusses the promise shown by the next generation of philanthropists, "Millennials" and "Gen Zer's" here.

Economics

Government borrowing last year fell to its lowest annual level in 17 years, official figures showed. Borrowing for the 2018-19 financial year was £24.7bn, £17.2bn less than in the previous financial year, the Office for National Statistics said. Despite the drop, the amount was still higher than the Office for Budget Responsibility's forecast last month.

German business leaders turned unexpectedly gloomy in April. The IFO business climate index came in at 99.2 in April, weaker than last month's 99.6 and missed the consensus estimates pointing to 99.9. The Institute surveys more than 7,000 enterprises on their assessment of the business situation and their short-term planning.

Orders for long-lasting durable goods in the US rose 2.7% in March, potentially signalling a rebound in the slower-growing industrial side of the economy. It was led by stronger demand for autos, planes and networking equipment.

Geopolitics

The White House said in a statement late Tuesday that Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for negotiations starting 30 April. Liu He, Chinese President Xi Jinping's top economic adviser, would then lead a delegation to Washington for further talks beginning 8 May.

World leaders are gathering in Beijing for a summit on China's Belt and Road initiative amid growing criticism of the project. The sweeping infrastructure project aims to expand global trade links. The initiative has funded trains, roads, and ports in many countries, but has left some saddled with debt. Some see it as a bold bid for geopolitical influence, with the US particularly critical of China's so-called "debt diplomacy". I take an in-depth look into problems associated with the “New Silk Road” here.

Britain's top civil servant has demanded ministers co-operate with his inquiry into the leaking of discussions at the National Security Council. The UK government reportedly approved the supply of equipment by Chinese telecoms firm Huawei for the UK's new 5G data network despite warnings of a security risk. There has been a backlash against the leak, with Culture Secretary Jeremy Wright saying the government cannot rule out the possibility of a criminal investigation.

Infrastructure once again appears to be on the agenda in the US. House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer will meet with President Donald Trump on 30 April at the White House to discuss the fate of proposals to boost infrastructure repairs by at least $1 trillion, reports suggested.

North Korea wants to denuclearise but needs security guarantees, Vladimir Putin said after a summit meeting with Kim Jong-un in Vladivostok.

Cryptocurrency

Masayoshi Son, the founder of Japanese tech investment house Softbank, lost more than $130m in a personal bet on bitcoin, reports suggested. The billionaire bought bitcoin near its record high and sold it after it had fallen sharply, the Financial Times reported.

Controversial die-hard crypto enthusiast, John McAfee, said he intended to release the true identity of bitcoin founder Satoshi Nakamoto, before reversing his claims in less than 24 hours. The founder of the McAfee cyber software group who has been named as a “person of interest” in a murder in Belize said he fears it will expose him to further lawsuits as he fights potential extradition to the US. “I’ve spoken with him, and he is not a happy camper about my attempt to ‘out’ him,” Mr McAfee said.

Technology

Blue-chip online takeaway service Just Eat said order growth in its home market softened in the first quarter, partly blaming warm weather in February and a later Easter. The company said UK orders increased 7.4% over the three months to March 31 – a slowdown from growth of 27% seen in 2018.

Microsoft’s valuation hit $1 trillion for the first time after its third-quarter earnings beat estimates.

Amazon made a profit of more than $1bn a month for the first three months of 2019, more than double last year’s. The online retailer has now recorded four straight quarters in a row of record profits.

Facebook has set aside $3bn to cover the potential costs of an investigation by US authorities into its privacy practices. The final cost could be as much as $5bn, the social media group said. Total sales for the first three months of the year leapt 26% to $15.1bn, narrowly beating market expectations.

Nasdaq, the technology-focused stock exchange, beat market expectations in the first quarter, boosted by sales of data and technology.

Twitter shares soared after the social media microsite reported quarterly revenue above analyst estimates, which executives said was the result of weeding out spam and abusive posts and targeting ads better.

Snapchat-owner Snap said that the number of daily active Snapchat users rose to 190 million in the first quarter from 186 million in the prior period. This is the first rise in three quarters, but the number of users remained below the 191 million it had a year earlier.

Ebay raised its full-year profit guidance after posting a jump in revenues for its first quarter results.

Intel slashed its revenue and earnings forecasts for its current quarter and the rest of 2019, putting paid to its earlier hopes of a quick recovery in the chip sector.

Energy

Oil headed for its longest weekly winning streak in almost four years on the prospect of a supply crunch. Over the week, Brent crude future rose 3.1% by mid-session on Friday to trade at about $74.20 a barrel.

US President Donald Trump has decided to end exemptions from sanctions for countries still buying oil from Iran. The White House said waivers for China, India, Japan, South Korea and Turkey would expire in May, after which they could face US sanctions themselves. This decision is intended to bring Iran's oil exports to zero, denying the government its main source of revenue, but it could tighten oil markets and send prices higher.

Saudi Arabia is not in a hurry to increase its oil production, even with the looming expiry of Iran sanctions waivers next week, as energy minister Khalid al-Falih on Wednesday said the market is "well supplied." Speaking at a conference in Riyadh, Falih said Saudi Arabia would only boost supplies according to customer requests.

A bidding war has broken out in the US for shales oil group Anadarko. Occidental Petroleum has now offered $76-a-share, which is about 20% ahead of the $33bn takeover deal Anadarko reached earlier this month with oil giant Chevron.

Mining

Glencore is under investigation by the US Commodity Futures Trading Commission over potential corrupt practices, the regulator said. The company is also under investigation by the Department of Justice over breaches of the Foreign Corrupt Practices Act.

Supermarkets

The Competition and Markets Authority (CMA) blocked the £12bn merger of J Sainsbury with Walmart’s Asda because it would lead to higher prices for customers and damage competition. A super-merger between the duo, the UK's number two and three supermarkets, would have created a supermarket titan bigger than Tesco with revenues of £51bn and a network of 2,800 Sainsbury's, Asda and Argos stores.  The news sent Sainsbury’s shares to their lowest level in more than 30 years.

Other retail

Almost 75,000 retail jobs were lost in the first quarter of this year as a result of structural change triggered by the advent of online sales and other technologies. According to the BRC’s Retail Employment Monitor, the total number of retail employees dropped 2.4% year-on-year in the first three months of 2019.

Laura Ashley warned its annual results would be significantly below market expectations after a challenging third quarter, sending its share price to an all-time low.

Online fashion retailer Boohoo reported a 48% surge in full-year revenue, beating market expectations.  

French luxury brand Hermès saw a spike in sales across all geographical areas in the first three months of the year, boosted by a particularly strong performance in China.

Consumer

Client losses in 2018 hit sales at advertising giant WPP in the first three months of the year, as like-for-like revenues fell 1.3%. Underlying sales in North America, which accounts for more than a third of revenues, dropped by 8.5% after it lost some of its biggest clients including Ford.

Aircraft and transport

Boeing withdrew its full year 2019 guidance while it works through issues surrounding its 737 Max aircraft, whose software is suspected in two deadly crashes. The company also delivered first-quarter earnings that were in line with Wall Street expectations, while revenue was lighter than expected.

The grounding of Boeing 737 Max aircraft in March is eating into Norwegian Air's profits. The company posted a loss of about £133.5m for the first quarter of 2019, despite revenues rising by 14%. Chief executive Bjørn Kjos said the grounding was expected to cost around £45m.

Southwest Airlines first-quarter earnings took a hit from the prolonged grounding of the Boeing 737 Max jets that forced it to cancel more than 10,000 flights during the quarter. However, the results beat market expectations.

Vehicles

Donald Trump vowed to reciprocate against "unfair" European Union trade duties on Harley Davidson motorbikes. Harley blamed the 31% duties for a large drop in profits, prompting the US president to head to Twitter. He said the duties were "so unfair" adding: "We will Reciprocate!"

Elon Musk’s Tesla lost $702m in the first quarter of 2019, after posting profits in the final two quarters of last year. Tesla generated $4.5bn in revenue for the quarter, which is down from $7.2bn in the previous quarter, but up from $2.6bn in the first quarter of 2018. The company also announced it doesn’t expect to turn a profit in the second quarter, either.

Japan’s Nissan issued its second profit warning in a year, partly blaming fallout from the corporate scandal around Carlos Ghosn’s arrest for financial misconduct for lower sales. As well as those "corporate issues", the Japanese car giant also cited an “adverse operating environment” and extra costs for extending warranties on some cars sold in the US.

Renault maintained full-year guidance despite posting a 4.8% drop in first-quarter revenue amid a decline in overseas sales and business with its alliance partner Nissan. The company has been hit by its withdrawal from Iran last year following the imposition of sanctions by the US administration.

Daimler said its financial targets had become harder to achieve after a tough start to the year, forcing the auto manufacturer to step up efforts to drive down costs. The Mercedes-Benz maker’s first-quarter profit slumped 16% after a decline in deliveries combined with the rising cost of developing new models. However, earnings met analyst estimates.

Ford Motor Co posted a better-than-expected first quarter, largely due to strong pickup truck sales in its core US market and said it was more confident in its forecast 2019 would bring better results than last year.

Financials

Shares in Royal Bank of Scotland fell after it posted a disappointing set of first-quarter results. The bank, still 62.4p% owned by the taxpayer, saw bottom line profit fall 12.5%. Chief executive, Ross McEwan, resigned after five and a half years in the post. Mr McEwan said that he had "delivered the strategy" that he set out when taking over in 2013 and he has a one-year notice period.

Barclays endured a "weak" quarter at its under-pressure investment bank. The lender said that pre-tax profits in its investment banking arm, which activist investor Ed Bramson wants to shrink in order to boost returns, fell by almost a third over the first quarter. Total pre-tax profits at the bank slipped 11%. There is a vote next week that could see Mr Bransom gain a seat on the board.

The potential merger between Deutsche Bank and Commerzbank will not take place. Deutsche Bank says it will "continue to review all alternatives to improve long-term profitability and shareholder returns". The move was opposed by many investors and by powerful labour unions.

Credit Suisse beat market expectations in its first-quarter results. The results come after the Swiss bank swung back to profit in 2018 for the first time in four years.

Swiss bank UBS saw pre-tax profits at its investment arm fall to $221m last quarter, down from $619m in the same period last year. The lender says a "synchronised global slowdown" hurt its business.

Healthcare

AstraZeneca first-quarter sales beat analysts’ expectations, benefiting from higher demand for its cancer medicines. This was its third successive quarter of rising sales.

Swiss drugs group Novartis raised its annual profit guidance. Chief Executive Vas Narasimhan said he now sees 2019 core operating income growing at a high-single-digit percentage rate, up from the previous forecast of mid- to high-single-digit percentage growth.

Bristol-Myers Squibb raised its full-year guidance after it beat expectations on earnings and revenues in its first quarter results. The US group’s sale were driven by its stroke prevention treatment and cancer drugs.

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