Tariff man digs in

A look at the events that have shaped UK equity markets this week (7 to 10 May, 2019).

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  1. Garry White

Hopes that a swift resolution to the US-China trade war was in sight were dashed after US President Donald Trump increased tariffs on Chinese goods as discussions continued to take place. The US also increased rhetoric against Iran, supporting the oil price, and sent warships to the region. Another cryptocurrency exchange was hacked and $41m of Bitcoins were stolen.

The FTSE 100 fell1.8% over the week by mid-session on Friday and the FTSE 250 was down 1.5%.

Economics

UK GDP rose 0.5% month-on-month and 1.8% year-on-year in the first quarter, in line with economists’ expectations.

There was some positive news for the troubled German economy after exports unexpectedly rose in March. Seasonally adjusted exports rose by 1.5%, compared with expectations of a 0.3% fall. However, the economy still faces a number of challenges. Garry White argues that Donald Trump's bid to take on the EU could crush the German economy here.

China's April consumer inflation was in line with expectations, but a spike in pork prices contributed to higher food prices. Overall consumer price index (CPI) in April rose 2.5% year-on-year, meeting analysts' expectations. To find out why Chinese pork prices are rising, click here.

This year the Chinese stock market recovered strongly but has China provided enough stimulus to keep its economy going? 

Geopolitics

The Brexit situation remains unresolved.

Hopes of a resolution to the trade war were dashed, as the US more than doubled tariffs on $200bn worth of Chinese products on Thursday. Tariffs on affected Chinese goods rose to 25% from 10%, and Beijing vowed to retaliate. China said it "deeply regrets" the move and will have to take "necessary counter-measures." The move comes as high-level officials from both sides are attempting to salvage a trade deal in Washington. The price of soybeans fell below $8 a bushel for the first time since the financial crisis. Garry White explains why soybeans are integral to the trade war here.

Lawyers for a senior Huawei executive say they intend to apply for a stay of proceedings in a high-profile extradition case. Meng Wanzhou was arrested in Canada in December at the request of the US. Washington wants the tech executive extradited to stand trial on charges including fraud linked to the alleged violation of sanctions on Iran.

US Secretary of State Mike Pompeo urged the UK to prioritise its security interests and those of its allies when dealing with Huawei. Speaking in London, he said the US had "made its views well known" on Huawei's potential role in the UK's 5G network.

US President Donald Trump's businesses lost $1.17bn over a decade beginning in the mid-1980s, the New York Times reported. The newspaper said it had obtained Mr Trump's federal income tax returns from 1985 to 1994 - what it described as the most detailed look to date at the US president’s taxes. Mr Trump lost so much money that he was able to avoid paying income taxes for eight of the 10 years.

Donald Trump has announced new sanctions against Iran after Tehran threatened to enrich its stockpile of uranium. The US president has issued an executive order imposing new restrictions on Iranian steel, aluminium, copper and iron.

North Korea provocatively fired two short-range missiles as a US envoy arrived in South Korea for talks on how to break the deadlock over nuclear negotiations. The missiles travelled 420km and 270km.

Cryptocurrency

Hackers stole $41m worth of Bitcoin in a major crypto-currency heist from the Binance exchange. Cyber criminals took 7,000 bitcoins in one go, with the exchange saying it would replace the lost cash with the help of its emergency insurance fund.

The price of Bitcoin hit a six-month high above $6,000.

Technology

BT Group did not cut its dividend, as some had expected, but its shares still fell. Overall sales for the year to March were down 1% on the same period the year before at £23.4bn as growth in its consumer division, which was driven by price increases, was offset by declines in every other part of the business. The company also raised its target for the number of homes to be fitted with ultra-fast broadband.

Match Group’s revenue saw solid growth in the first quarter thanks to an increase in Tinder subscribers. The company, whose portfolio of dating apps also includes Match.com, PlentyOfFish, and OkCupid, said total revenue grew 14% year-on-year in the first three months of the year.

Supermarkets

Wm Morrison said like-for-like sales excluding fuel were up 2.3% in the 13 weeks to 5 May, slightly below expectations of 2.5%. The group said “political and economic uncertainty” was continuing to affect consumer confidence, even after an extension to the Brexit deadline.

Energy

The oil price managed to stay above $70 a barrel even after the US went ahead with a planned tariff increase on Chinese goods, as rising tensions in Iran and elsewhere kept the supply outlook tight. Brent crude futures were down 0.3% over the week to trade at about $70.60 a barrel by mid-session on Friday.

Mining

Brazil’s Vale said that its iron ore production and sales slumped in the first quarter, reflecting the impact of the deadly collapse of a tailings dam in January. Iron ore output fell 11%, while sales of the commodity slid 22%. This is likely to benefit rivals Rio Tinto and BHP Group.

China’s central bank is still buying gold. The People’s Bank of China website this week is showing gold reserves rose to 61.1m ounces in April from 60.62m in March.

Retail

Superdry issued its third profit warning in a year, just weeks after founder Julian Dunkerton returned to the retailer. The company said full-year pre-tax profits would be lower than analysts' expectations, partly due to weak wholesale and online sales.

Consumer

ITV now expects a larger-than-expected fall in advertising revenue in the first half of the year, blaming Brexit, a lack of World Cup football and the timing of Easter. The Love Island and Coronation Street broadcaster said it was forecasting half-year advertising revenues to tumble by 6%.

Pubs group JD Wetherspoon maintained its full-year guidance, despite sales growth slowing in the first half after a wage increase hit profits. Like-for-like sales have risen 7.6% for the three months to the end of April, slower than the previous period's 9.6%.

Domino's Pizza shares fell after management warned its struggling European arm will fail to make money this year while sales growth slowed in its key UK market.

Autos

Uber was valued at $82bn ahead of its IPO with a flotation price of $45 a share, the lower end of the price range. Uber's conservative price is an attempt to avoid the fate of rival Lyft whose shares fell by up to a third after its recent IPO.

Shares in rival Lyft fell more than 10% after it reported a huge loss in its first-ever earnings report as a public company.

Dyson released the patents filed for its electric vehicle, which is due to be ready in 2021. The wheels will be large, which Sir James says will suit the all environments with a significant range and efficiency. The wheels will also be close to the front and back of the car to make it more manoeuvrable.

Volkswagen started taking pre-orders in Europe for its first long-range electric car, which is due in 2020. VW will sell three versions of the all-electric the “ID.3” hatchback. The cheapest will start at “under €30,000” and will travel 330 kilometres.

Aircraft and travel

Profits at British Airways owner International Consolidated Airlines Group was hit by rocketing fuel costs and foreign exchange headwinds in the first quarter. Operating profits slumped by 60%, despite revenues rising almost 6%.  However, the shares rose as management expect an improvement over the course of 2019.

Emirates, the world's largest long-haul airline, vowed to "up our game" in the year ahead after reporting a 69% drop in full-year profits as rising fuel costs and a stronger US dollar eroded earnings.

Shares in Russia’s Aeroflot hit a three-year low after one of its planes burst into flames in a crash-landing on Sunday at a Moscow airport, killing 41 people.

The UK’s department for transport has recommended a levy of 50p per person on all flights to insure against the future collapse of UK-based airlines. The recommendation was in the final report from the independent airline insolvency review commissioned by transport secretary Chris Grayling following the collapse of Monarch Airlines in October 2017. Airlines reacted negatively to the proposal.

Property

Barratt Developments, the UK’s largest housebuilder, said forward sales were up 2.4% in the year to date and chief executive David Thomas said it was another "strong period".

Shares in online estate agent Purplebricks fell after founder and chief executive Michael Bruce left the company. Chairman Paul Pindar apologised to shareholders for its recent "disappointing" performance. "With hindsight, our rate of geographic expansion was too rapid," he said.

Healthcare

US-listed Allegan raised its full-year outlook after reporting first-quarter earnings and revenue that beat expectations. However, shares in the Botox-maker fell amid investor concerns over the company’s future pipeline of products.

Outsourcing

Shares in G4S fell after Canada’s Garda World said it no longer had any intention to make an offer for the group.

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