Tech quake on regulation fears

Garry White looks at the events that have shaped equity markets this week (3 to 7 June, 2019).

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  1. Garry White

Concerns about tightening regulations for large technology groups such as Facebook and Google hit the sector this week, as Donald Trump’s trade war also accelerated. Markets received a boost from central banks, with hopes of a rate cut from the Federal Reserve driving equities ahead.  

The FTSE 100 rose 2.1% over the week by mid-session on Friday and the FTSE 250 was up 0.7%.

FTSE reshuffle

FTSE Russell revealed that easyJet shares will be demoted from the FTSE 100 to the FTSE 250 after six years in the index, as will shares in Hikma Pharmaceuticals. They will be replaced by JD Sports Fashion and engineering software company Aveva Group. High street giant Marks & Spencer narrowly avoided the chop. This would have been a major event as shares have been a member of the FTSE 100 since the index was launched in 1984.

Entering the FTSE 250: 4imprint Group; Future; Kainos Group; Marstons; Network International Holdings; PayPoint; and PPHE Hotel Group.

Exiting the FTSE 250: 888 Holdings; Civitas Social Housing; Indivior; Just Group; Kier Group; Saga; and Stobart Group.


Activity in the UK services sector accelerated sharply in May. The headline seasonally adjusted IHS Markit/CIPS UK Services PMI Index rose to 51.0 in May vs. 50.4 in April, beating expectations of 50.6 by a significant margin.

The European Central Bank (ECB) said it would delay its first post-crisis interest rate hike until at least the middle of next year. The ECB slightly raised its inflation forecasts for 2019 to 1.3% – up 0.1 of a percentage point from its previous forecast in March. For 2020, the ECB revised its forecast to 1.4% – down 0.1 of a percentage point from its earlier forecast in March.

Germany is being hit by the slowdown in global trade. German industrial output slumped by 1.9% month-on-month in April, data firm Destatis reported. That’s worse than the 0.5% fall the markets had expected. Demand for heavy duty capital goods took a big hit, down 3.3%, a sign that customers were reluctant to commit to new expensive machinery. Consumer goods output fell 0.8%,

Federal Reserve Chairman Jerome Powell has said the US central bank was "closely monitoring" trade developments and will respond to them "as appropriate".

China has “tremendous” room to adjust monetary policy if the trade war with the US deepens, People’s Bank of China Governor Yi Gang said. “We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous,” Mr Yi said.


US President Donald Trump has said "not nearly enough" progress is being made in negotiations with Mexico to avert his threatened tariffs. President Trump vowed import duties of 5% will take effect on Monday next week unless Mexico stems the flow of migrants to the US. Under his surprise proposal announced last week, duties would rise by 5% every month on goods including cars, beer, tequila, fruit and vegetables, reaching 25% by October. There was further bad news for the country after credit ratings agency Fitch downgraded the nation’s sovereign debt rating, citing risks posed by heavily indebted oil company Pemex and trade tensions. Cutting Mexico’s rating to BBB, nearing junk status, Fitch said the financial woes of state oil company Pemex were taking a toll on the nation’s prospects. Meanwhile, Moody’s lowered its outlook to negative.

The Chinese government warned its citizens against traveling to the US due to “frequent shootings risks and potential harassment” by immigration officials, as tensions between the countries increase.

India has lost preferential trade terms with the US. Indian exporters of goods to the US including imitation jewellery, building materials, solar cells and processed food will face a hike of up to 10% in the US tariffs imposed on their products, following the White House's revocation of India's membership of the Generalized System of Preferences, or GSP.

Italy could face disciplinary action over its failure to respect EU spending rules. The European Commission found that Italy's public debt stood at more than 130% of GDP in 2018 – far in excess of the 60% limit required under EU rules.


Swiss Re is considering going ahead with a flotation of its ReAssure subsidiary on the London Stock Exchange. Under the flotation plans Swiss Re would cut its stake in ReAssure to below 50% from 75% currently.

Airtel Africa, which provides telecoms and mobile money services in 14 African countries, aims to raise $750m in its London stock market debut. The group will list at least 25% of its shares while up to a further 15% will be made available under an overallotment – or “greenshoe” option.

Recently listed US “plant-based meat” group Beyond Meat topped analysts’ expectations in its first quarterly report since going public, and predicted that its revenue will more than double in 2019. This caused its shares to jump almost 20% bringing its market value to more than $7bn. The shares are up almost 400% since their IPO at the start of May. I argued that a bubble could be brewing in the sector here.

Uber shares traded above their IPO price for the first time since flotation this week after brokers Deutsche Bank and Bank of America Merrill Lynch put “buy” ratings on the shares.  


Fears of greater regulation hit shares in major US technology companies, including Facebook and Google parent Alphabet. The US Federal Trade Commission will oversee antitrust scrutiny into whether Facebook’s practices harm competition in the digital market under an agreement with the Justice Department. There was also a report that the Justice Department was preparing an antitrust investigation into Google.

Huawei signed a deal with Russian telecoms firm MTS to develop 5G technology in Russia. The deal was agreed as China's President Xi Jinping began a three-day visit to Russia.


Brent crude futures fell 2.7% over the week by mid-session on Friday to trade at around $62.70 a barrel as trade concerns mounted, but the price bounced from a five-month low, hit mid-week.  

The United Arab Emirates has told the UN Security Council a "state actor" was most likely behind attacks on four tankers off its coast. The 12 May attacks bore the hallmarks of a "sophisticated and co-ordinated operation", it said. The UAE representatives did not say who it thought was behind the attacks, which also targeted vessels from Saudi Arabia and Norway.

In a strategy update, Royal Dutch Shell said it was on track to meet its financial targets for 2020 and management laid out its mid-term strategy to continue to provide a high level of shareholder returns. Between 2021 and 2025, the oil and gas major aims to return at least $125bn to shareholders through dividends and share buybacks. This is more than twice as much as a decade ago. Shell will look to grow the dividend, which has been held flat now for 21 quarters, when the current $25bn share buyback completes in 2020.

Russian gas giant Gazprom became the country’s top publicly traded company by market capitalisation after its shares hit their highest level since 2008, driven by a new dividend policy.

Mining and Commodities

After China’s threat to use its strength in the supply of rare earth metals as a tool in the trade war, the Pentagon said it was trying to source the 17 key elements from places outside China, which currently mines between 70 and 80% of the world supply. Elements such as dysprosium, used in lasers, and neodymium, used in smart phones, are key for US industry. The comments sent shares in UK-listed rare earth miners Rainbow Rare Earth and Mkango Resources sharply higher.

Gold-backed exchange-traded funds had their biggest inflows in a year this week, as investors looked for safe havens amid the escalating trade war.


An unprecedented level of withdrawals by investors has led to dealing in Neil Woodford's flagship Woodford Equity Income Fund being suspended. Wealth manager giant St James's Place fired Neil Woodford as manager of the £3bn of assets he ran for its clients. Rob Morgan takes a look at the biggest news in the City this week here.

Huatai Securities effectively launched the long-awaited London-Shanghai stock connect with the unveiling of plans to raise more than $500m on the London Stock Exchange. Under the Connect, Shanghai-listed companies can raise fresh funds via London’s stock market while British companies can broaden their investor base by selling existing shares in Shanghai.

Non-Standard Finance formally announced it is calling off its hostile takeover of Provident Financial. The £1.3bn bid was announced in February and last week the competition watchdog announced it was investigating whether the deal would lessen competition for consumers.

Rolls-Royce handed over responsibility for £4.6bn of its pension scheme to Legal & General, in a record-breaking deal. The turbine manufacturer offloaded responsibility for paying the pensions of its 33,000 pensions scheme members.

The Financial Conduct Authority unveiled planned reforms to the “dysfunctional” overdraft market in a bid to make such arrangements simpler, fairer and easier to manage. Banks and building societies must soon stop charging higher prices for unarranged overdrafts than arranged overdrafts under the new rules.

Libor – the London inter-bank offered rate which fell into disrepute after a series of rigging scandals – is being phased out. Dave Ramsden, deputy governor of the Bank of England said it would be replaced by a new benchmark at the end of 2021. Banks should stop adding new exposures to Libor that go beyond 2021, Mr Ramsden said.


A vital meeting to rescue Sir Philip Green's Arcadia Group was adjourned for a week after landlords initially rejected his plan. Landlords of the troubled group's stores, which include Topshop and Miss Selfridge, were due to vote on a Company Voluntary Arrangement. The deal would have meant the closure of 48 stores and the loss of around 1000 jobs.

Mike Ashley’s Sports Direct made a £52m bid for Game Digital, after increasing its stake in the gaming retailer triggered a formal offer. Sports Direct said it is making a final offer of 30p a share.


US luxury group Tiffany & Co said that sales to Chinese tourists slumped in its latest quarter. “The tourists in the US represent a low double-digit percentage of our total sales in the US and we have seen a sharp decrease in sales to tourists in the US in the range of 25%. Even sharper for Chinese tourists,” chief executive Alessandro Bogliolo said. As a result, Tiffany cut its full-year profit guidance to low-to-mid-single-digit growth from mid-single-digit growth. Tariffs are also hitting its margins in China as Tiffany had been hit by Beijing’s retaliatory measures.

Shares in Entertainment One, the production company behind Peppa Pig, jumped after it said its president Mark Gordon would continue to work with the company, despite a report that said he was leaving his role.

Travel & transport

Boeing warned airlines about potential flaws on the wings of some 737 aircraft, including on the new-generation 737 Max that was grounded after two crashes. The company has identified possible faulty parts on more than 300 aircraft worldwide.  The parts, called wing slats, generate extra lift on take-off and landing.

Go-Ahead was also doing well with shares up almost 10% after it increased its expectations for full year results in its bus business.


Tesla shares had a good week following a report that said it the electric vehicle maker run by Elon Musk was hitting record sales numbers.

Fiat Chrysler withdrew its merger proposal for French carmaker Renault. The announcement followed a failed attempt by Renault board members to reach a decision on the offer. Renault said it had been unable to reach agreement because French government representatives had requested a postponement. The French government is the biggest shareholder in Renault, with a stake of more than 15%. Japan's Nissan also owns 15% of Renault, while Renault owns 43.4% of Nissan's shares.

Ford's engine plant in Bridgend will close in autumn 2020, with the loss of 1,700 jobs, the company has confirmed. The company announced in January it planned to cut its global work force.

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