Trump escalates the trade war

Garry White, Chief Investment Commentator, looks at the market-moving events that have shaped equity markets this week (29 July to 2 August, 2019).

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  1. Garry White

Donald Trump threatened to raise tariffs on all Chinese imports after trade talks in Shanghai finished with no progress or compromise, hitting global equities on the final trading day of the week. The market was also concerned on Friday that he may raise tariffs on European vehicle imports over the weekend too.

The FTSE 100 rose 0.4% over the week by mid-session on Friday, boosted by a weak pound on no-deal Brexit fears, and the FTSE 350 was up 0.4%.


The US Federal Reserve cut interest rates for the first time since 2008, but Donald Trump was still not happy. The president, who had previously demanded a large rate cut, was unimpressed with the Federal Reserve's 0.25 percentage point cut that took the federal funds target range to 2% to 2.25%. The president attacked Federal Reserve chair Jerome Powell. "As usual, Powell let us down," he tweeted. The accompanying statement was also a little more hawkish than expected.

The Bank of England cut its forecasts for UK growth over the next two years. The Bank left interest rates unchanged at 0.75% against a backdrop of weaker global growth and ongoing trade tensions. It said the UK economy was expected to grow by 1.3% this year, down from a previous estimate of 1.5% in May. The Bank also cut its outlook for growth in 2020 to 1.3%, down from 1.6%.

Global manufacturing continues to slow. Purchasing Managers Index (PMI) data for the UK showed manufacturing continued to contract in July with a reading of 48. That is a six-and-a-half year low and the same level it recorded in June. Any reading below 50 indicates a contraction. PMI figures also indicated that manufacturing activity in the Eurozone contracted in June at the fastest rate since 2012. China's PMI was at 49.7 in July, up slightly from 49.4 in June.

The US factory sector lost further momentum last month, slipping to its lowest reading in nearly three years in July. The Institute for Supply Management’s manufacturing index fell to 51.2 in July from 51.7 in June.


US-China trade talks in Shanghai ended with little progress other than both sides agreeing to hold more talks. The talks in Shanghai were "constructive", a White House press secretary said. China agreed to buy more US farm products, as it has done on other occasions but failed to deliver.

However, later in the week, Trump said he will impose a fresh 10% tariff on another $300bn of Chinese goods, in a sharp escalation of a trade war between the two countries. The new tariffs, due to take effect on 1 September, mean there will be a tax on all Chinese imports to the US if he carries through with the threat.

Donald Trump is scheduled to make a statement on trade with the European Union after markets close on Friday. There are concerns he may slap tariffs on vehicles imports to the US, a decision on which was postponed earlier in the year.

Donald Trump’s tariff battle with China has had a "dramatic impact" on US manufacturing and capital investment, according to the president’s former chief economic adviser Gary Cohn. The trade war was "a very convenient excuse" for China to slow down its overheated economy, he added.

Protests in Hong Kong continued, with demonstrators facing draconian charges of rioting. The charges came amid reports that Chinese armed forces are mobilising on the border with Hong Kong. Protests started after Beijing tried to impose a new law that, if enacted, would allow local authorities to detain and extradite people who are wanted in countries or territories that Hong Kong does not have extradition agreements with, including mainland China and Taiwan.

The US imposed sanctions on Iranian Foreign Minister Mohammad Javad Zarif, the latest move by Washington in its "maximum pressure" campaign against Tehran. Europe said it was still prepared to deal with the Iranian politician.


The pound fell below $1.21 for first time since January 2017 as the market reacted to concerns that the chance of a no-deal Brexit had increased. 

The government announced an extra £2.1bn of funding to prepare for a no-deal Brexit – doubling the amount of money it has set aside this year.

The Liberal Democrats won the Brecon & Radnorshire by-election, bringing Prime Minister Boris Johnson’s majority down to just one. This underscores the political difficulties in getting parliament to agree a way forward on Britain’s withdrawal from the European Union.


The title for the company with the biggest cash reserves, held by Apple for a decade, passed to Google’s parent Alphabet, according to an analysis by the Financial Times. Apple’s holdings of cash and marketable securities, net of debt, fell to $102bn, down from a peak of $163bn at the end of 2017. Alphabet’s cash pile is $117bn, up by almost $20bn over the same period.

Apple posted a small gain in sales for the third quarter of the year. While iPhone sales dipped, the company made up the difference in higher revenues in services such as its software store and music service. Sales rose 1% to $53.8bn (£44.3bn), while net profit dropped 13% to $10bn.

Amazon founder Jeff Bezos sold 968,148 shares in the company worth $1.84bn, according to a Securities and Exchange Commission filing. There is speculation he will use the funds for his Blue Origin space programme.

FTSE 250 listed IT infrastructure group Computacenter saw its shares jump after confirming it was trading ahead of expectations.

South Korea’s Samsung Electronics saw profits plunge in the second quarter, as its key chip business faltered. The world's biggest smartphone and memory chip maker said operating profit fell 56% from a year earlier.


Brent crude futures fell 4.6% over the week by mid-session on Friday to trade at about $62 a barrel. The price fell sharply in Asia after President Trump threatened further tariffs on China, but bounced slightly in European trading on Friday.

BP's second-quarter profits beat market expectations, as higher production helped offset lower oil prices. Oil and gas output rose 7% year-on-year following the purchase of BHP Group’s US shale assets and the ramp up of major projects.

However, numbers from Royal Dutch Shell disappointed after profits fell to their lowest level since 2016. Shell's second quarter profits dropped 25% to $3.6bn (£3bn), far below analysts' expectations of $4.9bn. The oil giant blamed "challenging macroeconomic conditions" in refining and chemicals, as well as falling oil prices.

Shares in utility group Centrica fell to a 22-year low after chief executive Iain Conn revealed he would step down next year following an "exceptionally challenging" period. News of his departure came alongside interim results in which the group swung to a significant loss and cut its half-year dividend payment by 58%. The company also announced its intention to leave oil and gas production behind to focus on provision of services to customers and a “greener future”.

Temporary power provider Aggreko said first-half profits were flat, as revenues at its industrial and utility units fell.

Engineering company Weir Group reported a 22% fall in like-for-like profit in the first half of the year, with management indicating that full-year oil and gas profit would be at the lower end of its target range. It blamed this on slowing orders in North America.


Rio Tinto reported a disappointing 6% slide in its interim profits, despite soaring iron ore prices. The results were hit down by a $1.2bn writedown in the value of its Mongolian copper and gold interests at Oyu Tolgoi. Management did, however, announce a $1bn special dividend.

Mexican silver and gold miner Fresnillo’s profit plunged by more than two-thirds in the first half of 2019, hit by a drop in production and higher costs.


Barclays posted its best results in a decade as its traders beat Wall Street rivals. Profits in the half year topped £3bn, up 82%. The good performance at its investment bank is a positive for chief executive Jes Staley, as activist investors have been urging the company to dispose of or shrink the business.

Lloyds Banking Group, Britain’s biggest mortgage lender, posted weaker-than-expected profits in the first half of the year, as a further £550m had to be set aside to meet claims for mis-sold payment protection insurance.

Royal Bank of Scotland announced a £1.7bn dividend following better-than-expected second-quarter numbers, but warned a tough economic environment means it is likely to miss its profitability and cost targets next year.

Standard Chartered exceeded first-half profit estimates. However, management flagged the tariff war between China and the US and an easing monetary-policy cycle as potential future risks.

London Stock Exchange shares jumped to a record high after confirmed talks to buy financial data firm Refinitiv in a deal worth $27bn including debt. The move is significant as it is a long-term play on the value of data. The move will transform the exchange into what is claimed to be a UK-based, global rival to Michael Bloomberg’s eponymous business.

Interim numbers from insurer Direct Line were slightly ahead of market expectations. The company also set aside £17m to cover higher insurance payments for people who are seriously injured in accidents. The insurer has previously warned that special dividends this year would be lower as it improved its balance sheet.

Aerospace and defence

BAE Systems’ interim results showed a 9% increase in first-half earnings. The maker of Typhoon fighters, combat vehicles and Astute Class nuclear-powered attack submarines, has been affected by a German ban on exporting arms to Saudi Arabia imposed after the killing of Saudi journalist Jamal Khashoggi in October. BAE said it had been “working closely with industry partners and the government to continue to fulfil our contractual support arrangements” with Saudi Arabia.

Airbus more than doubled its profits in the first half of 2019, with its glowing results statement in sharp contrast to Boeing, its embattled American rival. Boeing is dealing with the fallout from two crashes of it 737 Max aircraft, leading to lower deliveries and profits.

British Airways owner IAG is in talks with Boeing to bring forward the first delivery of 200 737 Max jets by a year to 2022, and said it was confident that the issues that led to its grounding would be addressed.

Ryanair boss Michael O’Leary has told staff to prepare for as many as 900 job cuts as he warned that the Irish budget airline’s expansion plans would be slowed dramatically following the grounding of the Boeing 737 Max.

Shares in Thomas Cook soared after it was disclosed that Neset Kockar, chairman of Turkish holiday giant Anex Tourism, had bought a 6.71% stake in the group.


Sports Direct shares slumped after it released its delayed results after the close last Friday. They revealed a €674m tax demand from Belgium. Founder and majority shareholder Mike Ashley also admitted things looked “terminal” for House of Fraser, which Sports Direct brought out of administration last year. The state of House of Fraser makes it impossible to forecast profitability, Mr Ashley said. 

It’s not all bad news on the high street. Next upgraded its guidance for the full year following better-than-expected trading in the first half of the 2019.

In a sign of the times, Majestic Wine is selling all its physical stores, warehouses and properties to focus entirely on its online business. The sale is to CF Bacchus Holding, a company controlled by funds managed by Fortress Investment Group. The price is about £95m. Management will now focus on developing its Naked Wine business.

Shares in retail property group Intu, the Lakeside and Trafford Centre owner, slumped after losses in the first half of 2019 swelled, as a number of retailers entered administration or closed stores. Its new chief executive, Matthew Roberts, said all options for the company were under review, including issuing new equity.

Shopping centre operator Hammerson swung to a loss in the first half of 2019. The owner of the Bullring centre in Birmingham said it had met 90% of its £500m disposals target for 2019. The company now plans to focus on “flagship retail destinations and premium outlets”. Management reassured that its dividend was safe following the news from Intu.

Retail landlord Unibail-Rodamco-Westfield suffered a drop in UK rental income in the first six months of the year as the property giant’s two London sites, in Stratford and Shepherd’s Bush, were hit by store closures and leasing delays. Rental income fell as retailers negotiated lower payments through Company Voluntary Arrangements (CVAs).


Consumer-goods maker Reckitt Benckiser cuts its full-year revenue growth target after an unexpectedly slow start to the year. The Dettol and Cillit Bang maker now expects like-for-like net revenues growth of 2% to 3%, compared with previous guidance of 3% to 4%. The group’s health division, which includes brands such as Nurofen, Dettol and Strepsils, was the main cause of the downgrade.

Pest-control company Rentokil reported a rise in revenue and operating profit in the first half of 2019 and reiterated its full-year guidance. Management claimed that the first six months of the year had seen its highest growth rate for the period in more than a decade.

Funeral operator Dignity said it was temporarily suspending its dividend payments after profits nearly halved in the first half of 2019 due to a drop in the number of funerals it conducted. This followed a 7.4% year-on-year decrease in UK deaths to 300,000 over the period.

Greggs’ vegan sausage roll helped drive a 58% first-half profit rise. The company is looking into adding more vegan products, along with new hot sandwiches and other food-to-go options. Management also announced it will launch extended opening hours in a selection of its shops across the UK as part of a trial. This will see it competing with the likes of McDonalds and KFC, owned by US group Yum Brands.

Has the relentless charge ahead of Beyond Meat in the US come to a halt? The shares finally stopped defying gravity and have fallen sharply this week. The plant-based meat group said that second-quarter sales nearly quadrupled from a year ago, but losses widened. The shares were hit after the company revealed that it planned to sell more shares in a secondary offering, with founders disposing of some shares in the issue.  The valuation was further hit after Impossible Foods’ rival vegan burger cleared the last regulatory hurdle it faced before rolling out in US grocery stores. Burger King also announced that its trial of the burger as an Impossible Whopper was going nationwide and it is expected that that company will IPO later this year or next. For a backgrounder on the issue click here.

Property & construction

Taylor Wimpey forecast a fall in full-year margins as the group reported a small drop in first-half profits. However, the company maintained its full-year profit guidance, as better-than-expected sales offset the squeeze on margins.

Brick-maker Ibstock posted interim results roughly in line with market expectations. Management also announced a supplementary dividend worth £20m, around 2% of the group’s market value.

Shares in troubled contractor Kier jumped after management said its housing building unit had received "significant interest" and that its debt levels were falling. However, it also noted that full-year revenue would fall by £100m.


The US Department of Health and Human Services unveiled a new plan that could lower prescription drug costs. The plan includes a proposal to import FDA-approved drugs from other countries such as Canada. Garry White looks at the issue here.

Medical-device maker Smith & Nephew raised its full-year guidance for the second time this year after a surge of sales in China and solid revenues from sports medicine products in the US.


Following on from its profit warning at the end of July, Aston Martin Lagonda reported a pre-tax loss of £78.8m in the six months to the end of June. That compares to a £20.8m profit in the same period a year earlier. The market was, once again, disappointed and the shares have lost about three-quarters of their value since their London IPO in October 2018.

Shares in US group General Motors rose after it beat expectations in its second-quarter results, boosted by strength in the important US pickup truck market.

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