The Weekly Note

14 November 2017

The Weekly Note, brought to you by our ALPHA: r² Managed Portfolio Service team.

Market News

Sterling has been volatile following negative headlines over the weekend, including reports that 40 Conservative MPs had signed a letter of no confidence in Prime Minister Theresa May. EU officials warned that Brexit talks were entering “crisis mode” and are reportedly preparing for May’s potential departure; two members of May’s cabinet members have been forced to resign in the past two weeks.

After falling nearly 1% yesterday morning, the pound then rallied after David Davis announced that parliament will get to vote on the final Brexit deal. Meanwhile, May met with EU business leaders in an attempt to win support for moving negotiations on to trade. Sterling came under more pressure this morning, however, as UK inflation came in unchanged at 3% for the year to October, a possible sign that cost pressures may be easing. 

Global equity markets slipped somewhat last week as confidence in Donald Trump’s tax reforms softened, with some concern that implementation may not take place until 2019. Wall Street is less pessimistic this week and the tax bill is expected to pass through the House of Representatives in the coming days, despite opposition to the abolition of the state and local tax (SALT) deduction. Passing the bill through the Senate is expected to be more complicated.

European company earnings have generally been disappointing of late, hardly justifying recent equity highs. The Stoxx 600 fell nearly 2% last week and lost more value yesterday, but has found support today as investors continue to buy on weakness, despite the absence of a meaningful catalyst. 

In China, both consumer and producer inflation surpassed expectations. Consumer prices were 1.9% higher in October compared to last year, owing to food and energy prices, while producer inflation remained at 6.9%. Meanwhile, as Trump visited China last week, America’s trade deficit to China reached $26.6bn.

Oil prices are gently easing this week as investors digest Brent crude’s fresh two-year high of $64.65 last Friday, driven by uncertainty in Saudi Arabia and faster-than-expected rebalancing of excess inventories.

Stock focus

Tesco is up over 5% today after the competition regulator provisionally cleared its planned £3.7bn takeover of Booker Group, the UK’s largest wholesale food operator. The proposed deal has met vocal opposition owing to the perceived power it will give the pair over the grocery supply chain.

Vodafone doubled its full-year growth forecasts this morning after successfully cutting costs across the board and rolling out services connected to the ‘internet of things’. Earnings growth for the year has been revised up to 10% and shares are currently up c.5%.

At the other end of the FTSE 100 today is ITV, with its shares down over 4% at one point this morning after the broadcaster announced that total external revenue dropped 1% in the first three quarters of 2017. Nonetheless, the company expressed confidence in the business heading into next year.

Taylor Wimpey bucked a recent trend by claiming it could see no apparent slowdown in the housing market this autumn, announcing that trading in October was “bang in line with last year, and last year was a very strong period”. 

Last week, two of Taylor Wimpey’s housebuilding rivals, Persimmon and Redrow, sparked nervousness in the market after trading updates seemed to suggest some reduction in sales volumes.

Two mammoth toymakers in the US are reportedly contemplating a merger after years of bitter rivalry. Hasbro and Mattel’s shares jumped as much as 20% and 6% respectively yesterday on the news that they may join forces to battle pressures traditional toy companies face in the digital ‘app’ era. 

Nisa shareholders have approved the convenience store chain’s £137m takeover by The Co-operative Group. The deal must still be assessed by the Competition and Markets Authority.

As forecast last week, Qualcomm has rejected Broadcom’s $130bn bid, saying the offer “dramatically” undervalued Qualcomm. The company has had difficulties of late, but stated that it is well positioned to “lead the transition to 5G”.

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