The Weekly Note, brought to you by the ALPHA : r² Managed Portfolio Service team
Global equities have carried December’s momentum into the new year, with some solid economic data following the long-awaited completion of the “Tax Cuts and Jobs Act”, signed into law by Donald Trump just before Christmas. Analysts have already started amending modest 2018 forecasts after the S&P 500 jumped up 1.9% last week. The FTSE 100 registered another record finish on Friday, as it did on the last day of 2017, while European and Japanese equities hit 2-year and 26-year highs respectively.
The US Manufacturing Purchasing Managers’ Index rose to 55.1 in December while the Institute of Supply Management’s non-manufacturing index declined to a still healthy 55.9. Non-farm payrolls increased by 148,000 jobs in December, slightly below forecast but not enough to doubt the Federal Reserve will veer from its rate-hiking plans.
US, UK and German sovereign yields all rose fractionally as investors digested both the Fed’s policy trajectory and the ECB’s cut in monthly asset purchases. Headline inflation in the Eurozone fell slightly to 1.4% year on year while core inflation remained stationary at 0.9%, but the overall picture suggests gradual price rises ahead.
Theresa May’s biggest ministerial reshuffle since last year’s election has made the wrong sort of headlines after two high profile cabinet members refused to bend to the Prime Minister’s plans. Justine Greening quit last night after being demoted whilst Jeremy Hunt managed to resist a switch to business secretary. The latest embarrassment for May has revived questions over the competence of her administration.
North and South Korea have held breakthrough talks as they work to improve their frosty relationship ahead of the Winter Olympics, which take place in the South in February. After meeting officially in the demilitarised zone for the first time in more than two years, it was announced that North Korea will send a delegation to the games in Pyeonchang and that a military hotline between the nations will be reinstated.
Brent crude oil currently sits just below $68 a barrel, having moved above the mark last week for the first time since 2015. Supply concerns have driven prices higher, exaggerated by tensions in Iran. Steeper-than-expected declines in US inventories in December helped Brent crude end the year 17.7% stronger.
Morrisons enjoyed a bump in Christmas trading, with sales up 3.7% compared to the same period last year. The supermarket put the performance boost down to a sharper customer experience, claiming that there were more tills open, shorter queues and better stock availability.
French car manufacturer PSA Group is cutting a further 250 jobs at Vauxhall’s plant in the UK, on top of the 400 redundancies announced last year. It said the changes were necessary to “accelerate the recovery of plant productivity”.
Persimmon announced a 9% increase in revenue for the year 2017 and has said that profits will be higher than expected due to the government’s cut in stamp duty for first-time buyers. The company has also benefitted from the help-to-buy scheme. Chief Executive Jeff Fairburn is in line for a £110m bonus this year.
British American Tobacco said it expects its gains from Donald Trump’s tax reform to boost earnings per share by 6% in 2018, supporting its commitment to earnings growth and greater investment in vaping devices.
Shares in Micro Focus, the UK’s largest technology company, have fallen c.17% this week after revealing lacklustre first-half results. With last year’s acquisition of Hewlett Packard Enterprise Software stripped out, revenue fell 2.9%. Yesterday Micro Focus announced a boardroom shake-up.
Debenhams issued a profit warning last week after a gloomy festive season that brought a 2.6% dip in sales for the last 17 weeks of 2017. The department store said that profits would be about 30% lower than previously expected; its shares are down over 16% since the announcement.
In contrast, an unexpected rise in sales at Next encouraged the fashion retailer to raise its profit forecast. A 6.1% decline in store sales was beaten by a 13.6% increase in online sales, helped by the cold weather that preceded Christmas. The forecast, however, is still more than 8% lower than the previous year’s earnings, highlighting the challenges faced by retailers.
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