The Weekly Note

13 March 2018

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

Market news

Equity indices began this week on a cautious note after last week’s bullish performance ended with a flourish. US stocks rose almost 2% on Friday after a strong jobs report showed that more Americans were hired in February than in any month since 2016. Figures out earlier in the week had also reiterated the underlying strength in the services sector.

Of further encouragement to markets was the news that the positive economic signals were accompanied by lower wage growth, allaying some of the inflation fears that sparked last month’s correction. Concerns that the Federal Reserve’s rate cycle would accelerate have cooled with it, leading the S&P 500 3.6% higher overall last week and just 3% off its record high.

In the UK, the FTSE 100 was more muted but still finished up 2.3% last week, helped by a slight weakening of sterling amid continued uncertainty in Brexit negotiations. Meanwhile, Theresa May has said it was highly likely that Russia was behind the attempted murder of a double agent and his daughter in the UK. The Prime Minister could propose sanctions on Vladimir Putin’s regime if its involvement is proven. Chancellor Phillip Hammond will deliver the government’s first spring statement today, focusing on the latest forecasts for the economy and public finances.

As one geopolitical tension arises, another is undergoing treatment. Donald Trump and Kim Jong-Un may potentially meet after the US president accepted an offer relayed by South Korea. North Korea has been squeezed by economic sanctions but has said in the past that it is prepared to de-nuclearize under the right conditions. Such a meeting is unprecedented.

Concerns about a trade war have been dampened by the news of potential exemptions for Canada and Mexico. It is unclear whether exemptions may extend to Europe and beyond, however, where threats of retaliation are still on the table.

Greece is set to auction 12-month treasury bills this week for the first time since its rescue by the IMF in 2010. Europe’s poorest member is expected to make a full return to the markets once its bailout ends later this year.

Stock focus

Melrose Industries has tabled an increased offer for GKN, valuing the engineering company at £8.1bn. If successful, the acrimonious takeover attempt would leave GKN’s shareholders with 60% of the combined group. It has recently gained the backing of Aviva, one of the largest investors.

Fevertree Drinks, the premium tonic maker and stock market favourite, managed to surpass expectations again in its full-year results, reporting a 66% rise in revenue. Shares are up around 80% this year, although have dipped since the news for the lack of an earnings upgrade.

Pre-tax profit at Antofagasta, the copper miner, more than doubled last fiscal year to £1.8bn. The Chilean-based, London-listed company attributed a 31% rise in revenue to higher copper prices and said it would raise its dividend by 177%.

Security company G4S has fought back after posting disappointing half-year results last August and warning of slower growth. Pre-tax profits rose 30% across the full year and the company spoke with “substantial confidence” about its prospects for the next three years.

Aviva has pledged to give £500m back to shareholders after operating profit increased to £3bn. General insurance net written premiums increased 11%, while the chief executive lauded the UK as a “dependable and growing” business.

Lloyds Banking Group confirmed last week that it will launch a share buyback programme to repurchase up to £1bn of ordinary shares. So far the market response has been muted, with uncertainty about what it will cost investors.

Rolls Royce has announced an expectation-beating 25% rise in full-year pre-tax profits, but also a more sedate forecast of “mid-single-digit growth in 2018 underlying revenue”. It also revealed plans to “move to a considerably simplified staff structure”.

Legal & General has delivered a record profit of £2bn, owing to a 54% rise in the sale of retirement products and growing assets under management in its fund management arm.

Ahead of the Cheltenham Festival this week, Paddy Power Betfair revealed a 19% increase operating profit and a 13% rise in revenue, which came in ahead of forecasts. The bookmaker also sought to reassure investors that it can hurdle the impact of regulatory changes.

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It is important to remember that the value of investments can go down as well as up and it is possible to get back less than you invested, especially in the early years. Past performance is no guarantee of future returns and interest rates and dividends are variable and cannot be guaranteed in the future. Any tax treatment mentioned is based on personal circumstances and current legislation which is subject to change. In the event of a client having a complaint about our services we will do our best to resolve that complaint promptly and to the client's satisfaction. However if we are unable to do so, the client may have the right to complain to the Financial Ombudsman Service. Further information can be found on the Financial Ombudsman Services's Website at