The Weekly Note

12 September 2017

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

Market News

Markets have started this week off relatively calmly after North Korea commemorated its founding day with festivities, rather than a missile launch as feared. The east-Asian state did, however, threaten “pain and suffering” on the US if it called for more sanctions, a raft of which were agreed at a UN security council meeting yesterday.

The devastation reaped by Hurricane Irma on the Caribbean and Florida has turned some focus away from geopolitical pressures, but also helped the US dollar index slide 1.6% last week. Speculation on the short-term economic damage and potential influence on fiscal spending has lowered expectations of an interest rate hike in December. President Donald Trump signed a bill last Friday extending the government debt limit for three months and adding $15bn in aid.

The Bank of England’s Monetary Policy Committee is expected to leave the base rate unchanged when it meets on Thursday, but recent resilient economic data and continuing signs of currency-induced inflation have led to predictions of a more hawkish tone. New figures released this morning shows that UK consumer inflation reached 2.9% in August, compared to 2.6% in July. Sterling has reached a one-year high against the dollar (over $1.32) in the last few days.

MPs voted last night to progress the EU repeal bill to the next parliamentary stage. The bill would end the superiority of European law and convert it into UK law, theoretically ensuring a smooth transition when Brexit happens. MPs were warned that blocking the bill would lead to a “chaotic” Brexit, but it is expected to face more opposition when it reaches the committee stage next month. The main concern is that it gives ministers the power to change laws without the usual scrutiny in parliament.

China’s renminbi dipped sharply on Monday after the country’s central bank scrapped two rules imposed on banks which were helping to prop up the currency. Meanwhile, Chinese consumer and producer inflation came in higher than expected in July, at 1.8% and 6.3% respectively.

The euro strengthened further last week following the ECB’s decision to leave its asset purchasing itinerary and interest rates unchanged. Its forecast for eurozone growth this year increased to 2.2%, but the recent strength of the currency also led the ECB to downgrade inflation forecasts for 2018 (1.2%) and 2019 (1.5%).

Stock focus

Ashtead reported a 19% rise in first-quarter pre-tax profits this morning and said that it expected a spike in demand for its rental equipment following the hurricanes around the Gulf of Mexico. Shares are up over 7% at the time of writing.

JD Sports enjoyed a 41% increase in half-year sales, while also opening 12 new shops in the UK as it benefits from the continuing appetite for ‘athleisure’ apparel. The company estimates full-year earnings will be at the “upper end” of expectations.

AstraZeneca was amongst the biggest gainers in the FTSE 100 on Monday after releasing positive results from two of its lung cancer drugs. Poor initial tests of one of the drugs, Mystic, caused the pharmaceutical company’s shares to fall 15% in July.

Strong sales at Primark persuaded its parent company Associated British Foods to raise its full-year earnings estimate, but shares dipped after the conglomerate revealed a disappointing outlook on next year’s profit margins.

Dong Energy has been awarded a contract to create the world’s largest offshore wind farm, in a UK auction for renewable power as part of the Government’s ‘contracts for difference’ scheme. The project, to be situated off the Yorkshire coast, will supply power at a rate half as expensive as those quoted in a similar auction in 2015, making it cheaper than nuclear power.

Goldman Sachs is looking to expand its retail banking business to the UK, replicating its recent foray into the US mass-market. Steadily increasing restrictions on risk-taking have subdued the investment bank’s traditional operations.

Apple suffered its biggest ever leak ahead of the launch of the new iPhone, which is to be officially unveiled later today. The iPhone X, which marks the device’s 10-year anniversary, will reportedly cost over $1,000 and include facial recognition software that can convert emotions into emojis.

Google is appealing the €2.4bn fine imposed on it by the European Commission in June for unfairly promoting its own shopping comparison service. (This is independent of the fine Google faces for misuse of its Android phone software, reported last week).

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