The Weekly Note

13 February 2018

The Weekly Note

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

Market News

Equity markets rebounded on Monday after suffering a turbulent week during which volatility increased by as much as 93% according to the VIX Index, which reads expected volatility implied by S&P 500 options. Surprising inflationary signals in the US sparked concern of rising bond yields, causing a sell-off which was then exacerbated by the technical unwinding of low-volatility trades.

Headline US, UK and pan-European stock indices all lost around 5% in value last week, but all rallied over 1% yesterday amid an improved mood. Readings from the global economy remain positive but investors will be watching US inflation figures, due on Wednesday, closely to assess what effect they may have on the era of ultra-loose monetary policy.

The yield on US 10-year Treasuries is within touching distance of 3%, a milestone last passed four years ago. Given the recalibrated interest-rate expectations and risk-off sentiment, the US Dollar Index posted its best week in over a year, rising 1.4%. Sterling has receded 3.5% against the dollar since its high at the start of February, with EU Brexit negotiator Michel Barnier throwing doubt over the UK’s proposed transition period last Friday.

UK household spending fell by 1.2% in January compared with last year, the first time there has been a January decline since 2013. Visa’s research reveals a Brexit-induced crisis of confidence amongst consumers, who’s spending has now fallen in eight of the last nine months. Businesses, however, are more optimistic, with the services sector in particular encouraged by the improving global economy.

As fear grows over US inflation, factory prices in China, which are in part exported to global buyers, slowed for the third month in a row. The producer price index rose 4.3% in January compared to last year, while consumer prices climbed 1.5%. Consumer price inflation in the UK held steady at 3% in January, it was revealed this morning.

Rising US oil production, which has exceeded 10 million barrels per day for the first time since the 1970s, has put pressure on prices of the commodity. Both the Brent crude and WTI oil indices have fallen around 10% in the last two weeks.

Stock focus

TUI has posted a strong set of results for the first quarter of its financial year, recording a 4% jump in customer numbers and in particular being boosted by bookings for Greece, Turkey and Cyprus. Turnover grew by 8.1% during the period, as the underlying core loss more than halved to £22.6m.

BHP Billiton has said that it expects to recognise a £1.3bn charge resulting from changes to corporate income tax in the US. Like many other firms, however, the miner expects to benefit from the tax reform in the long term after taking an initial hit.

GKN has been accused of “opportunistic financial engineering” by Melrose, the buyout firm in the midst of a £7.4bn hostile takeover bid for Britain’s third largest engineering company. Some reports suggest GKN is preparing to offer a large cash return to shareholders as part of its defence strategy, which must be published by Thursday.

The Serious Fraud Office has charged Barclays with “unlawful financial assistance” in relation to a £2.2bn loan it gave to the Qatari state almost ten years ago, “for the purpose of directly or indirectly acquiring shares in Barclays”. The indictment is part of a five-year investigation into the bank’s fundraising in 2008.

Unilever has warned the likes of Google and Facebook that it may withdraw its adverts if the platforms do not increase their efforts to control any content that is considered extremist, illegal or fake. Unilever’s chief marketing officer called on other companies to follow suit.

Tesco is planning to create a separate brand of grocery stores to rival German discounters Aldi and Lidl. The new format would involve a more limited range of products. Boston Consulting Group has been recruited to plan the project and some own-label suppliers have been asked to sign non-disclosure agreements.

Meanwhile, Aldi has been rated as the UK’s best supermarket as its value for money outweighed the basic presentation and service. Lidl was ranked third in the survey by Which? while Sainsbury’s came in last place.

21st Century Fox has offered to set up a new independent board to retain the editorial independence of Sky News if the regulator approves its plans to complete the takeover of Sky.

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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