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Investor focus is on the US mid-term elections today, which are considered crucial for the rest of President Trump’s presidency. Trump’s Republican party currently controls both houses of Congress, but the voting will determine whether or not the Democrats will take control of the House of Representatives. Such a result could create legislative deadlock in Washington, making it difficult for Trump to implement his policies.
Markets have traded cautiously this week and a popular view is that a win for the Republicans could result in higher yields, as it could facilitate the continuation of inflationary policies. Last week, global equities had some respite from recent selling, with optimism emerging from friendlier rhetoric between China and the US. The S&P 500 closed 2.44% higher amid third-quarter corporate earnings results, of which a majority exceeded expectations.
In Europe, the Stoxx 600 rose 3.35% last week as Germany in particular was boosted by strength in exporters. There has been reason for optimism with regards to Brexit negotiations, too, with reports suggesting that the UK has won concessions from the EU that would avoid a hard border in Northern Ireland. There are also reports that the wider deal is further advanced than feared and that a Canada-style free trade agreement is a possible solution. Sterling has rallied above $1.30 as a result.
Although progress has been made on a deal to give the UK’s financial services sector access to EU markets after Brexit, currently uncertainty is still taking its toll on the economy. In October, the broader services sector stalled to its slowest pace since extremely cold weather reduced activity earlier this year. The purchasing managers’ index (PMI) for services fell from 53.9 to a seven-month low of 52.2 in October.
The UK’s Monetary Policy Committee unanimously voted to keep the Bank of England’s base interest rate on hold at 0.75% last week, but signalled that rates could rise faster than the market expects. The trajectory of rates likely depends on the conclusion of Brexit, however, meaning any change is unlikely before there is a defined deal in place.
Finally, oil prices have slipped again in the past week, largely owing to fears over supply increases. The US formally imposed sanctions on Iran yesterday but granted temporary waivers to eight countries including China and Japan.
|Share||Closing Values at 1/10/18||Year high||Year low|
|DJ Industrial Average||24,443||26,952||23,243|
|UK Gifts||% Yield||Price|
|FOREX versus US Dollar||Last||% Change**|
|Commodities||Price (USD)||Change**||% Change**|
|Brent Crude Oil||77.34||-0.35||-0.45|
Operating profits at Associated British Foods rose a disappointing 3% in the most recent year as lower EU prices exacted significant damage on its sugar business. Profits at the sugar business more than halved, but a strong performance by its fashion chain Primark helped lift overall group results. A 10% dividend increase has helped the share price higher today.
Imperial Brands also announced its full-year results this morning, showing a 5.7% rise in profit to £2.4bn. The tobacco company told investors that it would be increasing its investment into cigarette alternatives, in an attempt to catch up with rivals Philip Morris and British American Tobacco.
Wm Morrison revealed this morning that its like-for-like sales grew by 5.6% in the 13 weeks to November 4th, while the core retail business rose 1.3%. The supermarket noted that the most recent figures now mean that it has completed three years of positive sales growth.
BT Group’s shares surged last week despite a dividend cut, as the telecoms giant announced that it expects full-year earnings to reach the top end of its guidance range. Cost savings drove a 24% rise in first-half profits, but revenue fell 2%, partially due to regulated price reductions in its Openreach network.
Specialty chemicals company Croda International enjoyed a 4.2% rise in sales in the last quarter and said it remained on track to hit market expectations this year after “another strong, consistent quarter of growth”.
BHP Billiton confirmed last week that it is planning a $10.4bn hand out to shareholders via share buybacks and a special dividend. The buyback had been promised for months since the company sold its US shale oil and gas assets to BP. The mining company continues to face an attack on its strategy by activist investor Elliot Management.
Royal Dutch Shell recorded a massive jump in profits in its third quarter, underlining the recent signs of strength in the sector amid strengthening oil and gas prices. Reported earnings jumped 51% to £4.33bn. Shell also announced a share buyback worth up to £1.9bn.
|Date||Category||Country||Event||Reuters poll||Prior estimate|
|6/11/18||Surveys & Cyclical||France||France-PMI Services/Composite - Markit Comp PMI||54.3||54|
|6/11/18||Surveys & Cyclical||Germany||Germany-PMI Services - Markit Comp Final PMI||52.7||55|
|6/11/18||Surveys & Cyclical||Eurozone||Euro Zone-PMI Services - Markit Composite Final PMI||52.7||54.1|
|7/11/18||Prices||United Kingdom||United Kingdom-House prices - HalifaxHousePrice 3M/YY||1.20%||2.50%|
|7/11/18||Consumer Sector||Eurozone||Euro Zone-Retail Sales - Retail Sales YY||0.70%||1.80%|
|7/11/18||Surveys & Cyclical||Japan||Japan-Current account NSA - Current Account NSA JPY||JPY 1772.6b||JPY 1838.4b|
|8/11/18||External Sector||China (Mainland)||China (Mainland)-Trade - Exports YY||11%||14.50%|
|9/11/18||Prices||China (Mainland)||China (Mainland)-Inflation - CPI YY||2.50%||2.50%|
|9/11/18||National Account||United Kingdom||United Kingdom-GDP Prelim - GDP Prelim YY||1.50%||1.30%|
|12/11/18||Government Sector||China (Mainland)||China (Mainland)-Money and lending - M2 Money Supply YY||8.40%||8.30%|
|12/11/18||Surveys & Cyclical||China (Mainland)||China (Mainland)-Money and lending - Outstanding Loan Growth||13.30%||13.20%|
|13/11/18||National Account||Japan||Japan-GDP Quarterly - GDP QQ||-0.30%||0.50%|
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