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Global equity markets have been relatively subdued so far this week following a broad improvement in sentiment last week. Investors will be updated on China’s economic activity tomorrow, but so far there is little else to drive market direction.
The S&P 500 rose 0.6% last week, putting the index near September’s high, amid a stronger than expected first quarter for overall US corporate earnings. Furthermore, Steven Mnuchin, the US Treasury Secretary, indicated that US-China trade talks were approaching a ‘final lap’.
UK equities have edged cautiously higher since the EU granted an extension to Article 50 up until October 31st, or sooner if Westminster can bring itself to find a solution before that. It was reported yesterday that Theresa May is under pressure to wind up the government’s talks with Labour due to potential conflicts of interest. The Conservative party is keen to secure a Brexit deal before potentially damaging local elections in May, while it could be in Labour’s interest to drag the process out.
This morning, the Office for National Statistics revealed that the UK labour market has tightened further. The unemployment rate remained almost unchanged at 3.9%, while wage growth has reached a decade-high of 3.5%. Normally, such conditions would bring expectations of an interest rate hike from the Bank of England, but Brexit uncertainty makes it extremely unlikely.
Meanwhile, a survey by Ernst & Young has indicated that Britain has become the most attractive place for global companies to make acquisitions. In replacing the US, the UK claims top spot for the first time in over a decade. The consultants concluded that the global companies have trended this way in spite of Brexit, rather than because of any attractive valuations that may have arisen because of it, instead praising British companies’ talent, technology and intellectual property.
Oil prices softened marginally yesterday, but have risen since our previous update due to supply disruptions. US oil refiners, however, have hinted that production may soon be ramped up ahead of a seasonal peak in demand.
JD Sports has reported record annual profits this morning, overcoming the prevailing challenges in the British retail market. Pre-tax profits rose by 15% to £339m and revenue jumped 49%. The company’s chairman said that it was “not immune” to lower footfall and increased labour costs, but that its UK and Irish business had driven growth.
G4S updated the market this morning, claiming a “good start” to the year, with total revenues in the first quarter up 4.8% compared to last year. The security outsourcer also said that its cash solutions business, which grew by 4.4%, was still on track to be spun off into a separate company. G4S remains an acquisition target for Canadian group Garda World.
Goldman Sachs saw its quarterly profits drop by 20% in the first quarter of the year, while compensation and benefits were trimmed by the same margin. The investment bank also reduced total staff by 2%, as trading revenue suffered a large reduction.
Whitbread is expected to cut more than 100 jobs at its head office following its sale of Costa Coffee to the Coca-Cola Company. The group is returning £2.5bn of the £3.9bn proceeds of the sale back to shareholders and announced a further £220m of cost savings when the deal was finalised in January.
Last week, the online fashion retailer Asos announced a dive in first-half pre-tax profits of 87%. It attributed the results to heavy discounting and a fall in website visits, the latter caused by marketing changes. Shares actually rose following the news, highlighting the shift in expectations since Asos’s profits warning in December.
Finally, the UK’s data watchdog has proposed new rules that could impose limits on social media companies’ relationships with under-18s. The proposals target features such as ‘likes’, which encourage the user to spend more time on Facebook, Instagram or other apps in order to build up profile reputation. Such features have proven to be highly addictive.
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