All eyes on the Middle East after US begins 2020 with drone strike

7 January 2020

All eyes on the Middle East after US begins 2020 with drone strike

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Market news

Equity markets are taking stock today after being shocked by the US assassination of the second most powerful person in Iran last Friday. Military leader Qassem Soleimani was killed in a drone strike while in Iraq, prompting immediate threats of retaliation and widespread mourning. Both Iran and the US have indicated they have identified multiple targets to attack, should they deem it necessary, whilst Iran has abandoned its nuclear agreement. Additional US troops are reportedly en route to the Middle East, but are no longer welcome in Iraq. 

The geopolitical tension has been dialled back slightly, but the situation remains fragile. Brent crude oil rose above $70 a barrel initially over concerns as to the near-term stability in the Middle East, while the price of gold surged to a near seven-year high as investors defended portfolios against the threat of a multilateral conflict. 

After the new government convincingly passed the Brexit withdrawal agreement just before Christmas, the UK is on course to leave the EU by the end of this month. Boris Johnson told MPs last week to “discard the old labels of leave and remain” and reportedly will ask the new president of the European Commission to push on with trade talks when they meet tomorrow. Some ministers want the Prime Minister to conduct trade talks with the US at the same time, arguing it would give the UK more leverage with the EU. 

Britain's services sector received a post-election boost, as businesses took confidence from the greater clarity provided by the strong Conservative majority. The IHS Markit Purchasing Managers' Index rose from 49.3 to 50 in December, moving from a state of contraction to neutral. 

In Europe, the services PMI was also positive, bouncing from 51.9 to 52.8 last month. The manufacturing PMI, however, contracted for the eleventh straight month. Elsewhere on the continent, German retail sales rebounded in November, whilst Spain is about to vote in a coalition government, breaking a year long deadlock. 

Stock focus

Morrisons' like-for-like third quarter sales fell by 1.7% in the period to January 5th. The supermarket's shares are higher today because analysts had feared worse, while its chief executive cited an “unusually challenging period for sales”. It said that consumers were subdued ahead of Christmas and that it was also up against fierce discounting from rivals. 

Aldi, the German discounter, struck a more upbeat tone yesterday, announcing that Christmas sales topped £1bn for the first time. Sales rose 7.9% year-on-year in the four weeks to Christmas Eve, which it said was helped by demand for alcohol and also for premium and fresh British meat ranges. In the run-up to Christmas, Aldi sold 55 million mince pies. 

Aston Martin Lagonda has issued a warning on its full-year profits this morning. The luxury car company has blamed challenging conditions over Christmas, which hit sales and raised selling costs during the peak period. It expects to make between £130m and £140m this year, compared to £247m last year. Aston Martin said that while retail sales grew strongly last year, it was disappointed in its profitability. 

The battle to buy Just Eat is due to be settled this week, with poised to clinch a £6bn acquisition of the FTSE 100 food delivery company. Shareholders of Just Eat have until Friday to vote on the recommended bid from the Dutch company and it was revealed before Christmas that it had support from 46% of investors, with 50% required. 

Plus 500 has said that industry regulations mean that full-year profit and revenue will likely fall for the first time in three years. Revenue for its latest financial year is predicted to be $354m, compared to $720m in 2018. On the plus side, the company forecasts underlying earnings of $190m, ahead of City expectations of $177m. 


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All eyes on the Middle East after US begins 2020 with drone strike

Important note

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Investors should be aware that past performance is not a reliable indicator of future results and that the price of shares and other investments, may fall as well as rise and the amount realised may be less than the original sum invested.

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