FTSE 100 falls following Bank of England minutes

UK Investor Magazine
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FTSE 100 falls following Bank of England minutes
The FTSE 100 continued it’s fall on Thursday as the Bank of England held interest rates at 0.5% but moved closer to a rate hike. The Bank of Englands chief economist Andy Haldane changed his stance and voted for a hike in rates, meaning the MPC were split 6-3, increasing the chance of a rate hike at the next meeting set for 2nd August. The minutes released alongside the interest rate decision pointed to the softness in the UK economy experienced in the fast half of this year being reversed, providing justification for members of the MPC to seek interest rates later in the year. “As widely anticipated, the Bank of England Monetary Policy Committee has kept interest rates on ice at 0.5%. With recent data showing UK CPI at 2.4% – above target but below recent highs – and wage growth also being pegged back, there was no chance of a shock rise this week. “The Bank of England does, however, appear to be standing firm on its desire to hike rates in August, even in the wake of recent weaker than expected economic data. After abandoning its widely signalled rate hike in May, Mark Carney is determined to shake off the moniker of the ‘unreliable boyfriend’ if he can,”said Ed Monk, associate director for Personal Investing at Fidelity International.

FTSE 100 sinks

The announcement drove a sharp decline in the FTSE 100 as sterling rallied strongly against the dollar. Some of the biggest fallers in the FTSE 100 were again the house builders who were still reeling from a trading update from Berkeley Group suggesting the housing market was set for a lull which could see thier profits fall – something unlikely to be helped by rising rates. Taylor Wimpey (LON:TW), Persimmon (LON:PSN), Barratt Developments (LON:BDEV) and Berkeley Group (LON:BKG) were down between 2.9% and 3.7% on Thursday. The BoE also commented on asset purchase balance sheet saying rates were likely to be increased significantly before there was any consideration of reducing the balance sheet. Some analysts questioned the substance of the today’s balance sheet comments from the Bank of England suggesting any meaningful action was still some way.

Chinese central bank ends slump with market liquidity

Jamie Gordon
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Chinese central bank ends slump with market liquidity

The Chinese central bank took steps to increase market liquidity on Tuesday and Wednesday, in the wake of the five-day stock market slump.

Following the three-week low reached by stock markets earlier this week, policy-makers in Beijing concluded that a full-scale Sino-US trade war could not be ruled out, but a pragmatic step in the short-term would be to try and increase market liquidity.

As such – having stopped short of quantitative easing – the Chinese central bank opted to lend financial institutions 200 billion yuan (31 billion USD) and fix the yuan rate higher against the dollar. In the aftermath of posting the currency’s biggest daily fall for a year-and-a-half, such steps were deemed necessary to decrease volatility and increase confidence.

Thus far the policies appear to have had the desired effect; gains in China have encouraged the pan-European STOXX 600 to rally 0.6 percent and European auto shares to rise by 0.2 percent. This is promising, considering European auto shares is a sector that is particularly vulnerable to US tariffs.

However, such rallies are only a step in the right direction. European auto shares have declined 2 percent in the last five days alone, and such scenarios could be repeated in the coming weeks.

According to Francois Savary, chief investment officer at Prime Partners, “The framework is set: there is monetary policy tightening, less liquidity, more geopolitical uncertainty and an economic situation which in Europe at least we need to be more cautious about.”

Going forwards, it is expected that further efforts will be made to increase liquidity. A Chinese central bank paper has stated that cuts to banks’ reserve requirement ratios will be used to loosen monetary conditions, and on Wednesday China’s cabinet pledged to use “targeted RRR cuts”. However, the threat of monetary policy tightening by the US central bank and Sino-US tariff tensions still loom, and the way the markets will react to this uncertainty is unknown.

Mears Group shares up on “encouraging progress”

Miranda Wadham
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Mears Group shares up on “encouraging progress”
Shares in housing services firm Mears Group (LON:MER) rose over 3 percent on Wednesday morning, after the group said it had made “encouraging progress”. In a trading update ahead of first-half results, the company said revenues in its housing division had stabilised and that full year results were likely to be in line with market expectations. The group, who supply supporting services to the property and care sectors, said the housing division had secured new work of around £70 million. The care division also had a ‘good’ first half. The housing bidding pipeline was “considerable” and included two opportunities that were very significant in scale, Mears said. “The group has made encouraging progress and is at an advanced bidding stage on a number of these,” it added. Shares in Mears Group (LON:MER) are currently up 3.18 percent at 324.00 (0859GMT).

Wynnstay shares up as “farmer confidence” returns

Miranda Wadham
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Wynnstay shares up as “farmer confidence” returns
Agricultural products supplier Wynnstay Group (LON:WYN) reported a 16 percent rise in first-half profit, as confidence returns to the market. Profit for the six months to April rose to £4.9 million, recording growth across both its agricultural and retail divisions. Revenue from continuing operations rose 10.3 percent to £218.5 million. Revenue from its agricultural division rose 9.9 per cent to £160.1 million, while operating profit saw a 33 per cent boost to £2 million. The group attributed the strong performance to a return in “farmer confidence”. The company declared an interim dividend of 4.41p per share, up 5% on-year. CEO Ken Greetham, who is set to retire from the group in early July, said: “Wynnstay’s interim results are encouraging, with the group’s stronger performance reflecting the long-awaited upturn for the agricultural sector, which started to come through in 2017. “The continuing improvement in farmgate prices has boosted farmer confidence, and demand across most product categories was higher year-on-year. Demand for feed also benefited from the prolonged winter. “Trading remains in line with overall budgets and the group is well-positioned to meet current market expectations for the full year.” Shares in Wynnstay rose 1.97 percent in early trading to hit 466.50 (0847GMT).

British Land shares rise after a “good” start to the year

Miranda Wadham
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British Land shares rise after a “good” start to the year
Property group British Land (LON:BLND) reported a strong start to the year on Wednesday sending shares up around 1.2 percent in early trading. The group said that 45 percent of the estimated rental value across its new developments at London’s Broadgate was let or under offer, with 63 percent of its total development pipeline let or under offer. British Land, the UK’s second largest property group, added that tech and creative businesses Onfido, Tessian, Neyber and Publica had now signed at 3FA, demonstrating the new Broadgate development’s appeal. “This is a good start to the year. These lettings are a strong endorsement of our campus strategy as well as everything we have done to evolve our offer at Broadgate,” Tim Roberts, Head of Offices said. Shares in British Land are currently trading up 1.23 percent at 688.80 (0827GMT).

Berkeley Group up profit guidance, but warn on subdued markets

Miranda Wadham
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Berkeley Group up profit guidance, but warn on subdued markets
Shares in high-end housebuilder Berkeley Group (LON:BKG) fell 3 percent on Wednesday morning, after warning on a continued subdued market. The group raised their profit guidance for the year, after annual pre-tax profits rose 15.1 percent to £934.9 million in the 12 months to the end of April. However, weak demand meant that the company sold less properties throughout the period, sending revenue down 0.7 percent. The average selling price of properties increased by 5.9 percent, but the group still halved their total dividend to 146.7 pence per share from 254.6 pence per share “While the underlying demand for new homes remains strong, the housing market in London and the South East has remained subdued over the last year, in spite of the well documented endemic under-supply,” said Rob Perrins, chief executive. However, a brighter spot came for investors with the news that Berkeley would be raising its pre-tax profit guidance for the two years ending 30 April 2019 to at least £1.575 billion. Shares in Berkeley are currently trading down 3.12 percent at 4,008.00 (0817GMT).

Tariff wars hit stocks of European multinationals

Jamie Gordon
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Tariff wars hit stocks of European multinationals
Many European automotive, tech and retail multinationals saw their shares fall on Tuesday, amidst tensions created by the ‘tariff war’ between China and the US.

Following proposed tariffs on a combined 250 billion USD worth of goods between the US and China, protectionist agendas on both sides have sparked an extended sell-off of European shares and caused the pan-European STOXX 600 to drop 0.9 percent within the first forty-five minutes of trading.

Aside from notable losses by UK retailers, other points of reference include the Airbus Group, which is down by 4.4 EUR in the last five days and 1.8 EUR since markets opened on Tuesday morning.

Similarly, Daimler, BMW and Volkswagen have struggled to price in higher tariffs and in turn, the STOXX 600 autos sector dropped to its lowest point this year. Perhaps the worst affected was Volkswagen, who are down almost 9 EUR in the last five days.

Britta Wiedenbach, head of European equities at DWS, warned that the automotive sector “was one of the main sectors that could potentially be impacted by import tariffs”, adding that the trade discussions between the US and China were not helpful.

Going forwards, some form of US-Chinese reconciliation is vital for European stocks. Some 27 percent of European trade revenues come from the two countries alone and even the tech sector – which rallied to its highest point in seventeen years last Friday – has seen a drop of 1.8 percent.

   

China stocks plunge to two year low as Trump continues trade threats

Safiya Bashir
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China stocks plunge to two year low as Trump continues trade threats
China stocks fell to a two year low as Trump threatened a further $200 billion (£152 billion) of tariffs against China. The Shanghai Composite Index plunged almost four percent while the yuan fell to a five-month low against the dollar following threats of a trade war. Zhang Yidong, strategist at Industrial Securities wrote in a note on Tuesday: “It’s the darkest hour and the most agonizing moment in the first half of this year…there are disaster victims everywhere.” Last week, China responded to Trump’s plans to place a 25 percent tariff on $50 billion of Chinese goods by promising its own tariffs on the same amount of US goods. On Monday, Robert Lighthizer, the US Trade Representative was told by Trump to identify $200 billion worth of Chinese goods to impose tariffs, if Beijing went ahead with the proposed tariffs. Trump said: “China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology.” “Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.” “But the United States will no longer be taken advantage of on trade by China and other countries in the world,” he added. Fiona Cincotta, senior market analyst at City Index, said: “The list of who threatened what is getting long. With both sides seemingly determined to retaliate it is hard to see how this will end without a bloodshed for business, particularly US businesses.” “The Federal Reserve’s officials have already warned that Trump’s tariffs are scaring companies from making new investments.” “Ironically, though the two countries had made some progress during trade talks earlier this year when China agreed to reduce the trade imbalance with the US, the deal ended up null and void after Trump resumed his threats almost as soon as the Chinese delegation left Washington,” she added.  

E.ON announces 4.8pc price hike

Safiya Bashir
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E.ON announces 4.8pc price hike
E.ON (ETR: EOAN) is increasing prices for the second time this year, affecting almost two million households. The average price increase is expected to add an average of £55 to customers, a hike of 4.8 percent. “A number of costs have risen quite sharply and in particular we’ve experienced a hike in the price we have to pay for the energy our customers need, partly driven by the beast from the east and extreme weather conditions experienced earlier this year,” said Michael Lewis, the E.ON UK chief executive. The energy supplier blamed wholesale energy costs for the rise in prices. According to E.ON, wholesale energy prices have increased by over a fifth since its last big price hike last year. Some of the group’s customers also faced an increase of up to £50 in March. The changes are expected to come into effect on August 16 and will bring the total average annual bill to £1,208. The group will notify customers in the coming weeks and has said it will also suggest they switch to cheaper fixed tariffs. “Those changes led to the removal of discounts and a change to the standing charge for people who pay on demand by cash or cheque,” said a spokesperson for E.ON. “This is an increase in unit price, which makes us the fourth cheapest of the big six suppliers.” E.ON is not the first of the big six energy suppliers to announce price hikes this year. British Gas (LON: CNA) customers have seen prices increase by 5.5 percent or £60, EDF (EPA: EDF) raised bills by an average of 2.7 percent or £16 and SSE (LON: SSE) saw prices rise by 6.78 percent or £76 a year. Ofge, the UK energy regulator, is bringing the government’s cap on standard variable tariffs into effect by the end of 2018.    

Morning Round-Up: Markets down, dollar down

Miranda Wadham
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Morning Round-Up: Markets down, dollar down
The FTSE 100 opened down on Tuesday morning, and the pound fell to its lowest level in a year against the dollar.
The FTSE 100 opened down 0.88 percent, or 62.88 points at 7,568.56, with other European markets following suit. The DAX is currently down 1.73 percent down to 12,612.09, with the IBEX down 1.42 percent to 9,631.00. The biggest risers on the FTSE on Tuesday are Ferguson plc (LON:FERG), up 1.61 percent and British American Tobacco, up 0.83 percent. The biggest faller is Ashtead, which is trading down 6.16 percent after releasing their full year results. The pound also fell to its lowest level in a year against the dollar, down to $1.32, with an escalation in the global trade dispute on the cards.
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