Markets

Last Week in the City – a look at the latest market-moving events

This week, a tweet from a member of the Kardashian family wiped $1.3bn off the value of a US tech company, senior managers at housebuilder Persimmon gave up millions of pounds in bonuses and Iran said it may join fellow rogue state Venezuela and launch its own cryptocurrency.

The FTSE 100 fell 0.8% over the week by mid-session on Friday, following a mixed reaction to results from Britain’s biggest banks and London-listed miners. Shares in breakdown service AA slumped after new management was forced to slash its dividend to invest in its business and replay debts.

Economics

UK economic growth was been revised down to 0.4% for the final quarter of 2017 in the second estimate of national income produced by the Office for National Statistics. Slight revisions to the output of growth in both the production and services industries were enough for growth to go from being rounded up to 0.5% to instead being rounded down.

Central bankers appeared less dovish. The minutes of the Federal Reserve’s last rate setting meeting were distinctly hawkish. A majority of Fed policymakers upped growth forecasts in January, making further policy tightening more likely. The minutes of the European Central Bank’s January monetary policy vote also revealed that the governing council’s hawks pushed for a change in the bank’s communications, saying economic conditions were now strong enough to drop a commitment to boost the quantitative easing programme in the event of a slowdown.

There was a rare negative shock for watchers of the German economy. Sentiment among German businesses fell more than expected this month, according to the Ifo survey. Its business climate gauge fell to 115.4 in February, from 117.6 in the previous month. The reading was significantly short of expectations of 117.

Geopolitics

UK government ministers met at Chequers, the prime minister’s official country retreat in Buckinghamshire, to thrash out a Brexit strategy. Theresa May is expected to make a speech next week on the next phase of exiting the EU.

Robert Mueller, the special counsel investigating claims of Russian political meddling in the US, filed new charges against two former aides to Donald Trump. Former campaign chairman Paul Manafort and business associate Rick Gates were charged with multiple counts of tax and bank fraud.

John Redwood, Charles Stanley’s chief global strategist, looks at the two-year budget deal agreed by Congress here.

Fixed income

The market was recently spooked by rising bond yields on fears the Federal Reserve would increase interest rates at a higher rate than anyone expected. Jeremy Spain, Charles Stanley’s bond analysts and bond fund manager explains why we aren’t too worried about rising bond yields here.

Cryptocurrencies

It was another volatile week in the high-octane world of cryptocurrencies, with bitcoin once again trading below $10,000 before recovering some poise.

Venezuela became the first country to launch its own cryptocurrency, called the petro, a move President Nicolas Maduro celebrated as putting his country on the world's technological forefront. Iran’s central bank also hinted it was developing a cryptocurrency that would be administered by the state government.

The UK Treasury said it will conduct an inquiry into issues around cryptocurrencies and blockchain technology. Launched by the Treasury Committee, the investigation will take several angles including examining the role of cryptocurrencies in Britain, including potential “opportunities and risks” for consumers, the business community and government.

France’s financial regulator said that financial products based on cryptocurrencies should be formally regulated as derivatives.

Financials

It was a big week in the sector, with most of the UK major banks reporting 2017 figures. HSBC’s annual results were broadly in line with consensus expectations with revenue just 0.3% below the average consensus and profit before tax 1.5% below. The new Chairman, Mark Tucker, is optimistic about the prospects of the global economy and expects markets across Asia to have a strong year in 2018. The bank cautiously expects loan growth around mid-single digit in 2018

Barclays’ 2017 results were in line with City expectations, but guidance for the dividend payment in 2018 was better than market consensus. Management expect to pay 6.5p in 2018 compared with a consensus view of 5.3p. Issues with its investment bank continued, with revenues at the unit falling 6% in 2017.

Lloyds Banking Group posted results that met expectations and announced a £1bn share buyback. Growth remains elusive. Excluding revenue from MBNA, the credit card business it bought in June 2017, revenue rose just 2.6% year-on-year. Customer loans rose 1% during the year with the mortgage book falling 1% and the commercial loan book 2%.

Royal Bank of Scotland broke its ten-year duck and eked out a profit in 2017, thanks in large part to a big fall in litigation and conduct costs. But the bank is still facing a multi-billion dollar penalty from the US Department of Justice, which is now likely to hit profits in 2018. The shares are sat at about 270p apiece, significantly below the average price of 502p a share paid by the UK government in the financial crisis bailout.

RSA Insurance revealed that profits hit a record in 2017 as strong performances in Canada and Scandinavia offset weaker results in the UK. Pre-tax profits rose 12 per cent to £620m.

Mining

BHP Billiton’s interim results were slightly below market expectations, but its dividend was better than hoped. Copper and oil were the main drivers of the increase in profits, while earnings from BHP’s iron ore business were flat.

Anglo American declared its highest dividend in a decade as it managed to pay back more debt than expected after commodity prices rallied. Following the statement credit rating agency Moody’s issued a statement saying the miner could be on track for an upgrade.

Glencore’s full-year results were ahead of expectations, with continued progress on debt reduction. Chief executive Ivan Glasenberg said the miner had the financial strength to pursue more acquisitions if opportunities arise, according to its chief executive.

Energy

The oil price continued to recover from its recent wobble. Brent crude futures rose 1.9% over the week to trade just above $66 a barrel at mid-session on Friday. US oil exports jumped to a four-month high, easing concerns about a glut of oil building in US storage. There was a surprise fall in US inventories last week.

Following a disappointing profit warning in the third quarter, energy provider Centrica reported earning in line with lowered guidance and did well to deliver on targets for 2017. As expected, the dividend was held flat and management is guiding to a similar level in future. The company is to focus on performance delivery and financial discipline in the period 2018-20 and management intends to sell the group’s interest in nuclear generation assets.

With US crude output rising, Garry White explains why the outlook for the oil price could be bearish here.

Technology

A tweet from reality TV star Kylie Jenner, part of the Kardashian clan, wiped $1.3bn of the value of Snap, the parent of social media app Snapchat. “Sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad,” Ms Jenner tweeted.

Swiss group Temenos has made a £1.4bn offer to buy FTSE 250 listed trading software group Fidessa. However, activist hedge fund Elliott Capital Advisors, which has built up a 5% stake in the group, thinks the bid is too low.

Amazon shares hit $1,500 for the first time on Wednesday afternoon. That brought its year-to-date advance to 28%, after climbing 56% in 2017.

It's not just the birds who are angry. Investors in Finnish-listed games group Rovio were furious as disappointing 2018 guidance caused its share to fall by almost half. The maker of the Angry Birds series of games said revenue will decline this year and adjusted profit will be only 9 percent to 11 percent of sales.

US group Airbnb said it would launch a guest membership programme and new luxury accommodation programme, as it aims to acquire more than a billion annual guests by 2028.

Consumer

Reckitt Benckiser’s shares hit a two-year low following its full-year results. Investors were disappointed that the group’s usual forecast for “moderate margin expansion” was be watered down in 2018 by Mead Johnson, the US-based infant formula business bought last June for $17bn. Margins would also be hit by costs related to last autumn’s decision to split Reckitt Benckiser into two business units. Market rumours continue to suggest that Reckitt may bid for Pfizer’s consumer healthcare assets.

InterContinental Hotels released a good set of full-year results, which were towards the upper end of market expectations. Some investors, however, were slightly disappointed that there is to be no additional return of capital to shareholders this year.

Breakdown service AA saw its shares crash after its new chief executive slashed its dividend payment as he planned an investment spree to turn its business around. For more click here.

Shares in price comparison website Moneysupermarket.com tumbled by a quarter after management told investors not to expect earnings growth in the year ahead.

Healthcare

Shares in Hikma Pharmaceuticals jumped after the company appointed a former executive at Israeli generic drugs giant Teva, Sigurdur Olafsson, to helm the company. The firm’s current chairman and chief executive, Said Darwazah, will become executive chairman.

Outsourcing

Serco shares jumped after it posted a solid set of full-year numbers. The comported 2017 profit in line with its recently-upgraded forecast and reiterated its expectations for 2018. To find out more click here.

Officials from the Pensions Regulator and the auditors of Carillion faced questioning from MPs over their role in the collapse of the construction giant. Members of the Work and Pensions, and Business Committees believe they have a “growing pile of evidence” that those involved with Carillion, including investors and hedge funds, saw warnings of its demise.

Interserve said it will close its power division as part of a restructuring of its industrial business. The move comes a month after the UK government put the company on watch, following the collapse of Carillion.

Property

Persimmon, the UK’s second largest housebuilder, will reduce bonuses payments to senior executives following fierce criticism over high payouts. Chief executive Jeff Fairburn, who was set to receive £110m, will take a cut of around £30m. This represents half of the second slice of his payment.

Barratt Developments, the UK’s largest housebuilder, posted a record first-half profit as demand for newly-built homes across the country remained high.

Property website Rightmove increased 2017 profits by 10% year-on-year after a record number of estate agents list homes on the site. Management said it felt the outlook for online property listings “remains positive”, despite uncertainties over Brexit, as consumers became “increasingly digital”.

Travel

British Airways owner International Consolidated Airlines said pre-tax profit rose 5.6% in 2017, as it unveiled a €500m) share buyback.

More Americans are taking budget flights instead of long-haul coach trips, according to FirstGroup, which owns the iconic US bus brand Greyhound. This means profits this year will be lower than City expectations.

Retail

Shares in homewares group Dunelm plunged after management said its profit margin dropped in the second half of 2017. It said this was caused by its 2016 acquisition of Worldstores, and the selling of “a higher proportion of end of season and seasonal products”.

Media

Investors cheer full-year results from publisher Pearson, which came in at the upper end of its expectations. Management expects long-running problems in its US education business will remain a drag in 2018, but it also expects that weight to be “offset by improving conditions in other businesses”.

Defence

Management at BAE Systems expressed optimism for the next few years despite warning investors its earnings will be flat next year. It said sales will be about 5% lower as activity on its Typhoon fighter jets for its European, Saudi and Oman contracts is largely complete.

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