Weekly Digest - INVESTEC
Please find attached today’s Weekly Digest
The FTSE 100 closed 1.8% higher today, while broader Asian indices closed modestly lower. The Kospi (-1.78%) and the Hang Seng (-1.03%) led declines, with the ongoing protests in Hong Kong weighing on the latter. It was a busy weekend of corporate developments, with the London Stock Exchange Group announcing a £22 billion all-share offer for Refinitiv (a financial data firm) and Just Eat finding itself on the end of an approach from the Netherlands’ Takeaway.com. Both announcements lit the fuses under the respective names, with Just Eat closing up 23% and LSE up 15%, leading the UK market higher.
PM Boris Johnson’s high-level Brexit cabinet held its first meeting today, led by Michael Gove, after a number of key EU figures indicated that they are not willing to renegotiate Theresa May’s original withdrawal agreement. According to the bookies, the odds of both a no-deal Brexit and a General Election before 31st October strengthened in the wake of that rebuttal, which prompted another nudge down for the pound. Several investment bankers have commented that there is increasing interest in UK domestic companies from international investors, seemingly tempted by the friendless ratings of some UK stocks. The chart below from Liberum illustrates the yawning chasm that has opened up in share price performance between internationally-exposed UK shares and the domestic equivalent; the past couple of days have seen this gap become the largest since the referendum vote.
In broader market news, the S&P gained 0.75% on Friday to close at a fresh all-time high and making the year-to-date total return 22.1% in dollar terms. The Communication Services sector led the charge on Friday, gaining 3.25% thanks to Alphabet’s near 10% gain on the back of very well received Q2 results and a raft of broker upgrades. We are approaching the midway point in the US results season now, with a further 168 S&P 500 companies due to report this week. Thus far, average earnings per share growth of 0.7% is better than the modest contraction expected.
The macroeconomic highlight this week will be the meeting of the Federal Reserve on Wednesday. At the moment, the market is pricing in a 0.25% cut in interest rates with a smaller chance of a 0.50% cut. If rates do move lower, this will be the first cut in US interest rates for more than a decade. Either side of this release, the Bank of Japan meets tomorrow and the Bank of England on Thursday. No change in policy is expected from either, but the rhetoric is expected to be dovish. On the US-China trade front, Messrs Mnuchin and Lighthizer travel to China today for talks starting tomorrow. This will be the first face-to-face conversation since the impasse was broken at last month’s G20 summit. We also have Eurozone Q2 GDP data on Wednesday, with year-on-year growth anticipated to be 1.0%.
This week sees a blockbuster schedule of corporate reporting, with updates from Reckitt Benckiser, Procter and Gamble, Electronic Arts, Apple and Barclays to name a few.