Please find this week’s edition of Weekly Digest attached.
The FTSE 100 closed 0.64% lower today, as the pound climbed to a six-week high on the back of positive UK GDP data and a more optimistic Brexit backdrop. The UK economy grew by 0.3% in July, outpacing estimates for a 0.1% reading, at the same time as Boris Johnson confirmed to his Irish counterpart Leo Varadkar that he wants to agree on a deal with the EU.
Overnight, Japan Q2 GDP data was revised downwards from 1.8% to 1.3% on an annualised basis, which is in-line with expectations. The Chinese central bank took action to boost its economy on Friday, by cutting the reserve requirement ratio (the amount of cash banks have to keep in reserve) to the lowest level since 2007. As far as central bank activity goes, however, all eyes this week will be on the European Central Bank to see what measures Mario Draghi unveils in his penultimate outing before Christine Lagarde takes over in November. At the moment, the market is expecting a modest interest rate cut of 0.1% and/or a further package of asset purchases (of up to €30 billion a month), along with a potential extension of the TLTRO programme (long-term loans to banks as an incentive to increase their lending).
Turning back to Brexit, the weekend headlines suggested that the government has a cunning plan up its sleeve to try and sidestep the law, potentially via the use of the Supreme Court. A recent poll suggests that the Tories’ current c. ten-point lead could evaporate if the government fails to deliver Brexit before 31st October, explaining Johnson’s urgency to go to the polls.
In company news, CYBG (owner of Virgin Money) made a surprise announcement last week that it had seen an unexpectedly large late surge in PPI compensation demands. Today it was the turn of Lloyds to announce an additional £1.2bn- £1.8bn in Q3 claims and, as a consequence, the suspension of this year’s £1.75bn buyback which had c. £550m to run.
Eddie Stobart Logistics has confirmed today that it has received a takeover offer from DBAY, a private equity house (that brought it to the market in 2017). There is no indication of the level of the offer, and with the shares still suspended, it is unclear what the proposed price was. This firm has the ugly mix of having been caught up in Brexit-related concerns and Woodford as its largest shareholder. It is interesting to see the bid approach and it will not be the last for a UK-focussed name, in our view, given sterling weakness and Brexit uncertainty contributing to the UK stockmarket underperforming many of its overseas peers, as highlighted in my covering email last week. We have already seen interest in UK names for businesses such as Merlin Entertainments (Alton Towers), Greene King pubs, the defence firm Cobham and Entertainment One (Peppa Pig) amongst others.