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October 30, 2018

Pegler’s market report – 30.10.18: A cocktail of factors cause a rollercoaster week on the stock markets


in Insights Press Releases

As published in the Brighton Argus (30.10.18) Business section under the title Pegler’s Market Report:

A cocktail of factors cause a rollercoaster week on the stock markets

A cocktail of factors including deteriorating relations with Saudi Arabia, the US/China trade war, Italian debt worries, falling corporate earnings, no progress with Brexit talks and concerns about rising interest rates are all weighing on markets.

Much of the gains made by the US in 2018 were wiped out in a matter of days amid fears that corporate earnings had reached their peak. Amazon delivered record profits of almost $3bn for the last three months, but revenue growth was slower than expected. Alphabet also missed analysts’ revenue expectations. The parent company of Google was also under pressure after a New York Times report alleging that it paid executives after they were accused of sexual harassment. Fortunately, some slightly more positive news from Comcast, Microsoft, Tesla and Twitter halted the stock slide that has plagued markets so far in October.

The ructions on UK and European indices followed nerves in the US, where investors were starting to question the valuations of large firms.

The MSCI all country world index, which tracks shares across stock markets in 47 developed and emerging countries has dropped by 9pc since the start of the month, the second largest sell-off of the year following turmoil in February. A fifth consecutive week of losses would represent its worst period since May 2013.

UK manufacturing reported new orders falling at the fastest pace in three years. Investment plans were torn apart and amid falling optimism thanks to the stuttering Brexit negotiations.

The Confederation of British Industry’s industrial sector survey found a balance of 6pc of companies reporting lower orders in the quarter to October, down from a -1pc balance in the previous survey as both domestic business and export orders both fell. Worryingly, a balance of 4pc of manufacturers expected new orders to fall over the coming quarter. Investment intentions – an important leading indicator – fell significantly for the year ahead, making it harder for companies to grow. A balance of 19pc of companies in the manufacturing sector said they were going to cut back on spending on plant and machinery, the sharpest drop since July 2009.

On the corporate front, and trying to end with some good news, Barclays reported a strong rise in profits. The group’s pre-tax profits rose 32pc to £1.5bn in the three months to 30 September. Net profit came in at £1bn for the quarter, versus £583m a year ago, on revenue of £5.1bn. Income at Barclays’ investment banking arm rose 19pc to £1.2bn during the quarter, seeming to vindicate the strategy of chief executive James Staley to allocate more capital to the group’s trading business. The encouraging results suggest the bank is on track to deliver management’s medium-term target of 10pc return on equity (ROE). Management also reiterated its intention to pay a 6.5p dividend this year and hinted at significantly higher capital returns further ahead.

By David Pegler, Brighton Capital Management

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