Doubts over 2014 Interest Rate Rise

The S&P 500 hit a 2 week high this week after weaker than expected retail sales figures pushed back expectations for the first rate hike.  Slowing auto demand suggests disappointing wage growth is to blame.  It’s a similar story closer to home with the Bank of England quarterly inflation report confirming the gap between inflation and salaries is widening. The market now expects the first rate rise in Q1 2015, although Barclays and Deutsche Bank still expect November to be the lift off date.

The battle between Carillion and Balfour Beatty continued this week.  After Balfour rejected a recent merger proposal, Carillion issued a reply to the rejection and brought forward its first half results. Decent results were overshadowed by a statement highlighting the significant cost synergies thought to be achievable by combining the two groups.  It’s now up to Balfour shareholders to persuade its board to come up with a creditable alternative to remaining independent or succumb to Carillion’s advances, creating a major new UK force in support services and construction. However, Balfour have since issued another statement reiterating their rejection of the merger proposal.  Carillion is now faced with the options of a hostile bid or walking away.

G4S, which has its head office in Crawley, released first half results which were better than expected. Underlying pre-tax profit was up 6% and organic revenue growth up 4.1%.  Improvements in both emerging and developed markets were partly offset by a rise in corporate costs.  A 25% increase in cash flow from operations suggests that management are slowly getting to grips with the company.

Centamin Egypt announced its first dividend to investors despite weak production volumes from its Egyptian gold mine.  It maintained full year guidance which suggests the company is confident delivering more output in the second half of the year. There was no update on the on-going court battle in Egypt over its licence to mine, but profit sharing with the Egyptian government is likely to begin in 2016.

Markets Stay Firm on the ‘Hole’

It was a very good week for US data, with the manufacturing PMI and better than expected job numbers, sending the S&P500 to another record close - something it hasn't done since July.  That said all eyes were on Janet Yellen’s announcements following the Jackson Hole symposium where the great and good of the central banking world meet on an annual basis.

HellermannTyton, registered in Crawley, released strong half year results, slightly ahead of expectations. Revenues grew by 9.3% to €292.4m with pre-tax profit rising by 42.1% to €40.9m. Improvements were seen across all regions, but were slightly hampered by currency movements.

The saga between Carillion and Balfour Beatty continued this week with Balfour rejecting the fourth approach.  This led to Carillion announcing they will walk away from the deal.

Quindell, with operations in East Grinstead, found itself under further attack this week responding via the website to more allegations of wrong doing.  Following this they issued seemingly robust half year results that saw revenue more than double to £357.3m, with pre-tax profit standing at £123m. Despite this the shares fell on the day and finished the week 6.3% down.  Clearly investors still have doubts.

The housing market appears to be continuing at full steam with Bovis Homes reporting 3530 homes sold in the first 32 weeks, 41% higher than the same period in 2013. They also sprung a surprise detailing its plans to pay an enhanced dividend of 35p in 2014 and at least 35p in 2015.

D3O, Portslade based makers of advanced orange goo made national press this week with a glowing review of its new wonder-material.  With familiar qualities, D3O is soft when handled slowly but stiffens on impact, making it appropriate for a range of domestic and industrial usage.  A company clearly on the up! 

Little good cheer in another week of geopolitical worries

Despite the current market malaise and worrying geopolitical news, shares in Intertek, the multinational inspection and product testing company with operations in Haywards Heath, were buoyed by upbeat analyst comments in the wake of decent half year results. Intertek has been struggling of late as the company attempts to exit from low margin contracts, whilst facing a slowdown in new orders from the oil and gas industry. Export bans and bad weather have also taken their toll. Having fallen by 18% from the last trading update in May investors reacted positively to news of a potentially better second half.

It wasn’t such a pretty picture for the likes of InterContinental Hotels. The shares were marked lower on their half-year figures that were not expected to result in significant market upgrades. A bias to mid-market brands like Holiday Inn has helped the company outperform the industry in tough times. The hotel group has also seen good growth exposure to China and the Asia Pacific region, with an attractive pipeline of new rooms.

Staying with the fallers, Royal Mail shares reached their lowest level since its initial public offering. Some analysts now believe Royal Mail will miss its 2015 margin guidance, coming under increasing, albeit well-flagged, competitive pressures by rival TNT Post UK.

The newly merged consumer electronic group, Dixons Carphone, created from the £3.8bn. tie-up of the high-street phone retailer and PC World owner succumbed to wider market weakness and closed lower on its stock market debut as a newly merged company. 

In a week of trade war talk, military escalation in Russia / Ukraine and new tensions in Iraq it is not surprising that holding gold is gaining appeal once again. The flight to safety was also evident in the bond markets, with the yield on 10-year US Treasuries testing its lowest level since May.

Pets at Home, Taylor Wimpey, Rightmove, J Sainsbury, Tesco, IAG and US jobs data

There was some good cheer from a few companies, which have operations in the Sussex region. Pets at Home was a climber after posting a better than expected increase in sales for the first quarter. The housebuilder, Taylor Wimpey, was also favoured on news that it will boost its 2015 special dividend to a £250m payout. Rightmove followed its lead by raising its interim dividend by 2p to 13p.

Following on from Tesco’s woes J Sainsbury found itself on the wrong side of an analyst’s report, unfortunately in this instance from its own house broker. A downgrade by a house broker usually has more weight with investors, as they generally tend to be more positive about their clients’ prospects. In Sainsbury’s case Morgan Stanley’s retail experts were unsettled by the recent changes at rival Tesco and believe Sainsbury’s control over its destiny has weakened.

British Airways owner IAG has moved into profit for the first half of the year after an improved performance from its Spanish airline, Iberia. Group passenger numbers increased to 35 million from 29 million in the first half of 2013. Iberia’s restructuring continues to have a positive impact on the group and 16 new aeroplanes have been ordered for the Spanish airline.

More broadly world markets were on the back foot during most of last week as concerns about the stability of Portugal’s banking system weighed as did worries about Russia, Gaza and the Argentine debt default. Elsewhere the US added 209,000 jobs in July, adding to optimism that the country’s economy is roaring once more. The biggest job gains were in professional business services and manufacturing jobs. Some economists had been expecting even better data but nonetheless this was a decent enough number and certainly welcomed in a week of worrying geopolitical news.

GlaxoSmithKline, Tesco and update on Britain's economy

Earnings news at GlaxoSmithKline (GSK), unsettled investors and the share price dropped to levels not seen in over a year. Having earlier told the market to expect an increase of as much as 8% the company warned its earnings are more likely to be flat this year. Like many other global companies, Britain’s biggest drugmaker has been hurt by the strong pound, which was partly responsible for its recent disappointing second quarter results. GSK employs over 97,000 people in over 100 countries and has a sizeable operation in Worthing.

Another global company and large employer in Sussex that came back on the ‘radar screen’ was Tesco. It shares have also fallen to a year low on news of the departure of their chief executive and yet another profit warning. Apparently Tesco’s participation in the year’s supermarket price war has proved ineffective, with the group remaining 6% more expensive than Asda on branded products. The failure of the company’s ‘Build a Better Tesco’ UK strategy 3 years on from its launch was another reason for the CEO’s exit.

Britain’s economy is now bigger than it was at its pre-financial crisis peak, after official data showed gross domestic product increased by 0.8% in the second quarter of the year. It may not always feel like it but our economy is growing faster than those of every other developed country, which has recently been confirmed by the International Monetary Fund, who upgraded their forecast from UK growth to 3.2% this year and 2.7% in 2015, describing the numbers as an ‘upside surprise’. However, the IMF warned in its quarterly World Economic Outlook that the crisis in Ukraine and continued unrest in the Middle East risked creating an oil price spike that could destabilise the global economy.

Back to a bit of local news and good cheer – it was a pleasure supporting the Juice 107.2 Appeal and their ‘Biggest Breakfast’ event. Thank you to all those Sussex coffee shops and restaurants that kindly helped to make the morning a great success.

Sports Direct, AbbVie, Shire, Meggitt, ITV, Trinity Mirror, 21st Century Fox and Time Warner

Last week drew to a close in a subdued manner following the Malaysian Airways disaster on Thursday afternoon and further news of Israel’s offensive in Gaza.

In the UK, the British Retail Consortium reported a surprisingly weak set of like-for-like sales numbers for June. That came ahead of the announcement that inflation had surprisingly increased to an annual rate of 1.9% in June. This news has added fuel to the fire in terms of when the Bank of England will move on interest rates. That said, the core inflation measure has been unusually volatile over the last four months, swinging 0.4 percentage points per month, so any conclusions should be made with caution. Expectations that a first rate hike could now come as early as the end of 2014 has lifted Sterling further.

On the company front, Sports Direct beat earnings estimates with a 15% increase in annual underlying operating profits. However, the stock sank into the red as the company said recent strong trading was offset by England's disappointing performance at the World Cup. Mike Ashley, the group’s controversial controlling shareholder was also in the news this week after he turned down his controversial inclusion in the group’s bonus plan for 3,000 of its permanent employees.

Takeover activity remains high with the US drug company AbbVie taking over Shire Pharmaceuticals in a deal that values the group at £32bn. Elsewhere, aircraft parts maker Meggitt was boosted by takeover speculation as was ITV and Trinity Mirror. Deal-making in the media sector is definitely picking up, with Twenty-First Century Fox making a play for Time Warner, which was rebuffed.

A number of large companies will be updating the market this week, however it is likely that geopolitical concerns will continue to occupy investors’ minds for a while longer yet.

IAG, easyJet, TUI Travel, Thomas Cook, Greggs, SSP and Banco Espirito Santo

On a poor week for the wider stock market, UK airline shares lost further altitude, following a profit alert from rival Air France-KLM. International Airlines Group (IAG), owner of British Airways and Iberia, and the low-cost carrier, easyJet, slid after its Paris-based peer slashed guidance for full-year earnings, due to overcapacity issues on its long-range routes.

The alert dented investor confidence in other travel-related stocks. Local Crawley-based TUI Travel also felt the pinch, as did Thomas Cook. Dealers said that nervousness about the Middle East, particularly a possible invasion of Gaza by Israel, also weighed on sentiment towards the sector.

Shares in Greggs slid after announcing that its third biggest shareholder, Troy Asset Management, had offloaded its entire 5.4% stake in the baker. Some 5.5m shares are understood to have been sold at 536½p apiece.

SSP, the business behind the Upper Crust and Caffe Ritazza food chains, which has a number of outlets in Sussex, made a successful debut as a listed company with a market value of just under £1bn. Shares in the group, which is led by former WH Smith boss Kate Swann, were priced at 210p, 5.5 times oversubscribed and initial trading was at a premium. Private equity-owner EQT is expected to remain as a major shareholder.

Wall Street has retreated from its recent highs, following the FTSE 100 and European bourses lower amid worries about the health of the Portuguese financial system and other peripheral eurozone nations. Investor concerns are centred on Portugal and the health of Espirito Santo Financial Group (ESFG) and Banco Espirito Santo (BES), the country's biggest-listed lender which has an investment banking business in London.

As equity markets were sold-off investors took shelter in the precious metals miners and physical gold and silver were back in demand.