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WEEKLY MARKET ROUND-UP – 06/12/19

And things were going so well…

European equity markets started December in fine fettle with three consecutive months of positive returns in the rear-view mirror. On Monday (2 December) they were initially pushing back toward four-year highs after numerous purchasing manager indices (PMI) came in better than expected suggesting that the economic outlook might have stabilised.

However, late in the day they lurched to a two-month low thanks to Donald Trump who landed in the UK for a NATO conference.

Before leaving the US, Mr Trump tweeted that, due to currency devaluation and the hardships it caused for US farmers, he was re-introducing tariffs on metal imports from Brazil and Argentina.

Credit: Michael Tubi/Shutterstock.com Markets headed south and, within hours of landing, the president had variously promised to slap ‘100% tariffs’ on all French trade, backtracked on when his ‘phase 1’ trade deal with China might be signed and called Canada’s prime minister “two-faced”.

The Eagle has landed

As Quilter Investors portfolio manager Paul Craig observes, “This week’s market gyrations illustrate three key themes we’ve been talking about for some time. The first is that economic growth isn’t the only driver of investment returns; European companies make a lot of money overseas and patient investors like us are now being rewarded.

“The second is the uptick in economic data we saw this week. This underlines that the economic outlook isn’t nearly as dire as it’s being painted by bond markets.

“Lastly, this week showed just how easy it is for political actors to churn up the waters.
Markets suffered a bout of the ‘DTs’ this week,” he says; “but, fortunately, it’s likely to be short lived.”

Ted Baker investors lose shirt

The UK fashion firm Ted Baker saw its shares fall to the lowest level in a decade after it revealed on Monday that it may have overstated its inventory by up to £25m.

It appointed law firm Freshfields Bruckhaus Deringer to conduct an independent investigation into the company’s stock levels, and although Ted Baker said it should have no cash impact, its shares dropped as much as 15% on the day.

The firm’s share price has declined around 74% so far in 2019 putting it on track for its steepest yearly fall.

This is the latest in a series of setbacks for the company in the past year, which have included a number of profit warnings and a change of CEO after founder Ray Kelvin stepped down following a misconduct scandal a year ago.

Apache retreat

The US oil explorer Apache saw its shares plunge 13% on Monday after progress reports from its make or break prospect off the coast of Suriname in South America were distinctly foggy.

Apparently, the driller had nothing good to say about its two 20,000 feet exploratory drills in its first well nor its ongoing +22,000 feet target well. The disconcerting lack of colour on what’s considered Apache’s best asset for future crude production sent the shares sharply lower. However, it was quick to re-emphasise that it’s drilling just a few miles down the coast from ExxonMobil’s lucrative strike off the coast of Guyana.

Suriname looks like a ‘Hail Mary’ pass for Apache, which suddenly lost its exploration chief recently and is now making widespread layoffs in the face of mounting losses and falling output from its once prized Alpine High assets in West Texas.

Ocado raises cash for new automation projects

The online grocery and technology company has announced plans to raise £500m through the issue of convertible bonds to help fund its robotic warehouses in Asia and elsewhere.

Best known for its grocery partnership with Waitrose, which is being replaced by Marks & Spencer from September 2020, Ocado has also clinched a number of deals to supply grocery partners around the world with robotic technology for their warehouses.

The firm has sold 38 automated warehouses to the likes of Kroger and Casino and recently secured its first deal in Asia with Japan’s Aeon.

Ocado’s shares slumped as much as 8% on the news as analysts questioned the speed at which it’s consuming cash. Ocado said the bond issue allowed it to “diversify its funding sources and capitalise on attractive issuance conditions”.

Sitting on a gold mine

This week the British gold miner Centamin rejected a £1.47bn ($1.89bn) all-stock takeover bid from the acquisitive Canadian gold digger Endeavour. The offer, which equated to £126.27 per share – a 13% premium to Centamin’s closing price on Monday – pushed its shares up north of 7.5% taking it briefly to the top of the FTSE 250 Index.

Centamin is playing coy with its one asset: the Sukari project in Egypt. Endeavour is hoping to roll this into its portfolio of four West African mines much to the benefit of the Egyptian gold mining billionaire Naguib Sawiris, its largest shareholder.

The deal is the latest in a ‘gold rush’ that’s broken out in the sector thanks to rising gold prices and years of cyclical under investment. Recent months have seen both Randgold being snapped up by Barrick Gold and Newmont taking over Goldcorp.

Road rage: UK courts pursue VW

Tens of thousands of UK motorists who bought Volkswagen diesel cars have brought the UK’s largest ever legal action against VW in the wake of the ‘dieselgate’ scandal of 2015.

Four years ago, VW admitted 11 million cars globally, including 1.2 million in the UK, had software that reduced emission readings. The UK High Court case, which is expected to take two weeks, is focusing on whether the software is a “defeat device” under EU regulations.

VW said it’s robustly defending its position, arguing claimants did not suffer any losses and it had not broken any English laws. The company previously agreed a deal in the US that saw it pay $25bn to settle ‘dieselgate’ claims. However, it has not reached a similar deal in Europe and, instead, has offered a software update.

Chart of the week

Emerging from the shadows: The size of the informal economy as a share of GDP continues to
fall across all regions. There are few official statistics on the ‘shadow economy’, but technologies
such as satellite photography and online data are making it easier to pierce the shadows.

If any article in this market update has an effect on your finances and you would like professional advice, then please get in touch.

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