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WEEKLY MARKET ROUND-UP – 10/1/20

Something in the air

Gold surged close to a seven-year high on Monday 6 January ($1,579.72) as investors flocked to the yellow metal and other safe-haven assets such as the dollar and yen due to the sudden escalation in US-Iran tensions. Oil prices also jumped, despite gaining north of 30% in 2019.

Following the US air strike that killed top Iranian general Qasem Soleimani on Friday (3 January) gold soared to its highest level since April 2013, while the oil price moved higher to around $70 a barrel. 

The fallout from Mr Trump’s lethal drone strike on the military convoy in Iraq, combined with the lowest reading for US manufacturing activity in a decade, reduced investor risk appetite with US equities falling to their lowest level since 3 December before subsequently recovering as Iranian reprisals were, initially at least, slow to appear.

However, on Tuesday night (7 January) Iran fired ballistic missiles at two Iraqi military bases hosting US troops, although the Iranian foreign minister, Javad Zarif, swiftly tweeted that while the country doesn’t seek escalation or war, it would defend itself against “any aggression”.

Watch the skies
Stuart Clark, portfolio manager at Quilter Investors, says: “A retaliation of some sort seemed inevitable, but it was the relatively restrained response from Tehran alongside a warning to the Iraqi government, combined with President Trump’s similarly restrained twitter response that potentially reduced the impact on markets.

“The early response from investors appears proportional, essentially replaying Friday’s moves lower but with a much quicker and sharper rebound. That said, until the tensions in the Middle East begin to ease safe-haven assets are likely to continue to prove popular in the short term.”

 

Supermarket sweep

UK supermarkets experienced the worst Christmas period since 2015 as sales growth amongst the leading discount chains Lidl and Aldi failed to offset falling sales among the top four supermarkets.

The ‘big four’– Tesco, Sainsburys, Morrisons and Asda – all suffered lower sales over Christmas while the German discount supermarkets, Aldi and Lidl, continued to eat into their lead with a combined market share of 13.7%. This has more than trebled since 2009, according to figures from Kantar.

Sainsburys was the best performer of the big four with like-for-like sales down just 0.7%, which it blamed on falling toy sales in its Argos business. Morrisons’ sales dropped 1.7%; it cited sustained customer uncertainty. Meanwhile, Aldi pointed to alcohol sales and the popularity of its premium ranges as key growth drivers.

On a (sausage) roll: Greggs

The British baker Greggs has announced staff will share a £7m windfall, which is on top of a £35m special dividend paid to shareholders in October, after a “phenomenal” year in which its shares gained some 80%. This was ostensibly due to the success of its vegan sausage rolls, which have been selling like hot cakes.

Capitalising on “Veganuary”, Greggs has now launched a meat-free version of its Steak Bake using Quorn, which resulted in 20-minute queues in some locales. Meanwhile, Impossible Foods is taking on rival Beyond Meat with the trial of a plant-based sausage patty for some US Burger King restaurants.

It already supplies a burger alternative to Burger King in the US but has been criticised for only having one product while Beyond Meat offers beef, pork and chicken alternatives.

Electric dreams

Elon Musk danced a jig in Shanghai on Tuesday (7 January) with the first deliveries of his locally-built Teslas to ecstatic Chinese customers, barely a year after breaking ground on his new Gigafactory 3.

In a jubilant speech, Musk announced the Model Y would also start rolling off the line soon and that demand for this low-cost SUV would likely outstrip total demand for all other models. He also promised increased investment and a new Chinese design centre aiming to create an “original” Chinese Tesla for export. Last week, Tesla slashed the price of its Model 3s to $46,650; new government subsidies could push this as low as $43,080.

Musk recently announced plans to build his next Gigafactory in Berlin, taking the fight to the beleaguered Germans who this week announced car output had slumped to a 23-year low amid a 13% fall in exports.

Alphabet turns over a new Page

After putting on 28% in 2019, shares in Alphabet, the parent company of Google, surged 3% to a record high on Monday (6 January) taking the company’s valuation close to the $1trn mark.

The sudden move was thanks to a second aggressive hike in analysts’ price targets for the company following the recent departure of legendary co-founders Larry Page and Sergey Brin and the appointment of Sundar Pichai, formerly CEO of Google.

His appointment has been likened to the arrival of Keith Block at Salesforce in 2013 who subsequently delivered explosive growth.

After rallying into the year-end, the US mega-techs made further gains on Monday as investors shied away from the geopolitical risks in the Middle East. Amazon gained 1.5%, Netflix added north of 3% while Facebook rose almost 2% to hit a one-year high despite the antitrust investigations it faces.

No time to die?: Aston Martin

Since listing in late 2018, shares in the storied carmaker Aston Martin have lost around £3bn in value. They swerved again on Tuesday (7 January) falling around 16% when its CEO bemoaned a halving in 2019 annual profits amid tough trading conditions.

Shares in the famous maker of bond cars have now plunged around 75% since they came to market. The company is battling to keep its head above water amid weak European demand and, seemingly, the lack of a decent SUV offering. Aston spent 2019 ploughing cash into a new SUV factory and is pinning its hopes on its first SUV, the DBX, while actively looking for new sources of investment.

Meanwhile, shares in rivals such as (BMW-owned) Rolls-Royce and (Volkswagen-owned) Bentley, both of which have enjoyed record sales thanks to their new SUVs, powered ahead on Monday.

Chart of the week

Christmas hangover: The UK’s supermarkets took a battering this Christmas, despite their best efforts to make us eat our sprouts . The ‘big four’ all saw their market share dip in the period, although German discounters such as Aldi and Lidl still made progress.

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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