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WEEKLY MARKET ROUND-UP – 18/11/19

UK’s booming entertainment sector holds off recession

After GDP growth retreated 0.2% in the second quarter, the UK economy narrowly side-stepped a recession (two consecutive quarterly declines) by delivering 0.3% growth in the third quarter thanks to the strength of the UK services sector and, in particular, our booming film, TV and music sectors. Even so, annualised growth slowed to 1% – from 1.3% at the end of the second quarter – its lowest level in almost a decade.

Britain’s got talent

According to the Office for National Statistics (ONS), Britain’s appeal for film and TV producers has been a leading growth driver Credit: Top left: Featureflash Photo Agency, BL: Denis Makarenko, BR: Christian Bertrand all Shutterstock, TR: imdb.com for the past two years, while our music and gaming industries also continue to punch above their weight. They helped the information and communication sectors to grow 0.8% in the third quarter.

Downton Abbey, now a major global export, helped to lift the quarterly figures as did the filming of the latest James Bond offering, No Time to Die. Meanwhile, global chart-toppers such as Lewis Capaldi, Ed Sheeran and, most notably, Jess Glynne also helped to tip the scales in the UK’s favour.

There were over 200 films and 120 glossy TV shows shot in the UK last year generating over £3bn in revenues. With the ‘streaming wars’ heating up, more business is on the way; Netflix alone has reported plans to spend £400m on over 50 new UK-made TV shows and films in the coming year.

Meanwhile, the wider economy continues to struggle with Brexit uncertainty.

Although the construction sector grew a welcome 0.6%, manufacturing was flat, despite a bounce in car production.

Swiss drugmaker sets Funk free

Lonza Group, the Swiss multinational, chemicals and biotech business, this week said goodbye to its second CEO in the space of 10 months with the shock announcement that Marc Funk, who only took the job at the start of March, is leaving quoting “personal reasons”.

According to the company, Funk will be replaced in the interim by the group’s chairman Albert Baehny while a replacement is sought. Baehny joined the board last year and within months of his arrival, the previous CEO of seven years, Richard Ridinger was announcing his shock ‘retirement’ from the company.

Funk, is slated to remain with the company until January 2020. Lonza suffered a steep fall in first-half profit due to losses from the sale of its water concern and continuing strife at its speciality ingredients business.

The holiday’s over for Expedia and TripAdvisor

Shares in the online travel stocks Expedia and TripAdvisor went off a cliff last week as both widely missed earnings forecasts and blamed Google’s search engine for their woes.
Shares in Expedia fell almost 28% last Thursday (7 November) while TripAdvisor shares declined by around 27%.

Expedia reported earnings of $3.38 per share, a long way short of the expected $3.80 although revenue and gross bookings were only just shy of estimates. Slowing growth in Vrbo (its home rental platform), falling revenues at Trivago and changes to Google’s search algorithm, which have cut its visibility and require greater paid advertising, all took a toll.

Meanwhile, TripAdvisor, missed on both thirdquarter earnings and revenue forecasts with
the latter down some 7% on last year.

Brexit could trigger UK rating cut

Ratings agency Moody’s warned on Friday (8 November) that the UK’s credit rating could be cut further due to the uncertainty of Brexit and rising UK debt levels.

It downgraded its outlook on UK credit from stable to negative, stating the “paralysis” of Brexit had weakened the UK’s institutional framework and fiscal policy commitments.

Tim Li, credit analyst at Quilter Investors, said: “The UK joins a small group of countries to have their credit outlook cut to negative this year. It remains a highly rated country and has no issues with accessing capital markets. The most concerning part relates to the weakening of ‘institutional architecture’ – the election will decide if that materially changes from here – but in that scenario ratings agencies may be forced to cut sharply.”

British Steel saved by China’s Jingye

Troubled British Steel has been offered a lifeline by Chinese firm Jingye Group, which has promised to invest £1.2bn into the UK firm over the next decade.

British Steel went into compulsory liquidation in May after its owners Greybull Capital, which bought it from Tata Steel in 2016, failed to secure financing. It is currently run by the UK government through the Official Receiver.

The UK and European steel industry has struggled with cheaper Chinese and Asian steel imports, with the EU imposing tariffs of more than 70% on Chinese steel imports in 2016.

Following the deal, Jingye would control around a third of the UK steel industry, including steelworks at Scunthorpe, UK steel mills and shares of FN Steel BV, British Steel France Rail SAS and TSP Engineering

Greggs’ results put cherry on top

Bakery chain Greggs saw its shares rise around 14% on Monday (11 November) after it raised
its profit forecast.

It reported sales grew 12.4% in the six weeks to 9 November in an improving sales pattern,
driven by more customers visiting its shops, leading it to predict full-year underlying profit
before tax would be “higher than our previous expectations”.

The company, which has around 2,000 stores across the country, has appeared to successfully
buck the UK high street’s downward trend having seen its share price soar almost 70% in the
past year, driven primarily by the success of its vegan sausage roll.

Chart of the week

Gold rush: Continued macroeconomic and geopolitical concerns have pushed investors towards the traditional safe haven of gold, which has seen its price steadily rise in the past year.

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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