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WEEKLY MARKET ROUND-UP – 26/07/19

Growth spurt

The US is experiencing its longest economic expansion since 1854, with the current period of 121 months starting in June 2009 just breaking the previous record of 120 months from March 1991 to March 2001. This is despite President Trump’s ongoing trade tirade against countries around the world, in particular China.

Last minute deals: US debt ceiling

An earlier than expected debt and budget agreement has been passed in the US. The deal raises the US debt ceiling, maintains spending and averts the risk of a first federal default on US government borrowing.

As Quilter Investors portfolio manager Hinesh Patel opines, “Once signed, this agreement averts another gruelling US government shutdown and the threat that the US couldn’t pay its bills from September.

“The deal neatly kicks the can down the road for spending cuts until after next year’s election, but it means the US budget deficit soars above $1trn – approaching 5% of GDP.

“Investors should take comfort,” he says, “this level of US public spending significantly buffers fears that this is an economy about to go into recession.”

Apple eyes Intel’s beached modem business

This week Apple announced that it was in advanced talks to buy Intel’s stranded 5G smartphone-modem chip business, for upwards of $1bn.

Back in April, just an hour after Apple announced it had settled its long-running multi-billion dollar loyalties dispute with 5G heavyweight Qualcomm, Intel announced it was abandoning its 5G smartphone modem
business, despite years of heavy investment.

The deal signals how serious Apple is about becoming the master of its own supply chain. If it goes ahead, it will kickstart Apple’s supply ambitions with around $1bn of staff, patents and 5G research.

Meanwhile, Intel sheds a business that was losing $1bn a year. It plans to concentrate on the ‘internet of things’.

Tories put Johnson in no. 10

Boris Johnson, the former foreign secretary, was officially announced as the new Conservative party leader and UK prime minister on Tuesday (23 July).

Widely tipped to beat rival Jeremy Hunt, he won more than 66% of the vote by Conservative Party members and formally took control on Wednesday.

He has consistently pledged to deliver Brexit by 31 October or allow a ‘no-deal’ exit. But with a spate of ministerial resignations before he won the role, he could have as tough a time as his predecessor.

Despite this, his usual ebullient manner was in evidence in his speech, as he told “doubters” that “Dude, we are going to energise the country”. Market reaction was somewhat muted as it awaits more Brexit strategy details.

Fever-Tree loses its fizz

Shares in the former stock market darling, Fever-Tree, went flat this week when they fell more than 10% following a worse than expected slowdown in UK sales. Inevitably, the British weather was blamed.

UK sales growth fell to 5% (from a forecast 8%) in the second quarter with the company’s CEO blaming the early summer rains and what’s been described as ‘gin fatigue’; last year was an exceptional period for the G&T set with hot weather and both a royal wedding and a World Cup to stare at.

Fever-Tree has enjoyed a dream debut since listing five years ago, but its shares are now down 50% from their peak a year ago. The company’s founders face renewed competition from the big boys in their sector at a time when fickle consumer interests are changing but they still predict double-digit UK growth in the second half of the year.

Chart of the week

Europe area autos about to stall? Sales of new cars in the euro area dipped below 11m for
the first time since the financial crisis, due to a combination of fading demand and the daunting
challenges of electrification and new emission standards.

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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