UK Car Production in Reverse

Thursday, 30 January: Today’s market opened lower, poised before the Bank of England’s interest rate decision at midday. Investors had the call on whether to hold or cut rates as very close, and as we mentioned yesterday either way could’ve promoted some significant movements in sterling. Across Asia this morning markets saw further heavy losses, the Nikkei lost 1.72% and HK’s Hang Seng fell 2.65%, driven by heightened fears about the spread of the Coronavirus, with the death toll and number of cases confirmed continuing to rise as it was confirmed the virus had reached every region across China. It wasn’t made any better by the fact that more huge firms had ‘shut up shop’ in affected parts as once again the economic impacts look to be inflating just as fast as the virus itself.

As we were traded to the BoE’s decision, the FTSE fell harder, almost twice as far from around -0.6% to -1.1%. Rates remained unchanged at 0.75% with voting at 7-2 for unchanged versus 2 for a cut. The economic growth forecast for this year has been trimmed from 1.25% to 0.75% and weaker productivity growth is expected as the Brexit induced slower growth dawns (on the eve of our official this time we mean it official exit). The news saw sterling jump versus major currencies including the euro and dollar, as we write sterling is currently up 0.6% against the dollar. The FTSE eventually closed -1.36%, hardly surprising given very little to sign about.

Last year UK car production ran at its lowest level in almost a decade, with the forecast showing more declines to come. Factories produced 1.3 million units which is a 14.2% decline from 2018. There were many well known factors playing a part, from Brexit and election uncertainty, weak exports and industry changes to name but some. These woes have been reflected in markets, with automotive retailers struggling over the last 12 months. Vertu, Lookers and Pendragon have all seen share price declines during 2019, with the latter two down over 40% and 50%. Not to mention Aston Martin shares falling over 65% last year. All reflective of a struggling automotive sector across the world but more so domestically.

Unilever reported a 38% decline in net profit for 2019 and stated that underlying sales growth of 2.9% missed forecasts due to a poor fourth quarter. Despite this poor performance and emerging risks from the Coronavirus, shares sought optimism from narrative that has initiated a strategic review of their tea business (PG Tips owner), as well as striving for increased innovation and stopping the decline in brand and marketing investment as a percentage of sales. Shares climbed 2% and were the best performing stock on the FTSE 100 today. St James’s Place enjoyed stints at the top of the index before closing 1.62% higher after the wealth manager’s strong Q4 performance, turning the page after the election to deliver net inflows of £2.44bn. Staying on the FTSE 100, but with contrasting fortunes were corporate giants Royal Dutch Shell and beverage firm Diageo. The oil & gas giant saw shares drop 3.7% after a weak Q4 saw profit significantly drop, affected from lower realised oil & gas prices. Diageo shares weren’t far off and declined 2.6% after net profit declined 5.6% in the first half of fiscal 2020. They also see full year organic net sales growth at the lower end of their mid-term guidance. BT were the worst performing shares on the day, declining 7.38% because of knock-on costs from the UK’s Huawei cap. The limited use on the controversial firm’s equipment will ultimately lead to far higher costs for the 5G network.

Mike Ashley’s Fraser Group (formerly Sports Direct) saw shares climb over 1% today after their relief over a Belgian tax dispute that has ended in their favour, but their shares eventually soured in the later session and ended up closing 0.3% lower. Belgian tax authorities have withdrawn one of their claims against the firm which accounted for 73% of the total disputed VAT sum, equating to €490m of relief for the group but mainly Ashley. Of course, they will continue to discuss and dispute the remaining sum but this was a significant win in the eyes of Frasers’ shareholders.

As we sign off, Wall Street is following the general consensus and so far sits lower, with safe havens dominating the few asset classes with gains.

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