Top financial market stories of the week
Monday 28th September 2020-Friday 2nd October 2020
1. Pound strengthens after Brexit talks and positive interest rate signals— Monday
Sterling rose as much as 1% against the dollar and the euro as traders reacted to reports that a Brexit trade deal could be edging closer. It came despite officials on both sides saying significant gaps remained between the EU and the UK. The pound rose by 1.4% against the dollar to a high of $1.2925 in late-morning trading, although by lunchtime in London the pound had given up some of those gains to trade at $1.2904.
Brexit trade talks are likely to continue to dictate the direction of sterling for the rest of the week. Both sides have just weeks to reach a deal to avoid a disorderly exit of Britain from transition arrangements at the end of December. Earlier this month, UK prime minister Boris Johnson has set a deadline of 15 October to strike a deal. The jump was also fulled by comments from Sir Dave Ramsden, the Bank of England’s deputy governor, who said that the central bank was “not about to use negative interest rates imminently”, which reassured investors.
2. LVMH countersues Tiffany’s — Monday
LVMH has sued Tiffany & Co over their soured merger deal, saying the U.S. jeweller’s business has been so deeply damaged during the pandemic that their takeover agreement is invalidated. This counters a lawsuit that Tiffany filed this month against LVMH after the French conglomerate (owner of several luxury brands) said it was backing out of its $16 billion acquisition of the jeweller. The suit says that LVMH “continues to have full confidence in its position that the conditions necessary to close the acquisition of Tiffany have not been met.” It adds that the “spurious arguments put forward by Tiffany are completely unfounded.”
“The business LVMH proposed to acquire in November 2019 — Tiffany & Co, a consistently highly-profitable luxury retail brand, no longer exists,” LVMH said. It also accused the firm of paying large dividend payments when it posted losses, taking on extra debt and burning cash: “Tiffany’s mismanagement of its business constitutes a blatant breach of its obligation to operate in the ordinary course. There are many examples of mismanagement detailed in the filing, including slashing capital and marketing investments and taking on additional debt.”
3. UK mortgage approvals hit highest level since 2007 — Tuesday
Mortgage approvals hit their highest level in 13 years last month, as a temporary cut to stamp duty and pent up demand from lockdown led to a surge in house sales. The Bank of England on Tuesday said the number of mortgage approvals increased “sharply” to 84,700 in August. The spike represents the highest level of approvals since October 2007, on the eve of the financial crisis. The figure far exceeded analysts’ forecasts. A panel of City of London economists had expected to see only 71,000 approvals in the release.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the spike was driven by “the release of pent-up demand following the shutdown of the housing market in Q2 and the impetus to complete purchases while the threshold for stamp duty has been raised temporarily to £500,000, from £125,000.” Historically low interest rates have also led to an increase in demand. However, experts believe the COVID-19 property boom will prove short-lived. However, other figures showed that consumer borrowing, an important driver of economic growth , increased by only £300 million between July and August, far below analysts’ median forecast of a £1.45 billion increase.
4. Over 7,500 finance jobs leave UK for EU — Thursday
Banks and firms preparing for Brexit have relocated more than 7,500 finance jobs and more than a trillion pounds in assets from the UK to Europe, according to a new survey by EY. Ahead of Britain’s withdrawal from the EU on 31 December, EY’s Brexit tracker reveals that more than 400 of the jobs have been announced in the last quarter. EY’s Brexit Tracker monitors statements from the biggest financial firms in Britain. Meanwhile, assets worth more than £1.2 trillion belonging to EU customers have also been moved from London to the bloc. Since Britain voted to leave the bloc in 2016, the finance industry has added 2,850 positions in the EU, with Dublin, Luxembourg and Frankfurt seeing the biggest gains.
JPMorgan Chase & Co. has moved both assets and staff in recent weeks, while Goldman Sachs Group Inc. has planned for an extra 100 people to move to Europe. The EY report also noted that as many as 24 financial services firms have said they will transfer assets out of the U.K.
5. Oil prices sink to lowest level in two weeks — Thursday
Brent crude, the oil price benchmark, settled 3.2% lower at $41.03 a barrel, below its 100-day moving average on Tuesday, as traders optimism about a further recovery continued to weaken. Crude consumption still down more than 5% from pre-pandemic levels. According to Bloomberg, oil pared some losses, after the industry-funded American Petroleum Institute reported a decline in domestic stockpiles (according to people familiar with the matter). Downbeat oil predictions continued to grow. Three of the world’s biggest independent oil traders said consumption is unlikely to meaningfully recover for at least another 18 months.
6. Rolls-Royce shares hit 17-year low — Thursday
Rolls-Royce shares fell to a new 17-year low as speculation mounted about the size and structure of the company’s likely capital raising. The FTSE 100 engine maker detailed a plan to raise as much as £5 billion to brace against a drought in demand for aircraft engines. The engineering group said it would tap shareholders in a £2bn rights issue and raise more debt through a £1bn bond offering. It also announced a new two-year loan of £1bn and a potential £1bn extension of a loan that would be 80% backed by the government’s UK export finance agency (UKEF). The £2bn rights issue was the largest capital raise by a non-financial public company in the UK since 2010, according to Greenhill, one of the investment banks advising Rolls-Royce. Eleven investment banks were among the recipients of £80m in fees connected to the fundraising.
Rolls-Royce has lost more than three-quarters of its value this year amid a broad industry downturn triggered by the pandemic. The company has been particularly hard hit by the drop in long-distance travel, which has virtually eliminated demand for the wide-body planes its engines power.
7. Stocks slip as Trump tests positive for coronavirus — Friday
Stocks fell around the world on Friday as investors reacted to news that Donald Trump and his wife Melania Trump had both tested positive for COVID-19. The President announced this in a tweet, hours after first confirming they were getting a test. The pair were tested after Hope Hicks, a close adviser to the president, contracted COVID-19.
The news led to stocks around the world declining. The S&P 500 index closed 1% lower. The Nasdaq Composite declined 2.2%, its worst session in more than a week, as shares in Apple fell more than 3% and Tesla dropped more than 7%. In Europe, the FTSE 100 fell 1.1% at the open, the German DAX dropped 1.4%. Japan’s Nikkei also reversed earlier gains to close down 0.7% and Australia’s ASX 200 slumped to close down 1.4%. Disappointing US economic data further weighed on markets. The pace of domestic jobs growth showed signs of slowing, with only 661,000 payrolls added in September, below the 850,000 expected by analysts polled by Reuters.
8. UK billionaire brothers buy ASDA from Walmart for £6.8 billion — Friday
Britain’s billionaire Issa brothers and private equity group TDR Capital have bought Asda from Walmart in a deal which gives the British supermarket chain an enterprise value of £6.8 billion pounds ($8.8 billion). Roger Burnley will continue to remain CEO of the firm and he stated, “With our combined investment, expertise and ambition; Asda, Walmart, the Issa brothers and TDR have an incredible opportunity to accelerate our existing strategy and develop an even more exciting offer for our customers as well as strengthen our business for our colleagues.”
Walmart will retain an equity investment in the business, with an ongoing commercial relationship and a seat on the board. The sale brings Asda back under British ownership for the first time since 1999, when Walmart paid £6.7 billion for the business. The new owners have promised to invest more than £1bn in the business over the next three years to keep prices low, develop supply chains and in e-commerce, in addition to convenience stores.
Where did the markets finish at the end of the week?
- The FTSE 100 closed at 5,902.12 gaining 1.02% over the week.
- The FTSE 250 closed at 17,395.81, gaining 2.06% over the week.
- The Nasdaq closed at 11,075.02, gaining 1.48% this wek.
- The S&P 500 finished at 3,348.44, gaining 1.52% this week.
- Japan’s Nikkei 225 finished 23,029.90, declining 0.75% this week.
- The Shanghai Composite finished at 3,218.05, declining 0.04% this week.