It did not really matter whether the excuse for the Flash Crash in the Great British Pound last week was due to a fat finger, a rogue algorithm , or simply massive selling pressure, it was an accurate reflection of the state of play as far as the financial and political scene in the UK.
This week it was followed by a half balked / panic U turn from Prime Minister May, where she conceded that predominantly Remain Parliament would be allowed to debate the manner of our Brexit from the EU. Presumably this is on the condition that they do not demand to vote against the will of the people, although This would get them into the setup the Scots are now being served by with the prospect of the SNP offering a second referendum to leave the UK. Where they will go, and how they will pay for it without Westminster cash remains a moot point. But all of this has to put further pressure on the UK currency and Gilts – not helped by the alleged €20bn EU divorce bill, which presumably the Scots will not have to pay.
But just in case all of this seemed to be too political and detached from the workings of the stock market, there were interesting aspects to grapple with. The US Dollar hit a 7 month high this week on Fed December interest rate hike expectations, and weak China economic data, the latter providing the sharp sell off for indices last year. But most tellingly for the FTSE 100, the strength of the Dollar was no longer enough to keep it at record levels above 7,100, and it retreated below the 7,000 benchmark. This may be the first sign that UK assets are starting to lose their premium appear, and perhaps speculators are starting to head for the exit? Utilities were rather ominously the best performing sector of the week.
Ironically, centre stage in the whole debacle was a rather innocuous and mysterious consumer staple – Marmite. Here its producer, Anglo Dutch conglomerate Unilever (ULVR) was looking to pass on the recent slide in Sterling to grocer Tesco (TSCO) and of course the consumer. Cynics suggested that given Marmite is produced in the UK this is merely an opportunistic move. In the end it would seem the affair was a storm in a teacup, with Unilever apparently backing down, although rather tellingly we do not yet know how the matter has been resolved. Presumably with Unilever shares continuing to slide, not in its favour.
Elsewhere UK Plc seemed to be under pressure with Lloyds Banking (LLOY) cutting 1,200 jobs, the Government finally giving up on the retail element of its share sale, much to the chagrin of broker Hargreaves Lansdown (HL.).
As far as the losing stocks in the FTSE 350 this week the pattern was clear, with the High Street taking the biggest hit. Companies like Dixons Carphone (DC.), Pets At Home (PETS), and Aldermore (ALD) led the way down, with troubled Sports Direct (SPD) witnessing the exit of its Finance Director, the second head to role in the clothing retailer’s management team in the recent past. This comes in the wake of a warning that profits would be hit to the tune of £15m by the weakness of Sterling.
On the upside it was about either utilities gaining – as the best sector of the week, or many of the companies reporting. Ted Baker (TED), Page Group (PAGE) and Man Group (EMG) all led the way. William Hill (WMH) was also a riser, despite the bookie’s proposed merger with Amaya being shot down by its largest shareholder. Given that the stock is only around 300p, and near the bottom of the range, it would appear that this is a situation where the bottom fishers may be getting on board to try and get on the back of a positive M&A twist.
Amongst the small caps firing the imagination of private investors we had Tlou Energy (TLOU) receiving initial certification for its Lesedi project in Botswana, while Strategic Minerals (SML) soaring despite having nothing to add after last month’s promise of a maiden profit this year.
Looking ahead to next week, with the Q3 earnings season at full steam in the US, it is American Express (AXP), IBM (IBM), Microsoft (MSFT) and Yahoo! (YHOO) who really fire the imagination. All four have been topping out on the daily charts of late, and therefore it will be key that they please the market.
For the UK it is online retail ASOS (ASC), at year highs for its shares, which will have everything to prove to the bulls. This is even though with online counterparts such as Boohoo.com, this area of retail is certainly on fire currently. In contrast, the market will be hoping for signs of recovery at luxury goods group Burberry (BRBY), something the recent breakout through 1,500p resistance underlines.
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