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Newsround: Market in risk off mode amid Brexit and trade war fears

31 August 2018


Tags: Macro Economics

FTSE News 

The FTSE was sharply lower on Thursday (30 August) amid fluctuating news on Brexit and concerns over a deterioration in relations between the US and China. By the close the index was down 0.6% to 7,516.03.

On Monday (3 September), Tuesday (4 September) and Wednesday (5 September) purchasing managers’ index data for the UK manufacturing, construction and services sectors respectively is published. Any figure above 50 will imply growth whereas any number below this threshold indicates contraction. PMI updates offer a good insight into the economic health of the UK because businesses tend to react quickly to economic conditions. Their purchasing managers probably have the most up-to-date view of these conditions. They need to have a good understanding of what is going on in the economy in order to make informed decisions when buying the goods and services required by a company. These releases will therefore show if the uncertainty over Brexit and fears of a no-deal exit from the European Union are having a tangible impact on the economy. In an otherwise quiet week next Friday (7 September) sees US non-farm payrolls figures released.

 

Sector in focus

There were first half results announcements from the oil services sector this week which reflected an improved outlook thanks to higher oil prices. On Wednesday (29 August) Petrofac (PFC) posted increased returns from its own oil and gas assets and improved margins elsewhere, with underlying profit up 20% to $190m. Petrofac has three divisions – the dominant division is Engineering & Construction (E&C) which accounts for nearly 80% of the overall business. The remainder is accounted for Engineering & Production Services (E&P) and Integrated Energy Services (IES), the latter encompassing the company’s producing oil and gas fields.

On Thursday (30 August) Hunting (HTG) restored its dividend as it swung from last year’s interim loss to a decent pre-tax profit of $38.9m. Revenue was slightly short of expectations, but this was balanced out by strong margins, underpinned by tight control on costs. This was very much a North American driven recovery. Here the company’s Titan business is benefiting from strong demand for its perforating gun, a device used to penetrate oil and gas wells in preparation for production. The company is expanding its capacity to manufacture this product and is also investing in R&D to develop an enhanced version. Outside the US, most of its businesses remain loss making.

 

 

Economic Update

Next Friday’s US non-farm payrolls data could have a bearing on the US Federal Reserve’s next move on interest rates. Addressing the annual summit of central bankers at Jackson Hole, Wyoming, the chairman of the US Federal Reserve Jerome Powell seemed in no mood to bow to pressure from president Donald Trump on interest rates. For now, Powell is committed to a course of gradual rate increases against the backdrop of a strong US economy. However, Powell did leave the door open for this approach to change according to the outlook, essentially promising to do ‘whatever it takes’ should another economic crisis loom.

 

ETF Watch 

Exchange-traded fund Vangard USD Corporate Bond (VUCP) offers exposure to a basket of bonds issued by US companies for an ongoing charge of 0.12%.

 

 Company Announcements

4 September – Advertising giant WPP’s (WPP) first half results will shine a light on the succession issue created by the acrimonious exit of founder Martin Sorrell earlier this year. Current joint chief operating officer Mark Read is considered a leading candidate for the role. Also, advertisers are seen as good bellwethers for the economy because companies will increasing spending on ads when they are feeling positive and scale back during tougher times. WPP has significant scale, breadth and geographic reach.

7 September – Full year results from asset manager Ashmore (ASHM) may reflect the volatile fortunes of the emerging markets in which it specialises. Strength in the dollar has hit developing economies with lots of dollar-denominated debt and Turkey only just retreated from a full-blown financial collapse. This may have led to outflows from Ashmore’s roster of emerging markets funds.

Can global markets rise in the second half of 2018?

For investors, the first half of 2018 had its ups - and downs. There have been modest declines in value across some of the world’s biggest indices in the first six months of the year: the Dow Jones index is down 1.06% since the beginning of 2018 and the FTSE 100, down 0.96%.

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Writer: Tom Sieber Tags: Macro Economics

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