9 February 2018
After significant volatility in global markets earlier in the week the FTSE 100 was under pressure again on Thursday as the Bank of England hinted at an increase in interest rates sooner than expected. By the close the index of leading UK shares was down 1.5% at 7,170.69.
Inflation figures for the UK and the US are set to be released on Tuesday (13 February) and Wednesday (14 February) respectively next week (see Economic update). Also on Wednesday, monthly US retail sales figures are published. This is a significant announcement as it is the primary gauge of consumer spending, which accounts for most of overall economic activity in the world’s largest economy. The UK’s own retail sales data is out on Friday, followed later by the US building permits release. This offers an excellent insight into future construction activity as obtaining a permit is one of the first steps in constructing a new building.
While the wider market correction has hogged the spotlight, there was also the small matter of fourth quarter and full year results from the UK’s two biggest oil companies for the market to digest. Of the UK’s two large integrated oil companies, BP (BP.) looks to be the winner over Royal Dutch Shell (RDSB) in terms of fourth quarter and full year results. Shares in both companies fell on the day of their results earlier this month but BP’s performance both in share price terms and operationally was the more impressive, with a modest fall in its shares on 6 February coming amid a much wider market decline. Expectations for both sets of results were high after a significant recovery in the oil price.
Shell’s largely in-line numbers, reported on 1 February, were not enough to match these expectations. Current cost of supply earnings (Shell’s preferred measure of profit) excluding one-off items came in at $15.76 billion for 2017 compared with $7.19 billion a year earlier. However, this was only marginally ahead of the analyst consensus figure of $15.72 billion. In part this was due to a weaker than expected performance from its downstream (refining and marketing) operations. This pattern was repeated in the quarterly results from US rivals ExxonMobil and Chevron. BP posted underlying replacement cost profit of $2.1 billion for the fourth quarter against consensus estimates for $1.9 billion, quadrupling year-on-year, and, in contrast, delivered ‘very strong’ downstream earnings.
The beginning of February has seen a significant market correction which began in the US and then spread to stock markets around the world. Most observers attributed the weakness to expectations for acceleration in US interest rate hikes as the Federal Reserve contends with mounting inflationary pressures. Investors will get some insight into just how acute these pressures are when the latest readings of UK and US inflation are released on Tuesday (13 February) and Wednesday (14 February) respectively next week.
Gold is often sought out as a safe haven at times of market volatility. Exposure to the precious metal can be achieved through exchange-traded fund iShares Global Gold (SGLN) which has an ongoing charge of 0.25%.
14 February - Management will be looking to draw a clear line between their charge and liquidated construction services business Carillion (CLLN) when Galliford Try (GFRD) reports its half year results. Since Carillion’s collapse on 15 January, Galliford Try’s shares have fallen significantly in value, with the group warning of a potential £30 million to £40 million cash outflow to complete a joint venture it was working on with Carillion.
15 February - Supply issues and a fall in full year revenue growth toppled ConvaTec’s (CTEC) shares late last year, leaving the wound care specialist trading below the 225p price at which it joined the stock market in October 2016. Management need to spell out when ConvaTec supply problems in its advanced wound and ostomy care division can be resolved.
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