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Last Week in the City: More woes for Zuck as Aviva teaches a lesson

 
Garry White
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City of London
Garry White, chief investment commentator, looks at the market moving events that have shaped the UK equity markets this week (March 26 to March 29, 2018). (Source: Charles Stanley)

Facebook founder Mark Zuckerbeg had another difficult week after he was criticised for refusing to appear before a committee of MPs. There were two bids for FTSE 100 companies – Shire and Smurfitt Kappa – which helped support the index.

In the first quarter of 2018, the FTSE 100 had its worst three-month performance since 2011. The index has been hit by a spate of profit warnings, as well as problems in the retail and outsourcing sectors. Over the last week in March, the FTSE 100 did, however, manage to gain 0.2 per cent.

Fixed income

Aviva has abandoned plans to cancel its preference shares. However, investors have learned a valuable lesson from this controversy and the preference share market may never be the same again. Charles Stanley’s bond analyst Jeremy Spain takes a look here.

Geopolitics

Fears of a damaging trade war is currently keeping the lid on markets, but Treasury Secretary Steven Mnuchin said he’s optimistic the US can reach an agreement with China that will avert the need for President Donald Trump to impose tariffs on at least $50bn of goods from the country. “We’re having very productive conversations with them,” Mr Mnuchin said.

John Redwood, Chief Global Strategist thinks this new phase of the US Presidency could develop into a wide ranging trade dispute with both the EU and China. More here.

Following the poisoning of a Russian double agent in Salisbury, Russian diplomats were expelled by multiple Western and east European governments. Is investing in Russia a good idea? Garry White takes a look here.

Energy

US President Donald Trump has picked two Iran hawks for his national security team, sparking some speculation that sanctions may be re-imposed on the Opec member, curbing its oil exports. However, Brent crude prices edge lower over the week, falling 1.4 per cent to trade at around $69.40 a barrel by mid-session on Friday.

US technology

Facebook has revamped its privacy settings following the recent Cambridge Analytica scandal, but chief executive Mark Zuckerberg refused to appear before MPs to discuss the issue. He will instead send one of his senior executives, chief product officer Chris Cox, who will give evidence to MPs in the first week after the Easter parliamentary break.

Goldman Sachs slashed its Apple iPhone sales estimates for the first two quarters of the year. In the first quarter it now sees the group shifting 53 million units, a 1.7 million cut, with 40.3 million sold in the second quarter, a reduction of 3.2 million from its previous forecast.

The so-called FAANG (Facebook, Apple, Amazon, Netflix, and Alphabet’s Google) stocks suffered their worst one-day loss as a group in this week as investors braced for heightened regulation.

Healthcare

Shares in drugs maker Shire jumped sharply following news that Japanese group Takeda is considering making an approach to buy the company, although talks are still at an exploratory stage.

GlaxoSmithKline revealed it was buying Novartis out of its consumer health joint venture, taking full ownership for $13bn. The joint venture sells products such as Nicotinell nicotine patches, Panadol headache tablets and Sensodyne toothpaste.

Industrials

Friday was decision day for investors in GKN, as the deadline for voting on whether it is to stay independent or come under the control of turnaround specialist Melrose Industries expired at 1pm.

International Paper, the US’s largest listed paper packaging group, made a second, improved offer for Smurfitt Kappa, valuing the business at around £7.8bn. The board, once again, rejected its overtures. The offer came amid a wave of consolidation in the packaging industry, boosted by the continued rise in online shopping. Bloomberg data shows that there have been more than 40 cardboard-packaging and paper-product deals in 2018 so far, including the Smurfit bid.

UK car production fell 4.4 per cent in February, hit by the seventh-consecutive monthly decline in domestic demand, according to data from the Society of Motor Manufacturers and Traders, an industry body.

Retail

The backdrop for Britain’s retailers remains challenged so JD Sports is now looking overseas to find growth. The ath-leisure retailer launched a “transformational” £400m deal to buy trainer supplier The Finish Line. The deal needs shareholder approval – including that of rival Sports Direct – which owns 9.9 per cent of The Finish Line’s equity.

Interim profits at DFS Furniture plunged, but its shares rallied after management said sales had picked up speed in recent months.

Drinks wholesaler Conviviality said it was likely to appoint administrators to the business within two weeks, putting around 2,600 jobs at risk.

Sanpower, the Chinese company that owns House of Fraser plans to inject about £15m into the department store chain as part of a plan to alleviate concerns about the group’s finances. Press reports last weekend suggested the group had held discussions with potential investors, about a cash injection of around £40m, but talks collapsed because the department store group’s main assets have already been pledged as collateral against existing debts.

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