1 November 2018

Scott Reid

1 November 2018

Good morning,

Halloween is a godsend for sub-editors looking for seasonal headlines for columns on the blacks and reds of global financial markets. 

This year was no exception as “Red October” put the scare into investors, having slashed its way through global equity markets in a manner that would give any Hammer House of Horror episode a run for its money. At close of play yesterday, global markets were down almost 8.5% on average last month, wiping out trillions of dollars in value and undoing much of the bull markets’ gains this year. Terrifying, indeed.

Analysis published by the Financial Times this morning makes for an illuminating read on the reasons behind the rout. Following fears of rapid rate increases in the US and an eight-year high in the 10-year US government bond yield during September, Japanese and European investors dumped US debt and triggered a bond sell-off. Other factors were at play too, including suggestions that the tech rally was overdone, concerns over corporate earnings, and of course, trade tensions between the US and China. 

Investors have suggested so-called ‘volatility control’ strategies may also be to blame. These computer powered algorithms hike up a stock’s market exposure based on volatility, but can vary widely in their potential trigger points and swiftness to react to the machinations of the market. Given the speed at which global markets plummeted, a sudden volatility eruption was on the cards, sending many stocks’ trajectories off course and the markets into a spin.

A Halloween rally yesterday may have provided October with its saving grace. In the US, the Dow and S&P 500 had both gained one per cent as the closing bell rang. The Nasdaq also jumped by two per cent, driven by a revival in FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) ahead of corporate earnings reports later today. The FTSE 100 responded in kind, also up by a lone percentage point.

So after a month of gory red, the markets may be starting to recover. Long may it last. If nothing else, I look forward to the nation’s market reporters opting for fewer hair-raising metaphors over the next week or so, although I am, of course, braced for the inevitable fireworks still to come.

News

Dominic Raab has said that he expects a deal with the EU to be agreed within three weeks. Writing to the House of Commons Brexit committee yesterday, the Brexit secretary said that he would be happy to appear on 21 November “when a deal is finalised”. He added that the UK and EU now “agree on the principle of a UK-wide customs backstop” and that a “great deal of progress” had been made in recent weeks. The Times reports this morning that agreement over a financial services deal has also been reached. 

Meanwhile, The Guardian reports that the EU is stepping up plans for a no-deal Brexit, including a series of planning seminars to be held during November, covering citizens’ rights, aviation, ground transport, customs, border controls and financial services. 

Brazilian president-elect Jair Bolsonaro has offered a government position to the anti-corruption judge whose investigation led to the imprisonment of his political rival. Bolsonaro said Sérgio Moro would be offered a role as justice minister or Supreme Court judge in a shake-up of ministries that would see the number of government departments halved. Moro has recently overseen a four-year political corruption inquiry which led to the imprisonment of more than 100 businessmen and politicians, including former president Luiz Inácio Lula da Silva, who was an early favourite in this year’s presidential election. (£)

New research has suggested that the world’s oceans may be up to 60% more sensitive to fossil fuel emissions than previously estimated. Researchers at Princeton University said the finding implied it would be much harder to keep within the temperature rise targets set by governments in the Paris climate agreement. According to a recent major survey, oceans absorb more than 90% of the excess heat trapped by greenhouse gases.

Business & Economy

Channel 4 has announced that Leeds will be home to its second headquarters, beating rival bids by Birmingham and Manchester. Up to 200 staff will be based at the West Yorkshire site, with a further 50 staff to be located at new “creative hubs” in Glasgow and Bristol. The plans imply moving up to 40% of the channel’s workforce out of London and increasing the channel’s spend outside the capital by £250 million over the next five years.

Uber could begin using driverless vehicles on its network from next year after a joint venture with Volvo was confirmed yesterday. Speaking at the announcement of a separate joint venture with Baidu, to manufacture an autonomous taxi fleet for China, Volvo chief executive Hakan Samuelsson said the deal with Uber was “back on track”. Previously thought to have been abandoned following a fatal accident at an Uber testing facility this year, the deal is intended for Volvo to manufacture up to 24,000 units, with engineering works shared by Volvo and Uber. (£)

Jaguar Land Rover will launch a £2.5 billion turnaround plan following significant recent losses, the company announced at its second-quarter results yesterday. The plan will involve up to £1 billion in cost-cutting measures over the next 18 months, including a £500 million reduction in new vehicles technology research, and working capital and inventory. The luxury carmaker reported pre-tax losses of £90 million in the three months to the end of September and a 13.2% slump in year-on-year sales.

Markets

What happened yesterday?

A rebound in shares made for a positive end to an otherwise torrid month on the FTSE 100, which has faltered alongside its peers during October. By close of play, the London market was up 1.31% or 92.25 points to finish at 7128.10 – its best level in three weeks, but still on track for a monthly drop of around six per cent. 

Sterling clocked similar gains following reports from Brexit secretary Dominic Raab that a deal could be “three weeks away”, finishing up on the dollar by 0.46% at $1.28 and by 0.77% on the euro at €1.13.

Poor economic indicators coming out of China have been behind much of the month’s losses, with new data showing the country’s official manufacturing PMI index at its lowest level in over two years. The index fell to a reading of 50.2 from 50.8 in September, which is significantly lower than a forecast reading of 50.6 (where anything above 50.0 indicates growth).

In corporate stocks, Standard Chartered (up 3.15%) was among the day’s stronger gainers after posting a 31% jump in underlying third-quarter pre-tax profit, driven by lower than expected impairments and costs. It was joined at the top by bookmaker William Hill (up 1.06%) following an offer of 2.8bn krone (£240m) for Swedish online gaming company Mr Green.

On the down were retailers Next (down 1.92%) and Marks & Spencer Group (down 1.27%) which both fell following a surprise decline in store sales at Next during the third quarter, rattling stock in some of its sector peers ahead of results next month. Restaurant Group (down 1.87%) also suffered following a downgrade from both Citi and Liberum on news that it had acquired the Wagamama restaurant chain.

Interims
BT Group
 
Q3 Results
Carpetright
Croda International
Gran Tierra Energy Inc. (CDI)     
Indivior
Just Eat
Lancashire Holdings Limited
Royal Dutch Shell 'A'    
Royal Dutch Shell 'B'
Shires Income
Smith & Nephew
 
Trading Announcements
Carpetright
Hilton Food Group       
Just Eat
Morgan Sindall Group 

AGMs
City of London Inv Trust
Go-Ahead Group
Hadrian's Wall Secured Investments
Pathfinder Minerals
Plutus PowerGen
Stanley Gibbons Group
Schroder Japan Growth Fund
Wilmington
 
GMs
Patisserie Holdings
 
UK Economic Announcements
(12.00) BoE Interest Rate Decision
 
Intl. Economic Announcements
(14:00) ISM Manufacturing (US)
(14:00) ISM Prices Paid (US)
(14:45) PMI Manufacturing (US)
(16:00) Construction Spending (US)
(19:30) Auto Sales (US)

Columns of Note

Alex Brummer comments in the Daily Mail that the Conservative government’s rise in stamp duty for the most expensive homes has inhibited upward social mobility. Pointing to forecasts from the Office for Budget Responsibility (OBR) which suggest the rise has led to a slump in income from the tax from £13.6bn in 2017 to £12.8bn, Brummer suggests it has prevented “strivers” (restless overachievers, don’t you know?) from boosting their wealth, and in turn has impacted consumer spending in home furnishings.

Katherine Griffiths writes in The Times on a positive mood in the City on the possibility of a financial services deal with the EU. Optimism currently centres on an expected political declaration to accompany the withdrawal agreement, and in turn a joint statement from the Bank of England and and the European Central Bank. Worries remain over the legally binding status of the declaration, however, and whether the offer of much more generous access into the UK by EU banks will be reciprocated in return from retaining the primacy of the London clearing house). But, as Griffiths suggests, the concerns are not insurmountable and have contributed to a glimpse of optimism in the City. 

Did you know?

The Popemobile used by John Paul II on his visit to Ireland in 1979 can now be rented out for stag parties.

Parliamentary highlights

TODAY

House of Commons
Oral questions
Digital, Culture, Media and Sport (including Topical Questions)

Oral questions
Attorney General

Business Statement
Business Questions to the Leader of the House - Andrea Leadsom

Debate
Conclusion of the Budget Debate

Adjournment
UK leaving the EU and central counterparty clearing stability - Mr Chris Leslie

House of Lords
Royal Assent

Oral questions
Advice for UK residents booking holidays to EU Member States after March 2019 - Lord Bruce of Bennachie

Architectural competition to design a standard prefabricated council house - Lord Thomas of Gresford

Deployment of the Royal Navy in the South China Sea and the implications for Chinese trade relations - Lord Davidson of Glen Clova

Medical use of cannabis and calls for further research - Lord Farmer

Debate
Initiatives in early intervention in children’s lives that would improve the welfare, life chances and social mobility of young people in the UK - Baroness Massey of Darwen

Impact on family life of reductions in welfare benefits, tax credits, housing benefits and child benefit - Lord Bassam of Brighton

Short debate
Reducing the number of problem gamblers hospitalised each year and protecting vulnerable people from gambling addiction - The Lord Bishop of St Albans


Scottish Parliament
General Questions

First Minister’s Questions

Members’ Business

Ministerial Statement
The Scottish Greenhouse Gas Emissions Annual Target Report for 2016: Setting Scotland’s Future Direction on the Low Carbon Trasition

Aberdeen Western Peripheral Route Update

Scottish Government Debate
A Place of Safety: Supporting Asylum Seekers in Scotland


TOMORROW

House of Commons
No business scheduled.

House of Lords
No business scheduled.

Scottish Parliament
No business scheduled