25 October 2018

Harry Coloe

25 October 2018

Good morning,

As the three little pigs demonstrated to good effect in their worrisome tussles with the big bad wolf, there is great value in security and stability. And while it may feel more secure than the political situation faced by some of its allies, Europe’s much celebrated stability is increasingly being tested. Economic stagnation and electoral challenges are giving politicians and central bankers sleepless nights as they worry about how to keep various wolves from their doors.
 
In Germany, Angela Merkel, the German chancellor, faces a testing week with local elections in Hesse set to take place on Sunday. A bad result in Hesse, where Merkel’s CDU party has held power since 1999, could loosen her authority over the Christian Democrats (£), and may cast doubt on her future as CDU leader just six weeks before she is to stand for re-election at the party conference in early December. Results from Bavarian elections earlier this month suggest that the Green Party –
currently polling at 21% – should expect to win significant gains in Hesse, which is home to Germany’s financial centre.
 
Ms Merkel has every right to be concerned with the results of other parties, as well as her own. Poor results from the Social Democrats (SPD) are likely to give further fuel to those in the centre left party who seek to abandon the CDU-SPD coalition, claiming it necessary for electoral survival. Such an abandonment would leave Germany’s coalition based politics in disarray. Just as the Bavarian elections saw the testing of the new far-right in electoral politics, the Hesse state elections look set to lay the foundations of the centre coalitions to come, whatever that may look like.
 
Europe’s wider economic outlook looks increasingly tepid. Germany’s DAX index finished 0.82% lower yesterday evening, while the French CAC also closed 0.29% down, with neither showing any signs of recovery from what has been a month of relative decline.
 
The decline has likely been caused by the continued contraction in manufacturing in both France and Germany (£). European carmakers have been hit by a combination of new emission rules that have disrupted production lines, and stalling demand in the Chinese market, rattling both domestic production and global demand. The European Central Bank faces serious challenges as it juggles the politicking of Brussels and Rome, monetary policy issues, and increased worries of Britain crashing out of the EU without a deal.
 
As business looks for certainty in a world that appears ever riskier and the UK longs for a stable European Union – and a cohesive German government – with whom to negotiate a Brexit deal, the security and stability of the continent’s politics and economic health should remain a keen and important interest.

News

The home of Bill and Hillary Clinton, and the offices of Barack Obama and CNN have all been targeted by explosive devices sent in the mail yesterday. President Donald Trump said authorities were conducting a nationwide investigation after at least five pipe bombs were intercepted in the New York, Washington and Florida areas. The devices seem to largely target well known democrats or media (£) associated with the centre-left in the United States.  Other targets included John Brennan, the former CIA director who has emerged as one of President Trump’s fiercest critics; Maxine Waters, a democratic congresswoman who has frequently been targeted in remarks made by the president; and Eric Holder, the Obama-era attorney-general who is considering a run for the presidency in 2020.
 
Theresa May cited the government’s crisis over Brexit as justification for promoting a key ally as Britain’s most senior civil servant (£) without any recruitment process. Sir Mark Sedwill was promoted to cabinet secretary after it was announced that Sir Jeremy Heywood would be stepping down from the role due to health concerns. Sir Mark has been acting-cabinet secretary since June, and was backed by Downing Street as the continuity candidate in a time of increasing urgency and instability.
 
Voters in Ireland will decide on Friday whether to remove a clause in the country’s constitution that makes blasphemy a criminal act. The last prosecution for such a crime was in 1855, but three years ago Irish police investigated the comedian, Stephen Fry, for describing God as “mean-minded” on a television show. Ireland will also go to the polls to decide their president, with it looking increasingly likely that Michael D. Higgins will continue in the roll.
 
As the killing of Jamaal Khashoggi continues to have global repercussions, Russia has seized on global unease to secure deals with the Saudi Arabian government. Moscow secured a $5 billion investment in its natural gas sector yesterday (£), as its refusal to boycott Saudi Arabia’s Future Investment Initiative conference paid off.

Business & Economy

The Big Four accounting firms are making plans to “ringfence” their audit practices (£) amid mounting speculation that the competition watchdog will impose the measure. The pre-emptive move comes after the Competition and Markets Authority launched a review of the sector over concerns it was not working properly. High profile corporate collapses such as Carillion and BHS have raised concerns regarding the current effectiveness of audits.
 
Tesla Motors returned its first profit for two years (£) as it overcame a year of production delays, issues with delivery, and controversy surrounding its chief executive Elon Musk. With a reported $312 million profit in the third quarter, Tesla shares rose 11.6% to $322.90 in late trading, valuing the company at $49.2 billion. The results are a boon to Musk, who in late September gave up his role as chairman of Tesla amid increasing pressure to step back from his dual role in the business.
 
Stock markets in Asia – reacting to the tumultuous day in the US yesterday – saw a sell off across the region (£). China’s third quarter GDP growth of 6.5% undershot expectations, while South Korea has been forced to pursue support measures to boost economic growth as its third-quarter GDP figures also failed to meet expectations. Hong Kong’s HSI index fell as much as 2.4% on Thursday, putting it on course for its poorest one month showing since August 2015. Global technology stocks – including Chinese firms such as Tencent and AAC Technologies holdings – have suffered because of doubts regarding international trade, both due to the trade war between China and the US, and increased uncertainty within European markets due to Brexit.
 
Debenhams, the struggling department store chain, is expected to unveil a £500 million annual loss later today. The loss has come as it writes off the value of its brand, the cost of unwanted shop leases and IT systems. The retailer is expected to close up to 50 stores, while its share price has dived by 75% in the past year. The 240-year-old retailer is engaged in a variety of cost-cutting and efficiency savings as it seeks to avoid following rival, House of Fraser, into administration.

Markets

What happened yesterday?

It was a tumultuous day for US stock markets yesterday, with the S&P 500 falling for a sixth successive session to end 3.1% lower at 2,656, 9.7% below September’s record high, and nearing the usual definition of a 10 per cent dip from a cyclical peak. The S&P 500 is currently 0.7% down for the year.
 
Nasdaq ended 4.1% lower, with its worst day since August 2011 and the Dow Jones ended 2.4% lower, dropping 608 points, and also falling into negative territory for 2018.
 
The slump in US stocks is due to a menagerie of problems, from slumping semiconductor stocks as China and much of Asia adjusts its demand and grows wary of supply chain issues, to a mixed batch of earnings making it seem US companies have reached peak earnings. Any such fears are likely to have been compounded by the increased cost of borrowing as the Fed raises interest rates, and increased uncertainty as mid-term elections near.
 
Significant losers from the day include AT&T, which ended the day eight per cent lower, after missing quarterly profit forecasts, and chipmakers Texas Instruments, who also ended the day eight per cent lower due to disappointing revenues and earnings forecasts.
 
The FTSE 100 rallied slightly from its symbolic drop below 7,000 basis points on Tuesday, ending the day up by 0.11%, at 6962.98.
 
Meanwhile the pound was trading at a six-week low against the dollar, down 0.67% at 1.28962. Against the Euro, despite increased jitters regarding prime ministerial leadership challenges and a no-deal Brexit, the pound remained largely flat at 1.1323.
 
As the pound slid, dollar earners such as Unilever benefited, while elsewhere Barclays rallied after third-quarter income and profits beat previous City estimates.
 
Brent crude settled at $76.17, down 0.4%. Gold edged up $2 to $1232 an ounce.

Finals
Debenhams
RDI Reit

Interims
Air Partner
Braemar Shipping Services

Q3 Results
Evraz
Lloyds Banking Group

AGMs
Green and Smart Holdings
Oil & Gas Development Company Ltd GDR
South32
Mattioli Wood
Standard Life UK

International Economic Announcements
(09:00) Ifo Business Climate, Current Assessment and Expectations (GER)
(12:45) ECB Interest Rates (EU)
(13:30) Continuing Claims (US)
(13:30) Durable Goods Orders (US) 
(13:30) Initial Jobless Claims (US)
(15:00) Pending Homes Sales (US)

Columns of Note

Sophie McBain argues in the New Statesman that the bombs intercepted across the United States yesterday are evidence of how violent rhetoric sparks violence in real life. She notes the way militaristic language has infiltrated political discourse, both in the United States and the United Kingdom. As talk of “traitors”, “strategic strikes”, and “battleground” states and constituencies becomes commonplace, McBain suggests we remind ourselves of the peaceful, rule-based ways of resolving conflict, instead of falling back into the trite and increasingly dangerous language of militarism.
 
In The Times, Jenni Russell criticises politicians for paying lip service to social mobility (£). She argues that social mobility should be about increased real opportunities for those who are capable within their lifetimes, as opposed to the implementation of creeping change to limited lives. It would now, according to the Organisation for Economic Co-operation and Development, take the poorest families five generations to reach the average income. Russell says more must be done by politicians of all hues to improve those figures and people’s opportunities.

Did you know?

Older bees produce a drumming sound when they think that younger workers in the hive need to work harder. 

Parliamentary highlights

TODAY

House of Commons

Oral questions
Exiting the European Union

Business Statement
Business questions to the Leader of the House

General debate
Folic acid fortification

General Debate
Inclusive Transport Strategy

Adjournment
Effect of M26 road closure.

House of Lords

Oral Questions
Ensuring public sector television is discoverable –Baroness Bonham-Carter of Yarnbury.

How often the Border Force failed to achieve service level agreement targets for passenger's waiting time at Heathrow Airport between July and September - Lord Blunkett

Reassessing plans in relation to Trident following the British American Security Information Council's report: 'Blowing up the Budget: the cost risk of Trident to UK defence' - Baroness Miller of Chilthorne Domer

Reducing deaths from antimicrobial-resistant infections - Baroness Thornton

Debate
The case for a People’s Vote on the outcome of the negotiations between the UK and the EU on the UK’s withdrawal from the EU - Lord Campbell of Pittenweem

Building more affordable housing - Lord Shipley

Scottish Parliament 

General Questions

First Minister's Questions

Members' Business

Regulation of Electricians as a Profession - Jamie Halco

Scottish Government Debate
Scottish government's inaugural contribution to development report

TOMORROW

House of Commons

Legislation

Homes (Fitness for Human Habitaiton) Bill – remaining stages – Ms Karen Buck

Civil Partnerships, Marriages and Deaths (Registration etc.) Bill – remaining stages – Tim Loughton

Organ Donation (Deemed Consent) Bill – remaining stages – Mr Geoffrey Robinson

House of Lords

Legislation

Health and Social Care (National Data Guardian) Bill - Second reading - Baroness Chisholm of Owlpen

Duchy of Cornwall Bill [HL] - Second reading - Lord Berkeley

Prisons (Interference with Wireless Telegraphy) Bill - Second reading - Baroness Pidding

Children Act 1989 (Amendment) (Female Genital Mutilation) Bill [HL] - Committee stage - Lord Berkeley

Scottish Parliament

No business scheduled