8 January 2018

Scott Reid

8 January 2018

Good morning,

“The tech sector is over”.
 
And to be more precise, the party ended on September 28, 2018 according to an FT article today.
 
The date refers to a widely ignored reclassification of market stock indices by S&P Global and MSCI. In September, S&P shifted 13 of the market’s largest stocks from the “Consumer Discretionary” sector, six from “Information Technology”, and three from “Telecommunication Services” (which is now extinct) into the newly-formed “Communication Services”.
 
The move may seem humdrum. But when you consider that the stocks within Information Technology have lost 23% since the reshuffle, shorn as they are of Silicon Valley behemoths Facebook, Twitter, Alphabet, as well as China’s Tencent and Baidu, you begin to see the market’s dilemma. As the FT asks, where is the “tech” as we know it when much of the ground-breaking technology is being developed in areas that are specifically not the listed tech sector, such as climate science, stem cell research, aerospace and manufacturing?
 
Meanwhile, last Thursday’s ten per cent plummet in the value of Apple’s shares certainly added to uncertainty in the sector. But rather than short term concerns over iPhone sales or Chinese consumption, investors are worried that Apple isn’t innovating. At the start of 2019, which looks set to be a rollercoaster year for global markets, it’s definitely worth understanding these trends sooner rather than later. 
 
After all, the tech doom is definitely not affecting Amazon, which overnight has overtaken Microsoft as the world’s most valuable public company. Although traditionally grouped with the so-called FAANGs as another “tech giant”, Amazon’s growth space is very different and arguably involves very little tech. It already accounts for half of all online US retail sales and is steaming ahead in media and advertising. Hardly the cutting edge, but one analyst has predicted that its share price could jump by nearly a quarter before year end.

News

More than 50 MPs have written to Met Police commissioner Cressida Dick over a rise in the number of abusive protesters outside parliament. The letter describes “serious concerns” about the “deteriorating public order and security situation” after Conservative MP Anna Soubry was called a Nazi during a live interview for BBC and Sky News. The MPs have called for a greater police presence on College Green in response.
 
Three million new social homes must be built in England over the next 20 years to solve the “housing crisis”, new research has suggested. The report from housing charity Shelter and a cross-party commission says this would entail an upfront spend of £11 billion a year and should target groups including the homeless, private-renting families and over-55 renters. (£)
 
Police will be given new powers to tackle the illegal use of drones, the government has announced. From November, drones between 250g and 20kg will need to be registered for use, whilst the exclusion zone around airports will be extended to a 5km radius. The planned legislation will also give police additional powers to land offending drones and seize their electronic data.

Business & Economy

World Bank President Jim Yong Kim has announced he will step down in February, three years ahead of his expected term end. The Bank confirmed Dr Kim was moving to an infrastructure firm focused in developing countries, but was notably quiet on additional details. Dr Kim was nominated by Barack Obama to serve two terms from 2012 as the institution’s 12th president.
 
A collective of Wall St’s largest brokers and banks have backed a new stock exchange based in New York City to rival the dominance of the NYSE and Nasdaq intended to reduce the overall costs of trading. The Members Exchange or MEMX, revealed yesterday, is backed by financial houses including Fidelity Investments, TD Ameritrade and Morgan Stanley. (£)
 
New car sales fell by nearly seven per cent during 2018 to mark the largest annual drop since 2008, industry figures have revealed. Data from the Society of Motor Manufacturers and Traders showed 2.37 million new cars were sold in 2018, down more than 174,000 on sales in 2017. Diesel sales saw a 29.6% drop, while petrol sales were up by 8.7% and hybrid or electric vehicles were up by 20.9%.

Markets

What happened yesterday?

In a mixed day on the London market which saw retail stocks up and tobacco shares down, the FTSE 100 finished the first session of the week down 0.39% or 26.54 points at 6810.88. It was a similarly mixed day on the currency markets as sterling gained 0.15% against the dollar at $1.28, but lost 0.35% against the euro at €1.11.
 
Brokers notes accounted for much of the day’s movements, with Imperial Brands (-4.99%) and British American Tobacco (-4.20%) among the FTSE’s worst performers as Cowen cut its stance on both stocks to ‘market perform’ from ‘outperform’. Energy supplier Centrica (-4.41%), meanwhile, was downgraded to ‘hold’ by Jefferies, while investment houses St James’ Place (0.04%), Hargreaves Lansdown (-0.18%) and Standard Life Aberdeen (-1.26%) were all lower after downgrades by Deutsche Bank.
 
In a rare moment of optimism in the retail sector, homewares group Dunelm (up 15.38%) surged on the FTSE 250 as it cautioned about full-year results due to “unprecedented” uncertainty over Brexit, but managed to post nine per cent growth in total like-for-like sales during the second quarter. LFL stores revenue was also up 5.7% year-on-year and online revenue an impressive 37.9% higher. The gains helped London’s second tier market to a better overall finish – up 1.01% at 17,976.15 points.

Interims
Gateley Holdings
 
Trading Announcements
Greene King
Joules Group
SIG
 
AGMs
Salvarx Group

UK Economic Announcements
(09.00) Halifax House Price Index
 
Int. Economic Announcements
(07:00) Factory Orders (GER)
(07:00) Industrial Production (GER)
(10:00) Business Climate Indicator (EU)
(10:00) Industrial Confidence (EU)
(10:00) Services Confidence (EU)
(13:30) Balance of Trade (US)
(20:00) Consumer Credit (US)

Columns of Note

In the Financial Times, Lawrence Summers writes that excessive austerity measures in the global economy since 2008 have paved the way for the next recession. Summers points to the performance of the US and Chinese economies, widening credit spreads, lower commodity prices and greater investor appetite for short-term US bonds rather than long-term as reasons for pessimism. He concludes that the overall judgement of financial markets is that recession is significantly more likely than not in the next two years. (£)
 
In The Times, Hugo Rifkind writes on the secret to happiness. Disagreeing with research put out by behavioural psychologist Paul Dolan that suggests aspiration is an enemy of happiness, Rifkind argues the opposite. Better to realise that January blues are just that and beware soothsayers that suggest the new year need be a time for self-renewal.

Did you know?

In honour of the late Steve Irwin, the scientific name given to a rare Australian snail discovered in 2009 is Crikey steveirwini. Crikey steveirwini is the only species in the genus Crikey.

Parliamentary highlights

TODAY

House of Commons
Oral questions
Business, Energy and Industrial Strategy (including Topical Questions)

Ten Minute Rule Motion
International Development Assistance (Palestinian National Authority Schools) - Dame Louise Ellman

Legislation
Finance (No. 3) Bill - remaining stages

Adjournment
Congestion on the A40 in West Oxfordshire - Robert Courts

House of Lords
Oral questions
How many F-35B jets will make up the Operational Conversion Unit - Lord West of Spithead

Increasing the number of nurses working the NHS in England - Lord Clark of Windermere

Deploying a largely full framed and supported division into field for divisional movement and manoeuvre training - Earl Attlee

Ensuring that migrants crossing the English Channel are dealt with in a humane way - Lord Roberts of Llandudno

Legislation
Financial Services (Implementation of Legislation) Bill - Committee stage - Lord Bates

Short debate
Supporting adolescent girls in fragile and conflict-affected countries - Baroness Hodgson of Abinger

Scottish Parliament
Topical Questions

Scottish Government Debate
Ultra Low Emission Vehicles

Members’ Business
Transport Infrastructure in South West Scotland – Brian Whittle

TOMORROW

House of Commons
Oral questions
International Development (including Topical Questions)

Prime Minister’s Question Time

Ten Minute Rule Motion
Armed Forces (Derogation from European Convention on Human Rights) - Leo Docherty

Business
Proceedings on a Business Motion relating to Section 13(1)b) of the European Union (Withdrawal) Act 2018

Debate
Section 13(1)b) of the European Union (Withdrawal) Act 2018

Adjournment
Basing arrangements for the Royal Marines - Luke Pollard

House of Lords
Oral questions
Enforcement action brought by the European Commission in the European Court of Justice regarding breaches of air pollution rules during the proposed transition period - Baroness Jones of Moulsecoomb

Outreach work undertaken by British embassies with EU member states to keep UK nationals informed of their rights following Brexit - Baroness Miller of Chilthorne Domer

Consultation on the mandatory fortification of flour with folic acid to prevent foetal abnormalities - Lord Rooker

Reversing the policy of charging the victims of forced marriages the cost of their return to the UK - Baroness Hayman

Debate
Further debate, for the purposes of section 13(1)(c) of the European Union (Withdrawal) Act 2018, taking note of the negotiated withdrawal agreement and the framework for the future relationship (day 1 of 3) - Lord Callanan

Scottish Parliament
Portfolio Questions
Finance, Economy and Fair Work

Ministerial Statement
Improving Animal Welfare

Scottish Government Debate
Recognising the Life Sciences Sector in Scotland

Members’ Business
Rotary Club of Currie Balerno Recycling PCs – Gordon MacDonald