UK and Europe
Stocks rose on Tuesday as some optimism returned following some well-received corporate updates. Investing decisions are being restrained by this week’s central bank policy meetings which have the potential to upend current thinking on the low interest rate environment.
The FTSE 100 was higher by around half-a-percent by late afternoon. Retail companies Kingfisher (LON:KGF), Burberry (LON:BRBY) and Tesco (LON:TSCO) were top risers. Sports Direct (LON:SPD) was a top riser on the FTSE 250.
Shares of GlaxoSmithKline (LON:GSK) dipped 0.5% as it announced Emma Walmsley will take the helm as its new boss. Her appointment is welcome for the diversity it brings to the top of UK business but was less well-received by GSK shareholders.
Some more vocal shareholders had wanted an outsider appointed to help push through a change in GSK’s structure, and are selling shares in a show of disappointment. As an ex-L’Oreal executive, Ms Walmsley was an integral part of current chief Andrew Witty’s move to diversify GSK into consumer products. It is this diversification that has investors calling for the company to be split. The assumption is that Ms Walmsley will stick with the status quo, making a split across departments less likely.
Shares of Sports Direct gained after the sports retailer agreed to make a review of its working practises and corporate governance independent. The review was going to be carried by house law firm Reynolds Porter Chamberlain. Founder and majority owner Mike Ashley trotted out the old “it’s a few rotten apples” line in a BBC Breakfast television interview.
The worry for shareholders is that the kind of culture which permitted the poor working practices is endemic across Sports Direct. Shares gained in the hope that an independent review can bring some transparency and prompt the kind of changes needed to rebuild the reputation of Sports Direct.
Investors appear to be reacting favourably to the Burberry “September collection” at last night’s London Fashion Week show. It was the first show in which a new Burberry collection will be instantly available online and at its regent Street store. The instant availability stands to better capture the excitement surrounding a new Burberry collection at the time of release, and thus boost sales.
Shares of Tesco extended gains beyond the two-month high reached on Monday following Kantar data showing the supermarket’s best 12 week sales performance in two years. Sales still dipped by 0.2%, but that’s the smallest drop since March 2014. A decline that small shows Tesco could be weeks away from rising sales according to Kantar.
The small sales drop at Tesco stands in stark contrast with the weakest link in the top four, Asda, where sales slumped 5.4%. German competitors Aldi and Lidl saw sales growth of 11.6% and 9.5% respectively. The discounters are still making major inroads into the UK grocery sector but they are not getting as much market share from Tesco as they were.
US
Stocks in the US opened higher open on the first of the two-day meeting of the Federal Reserve whilst world leaders, including UK PM Theresa May gathered at the UN in New York.
Shares of Wells Fargo (NYSE:WFC) were under the spotlight gain as the bank’s CEO John Stumpf stood in front of US lawmakers to testify over the creation of millions of fake accounts at its retail banking division. Mr Stumpf apologised and took responsibility for the false accounts. With presidential hopeful Hilary Clinton writing an open letter to the bank’s customers, the situation at Wells is now deeply political.
To save the reputation of the bank, and his own job, Mr Stump will need to do show there is some accountability. The politicians will want a scalp. The most visible form of action would be a clawback of ex-retail banking head Carrie Tolstedt’s $125m golden parachute.
FX
The British pound fell below 1.30 to the US dollar, extending a sharp run of declines over the past two weeks. There was little in the way of data to drive the movement. The US dollar was lower against the yen and flat against the euro. There is a sense that the Bank of England may have placed themselves on a preset course to loosen policy, despite relatively upbeat post-Brexit UK economic data.
Commodities
Oil prices fluctuated on data showing that Iraq’s exports rose to 3.23M b/d in August ahead of the API US weekly inventory data. So far $45 per barrel has supported the price of Brent crude. Whether it can hold will reflect conviction amongst traders that OPEC will take action to freeze output at its meeting next week.
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