11 December 2020 Market roundup Chart 1: UK GDP level October Global equity markets have largely trended downwards over the 120 past week in the absence of a new US stimulus deal and wors- ening rates of Covid-19 infections. In the UK, Brexit has weighed 100 on the pound which has seen the FTSE100 buck the trend and 80 eke out gains, since a weaker pound boosts the index’s dollar- earning multinationals. The more domestically focused 60 FTSE250, however, has lost ground as hopes of a deal have 40 faded. Most markets fell on Monday, with the FTSE100 down just 0.08% and the FTSE250 closing 1.25% lower. In the US, indices 20 were mixed, with the Dow losing 0.49% and the S&P 500 falling 0 by 0.19%. But the Nasdaq rose by 0.45% to 12,519.95 as the threat of lockdowns increased. Oct 2007 Oct 2009 Oct 2011 Oct 2013 Oct 2015 Oct 2017 Oct 2019 Feb 2007 Feb 2009 Feb 2011 Feb 2013 Feb 2015 Feb 2017 Feb 2019 Feb June 2010June 2012June 2014June 2016June 2018June 2020June UK equities were mixed on Tuesday with the FTSE100 rising by 2008June 0.05% and the FTSE250 falling by 0.25%. All US indices rose on stimulus hopes but European markets were mixed as investors Source: ONS Data at Nov 2020 weighed vaccine news with Brexit worries. Chart 2: Retail sales (%YoY) November The FTSE100 and FTSE250 both rose again on Wednesday as markets looked forward to Boris Johnson’s dinner with the EU 10 commissioner. In the US, the Nasdaq gained 0.54% but the Dow 5 and S&P500 both fell slightly as faith in the recovery was rocked 0 by worse than expected employment data. On Thursday, the -5 Brexit effect was more pronounced than ever, as the pound fell on rising pessimism, helping the FTSE100 rise by 0.54%, while -10 the FTSE250 lost 0.64% to close 19,756.10 as deal talks re- -15 mained deadlocked. The pound lost 0.72% against the dollar and -20 1.11% against the euro, compounding the weakness seen all week. In early trading on Friday, UK shares were heading down. -25 Company focus: Frasers Group 12/2018 12/2015 04/2016 08/2016 12/2016 04/2017 08/2017 12/2017 04/2018 08/2018 04/2019 08/2019 12/2019 04/2020 08/2020 Frasers Group, owner of brands including Sports Direct and Ev- ans Cycles, raised its profit guidance for the full year after re- Source: British Retail Consortium Data at 15/11/2020 porting higher profits at its half-year results, driven largely by Chart 3: Frasers Group revenue strong online sales but complemented by good performance at its bricks and mortar stores. The company, headed by boss 4% Mike Ashley, said core earnings would be between 20% and UK Sports Retail 4% 30% higher than initially thought. It said pre-tax profits for the six months to October rose to £106m, from £90m a year earlier. Premium Lifestyle Although its sports retail revenue fell by 9.8%, to £1.07bn, 56% largely caused by temporary store closures due to Covid-19 European Retail 18% lockdowns, the drop was more than offset by growth in online sales. There was no update on Mike Ashley and his last-minute Rest of World Retail talks regarding a potential rescue of Debenhams, which is fac- Wholesale & ing collapse. Despite the strong first-half performance, the com- licensing 18% pany warned that the second wave of Covid-19 and associated restrictions were ‘materially impacting the business’. Shares closed up by 4.87% on the day. Source: Frasers Group Q1 report Data at 26/04/2020 Sources: Bloomberg, Sharecast, FT, company reports and accounts Economic roundup All eyes in the UK this week have been on Brexit negotiations, and after Boris Johnson and European Commission Presi- dent Ursula von der Leyen pushed back a final decision on a Brexit trade deal until Sunday, it appears a no-deal has become the much more likely outcome. The major sticking point is the so-called ‘level playing field’. The EU is concerned that, as its rules and standards evolve over time (raising environmental, safety or employee rights regulations, for example), the UK could choose not to follow suit, meaning it could benefit from lower costs and might therefore become more competitive than the EU when doing business in other markets. Many are holding out hopes that a last-minute agreement can be reached because it is very bad timing for a no-deal Brexit, giving the UK economy is already struggling more than most. Data released by the Office for National Statistics on Thursday showed the pace of economic expansion in the UK fell sharply in October, to a rate of just 0.4%. This represents a slowdown from the 2.2% monthly growth in August and 1.1% expansion in September. Despite six months of continued expansion, economic output in the UK is still 7.9% below pre- pandemic levels. And with Covid-19 restrictions set to remain in place for several more months, the economy is facing a harsh enough winter without the extra burdens of bitter Brexit. The news came after a survey by the British Retail Consortium (BRC) showed retail sales struggled in November amid the second national lockdown. According to the latest BRC/KPMG Retail Sales Monitor for November, total sales increased 0.9%. That’s an improvement on November 2019, when sales fell by 0.9%, but it is well below the three-month average growth figure of 3.9%, and even further down on October’s jump of 4.9%. In the US, hopes were raised for a new stimulus deal, after Republicans tabled a proposal worth $916bn, a week after the release of a bipartisan package worth $908bn, called the Bipartisan Emergency COVID Relief Act of 2020. That means policymakers are squabbling over which of two relief packages to approve. The bipartisan act favoured by Democrats provides for more generous extensions to unemployment benefits than the pack- age proposed by Republicans. Indications are that negotiations will go down to the wire. Further pressure to pass more stimulus came on Thursday, with initial jobless claims in the US accelerating to 853,000 last week. The increase was caused by rising Covid-19 cases causing more lockdowns. The figure is an increase from 716,000 the previous week, according to the US labour department. Co-operation on economic assistance was more evident in Europe. The ECB increased its monetary support to the euro- zone this week, with an extra £500bn in bond purchases together with new and expanded discounted finance schemes that provide finance to banks at rates as low as -1%, effectively paying banks to lend money. The idea is to boost access to finance for businesses and households and aid the economic recovery. Company announcements that caught our attention this week: Date Company Comment 09/12/2020 Balfour Beatty Infrastructure group Balfour Beatty said it would resume dividends and would embark on a £50m share buyback in January as it reported a ‘significantly higher’ order book, totalling around £17bn, largely a result of the HS2 rail project. The figure is up from £14.3bn last year. Full year group revenue was expected to be in line with the prior year’s £8.4bn and profit from operations forecast to be in line with the expectations. The company also said it won £1bn in other contracts, including a runway project at Hong Kong’s airport, UK motorway work and a US interstate highway project. All its sites were now open and operating under local regulations. 10/12/2020 TUI TUI, Europe’s largest holiday company, reported a €3bn (£2.7bn) full-year loss this week, adding that it does not expect bookings to return to pre-Covid-19 levels until 2022. The package tour operator reported revenues down 58% to €7.9bn (£7.2bn) compared to last year due the collapse in international travel. The company said it was increasing its cost-cutting targets to €400m per year, an increase of €100m to previous guidance, as it strives for efficiencies It added that the prospect of vaccinations from the beginning of the year will significantly increase demand for summer holidays in 2021, although winter bookings across all of its markets are 82% lower than the previous year. Sources: Office for National Statistics; US Labor Dept; British Retail Consortium; John Hopkins; company reports and accounts Brewin Dolphin Research Key company diary dates 15 Dec PurpleBricks Group plc Interim results 15 Dec IG Group Holdings Plc Trading announcement 16 Dec Dixons Carphone plc Interim results Economic highlights over the next week Tue 15 December – UK claimant count – The number of people claiming unemployment benefits in the United Kingdom fell by 29,800 to 2.6m in September of 2020, following a revised 40,200 decrease in the previous month and beating mar- ket expectations of a 50,000 increase. Weds 16 Dec – UK annualised inflation rate NOV – Annual inflation rate in the United Kingdom increased to 0.7% in October of 2020 from 0.5% in September, above forecasts of 0.6%. Thur 17 Dec – Bank of England rate decision - The Bank of England left its bank rate at a record low of 0.1% on 5 No- vember 2020 and increased the size of its bond-buying program by a larger-than-expected £150 billion to £875bn. Index movements* Index Value %Change FTSE 100 6,600 1.69% FTSE 250 19,756 -1.87% AIM 1,070 0.33% Dow Jones 29,999 0.10% S&P 500 3,668 0.04% Hang Seng 26,411 -1.19% Nikkei 225 26,756 -0.20% Currency movements* Currency Pair Value %Change £:$ 1.33 -1.68% £:€ 1.09 -1.44% £:¥ 138.56 -1.08% Best & worst performing sectors (rel.