07 August 2020 Market roundup Chart 1: Manufacturing PMIs

Global equity markets largely pushed higher this week on posi- 70 tive economic data. The Nasdaq hit a record high, as did the gold 60 price, while the S&P500 is just 1% below its February peak. 50 40 Markets in the UK, Europe, US and Asia all rose on Monday, as 30 surveys of manufacturing businesses in the US, UK and Europe 20 suggested that manufacturing activity was increasing. The 10 FTSE100 saw the largest daily increase, jumping by 2.3% on 0 Monday, pushing back up through the 6,000 level to 6032.85. The FTSE100 closed effectively flat on Tuesday, pausing for

breath after Monday’s jump. BP was a standout performer, how-

01/11/2017 01/02/2018 01/05/2018 01/08/2018 01/11/2018 01/02/2019 01/05/2019 01/08/2019 01/11/2019 01/02/2020 01/05/2020 ever, gaining 6.5% despite halving its dividend as it accelerated 01/08/2017 plans to become a zero-carbon company. UK US Europe

Wednesday saw more gains, with the FTSE100 up 1.14% and Source: Markit/ISM Data at 31/07/2020 the FTSE250 gaining 1.9% as hopes grew about an agreement on a new US stimulus package. UK equities fell again on Thursday after the of England left Chart 2: Services PMIs interest rates unchanged and warned that the recovery could 60 take longer than expected. The FTSE100 closed down 1.27%. 50 Markets were also lower across Europe as investors waited nerv- 40 ously for developments on the stimulus package before Senate 30 closes for summer recess today. US shares rose, however, after 20 better than expected initial jobless claims, with the S&P500 rising 10 by 0.64% and the Nasdaq setting a new record at 11,108.07. 0 Gold also set a new record with futures hitting $2,069.4. In early

trading on Friday, UK shares were heading up.

01/11/2019 01/11/2017 01/02/2018 01/05/2018 01/08/2018 01/11/2018 01/02/2019 01/05/2019 01/08/2019 01/02/2020 01/05/2020 Company focus: 01/08/2017 Outsourcing company Serco reported profits up by 53% during US Europe UK the past six months amid soaring demand for its services in the Source: Markit/ISM Data at 31/07/2020 pandemic. The company, which provides defence, security, im- migration, health and transport services for governments in more than 20 countries, was also awarded the contract to manage the Chart 3: Serco revenue by region UK’s coronavirus test and trace programme. Underlying trading profit rose to £77.6m, up from £50.6m a year earlier. Revenues 9% jumped by 24% to £1.8bn. Revenue from contracts related to the coronavirus totalled about 18% UK and Europe 43% £130m. Performance was boosted by contract wins in 2019 and the acquisition of the Naval Systems Business Unit of Alion, a Americas key provider to the US Navy. Serco said its order intake was AsPac “strong” at £1.9bn, taking the order pipeline from £14.1bn at the Middle-East end of 2019 to £14.5bn. Serco reiterated earlier guidance this week, with full-year revenue forecast to be around £3.7bn, and a profit of between £135m and £150m — both up on last year. Nev- 30% ertheless, shares closed down by 15.7% on the day.

Source: Serco H1 2020 Report Data at 30/06/2020

Sources: Sharecast, company reports and accounts Economic roundup There was some positive data this week confirming that business activity is continuing to rebound as economies reopen. However, significant worries remain about the labour market, with the number of layoffs still rising despite improving busi- ness activity. Production by UK factories rose sharply in July, with growth in output growing at its fastest pace since late 2018. The index of business activity as measured by the IHS/Markit purchasing managers’ index (PMI) for the manufactur- ing sector rose to 53.3 in July from 50.1 in June. Any figure above 50 means activity is growing. However, the sector continued to shed jobs, albeit at a slower pace than previous months. It was a similar story in the US, where the Institute for Supply Management’s manufacturing index increased to 54.2 last month from 52.6 in June. However, the report still showed that the industry is laying off staff and adding to the US’s bur- geoning unemployment rate. The IHS/Markit Manufacturing PMI for the EU told the same story: rising production and new orders, but falling employment. The equivalent surveys covering the services sectors illustrated the same trends, consistent with an economic recovery but cautious on spending. The IHS/Markit PMI for the UK services sector rose to 56.5 in July from 47.1 in June, its most rapid increase in five years. This does not mean that the sector is as healthy as it was five years ago, but merely that the number of companies reporting rising business levels matched that of five years ago, and today of course, business levels are rising from a much lower base. However, staff numbers fell at "a steep and accelerated pace" as firms prepared for the winding back of government support and consequent rise in unemployment, making it hard to gauge business levels. On Thursday the Bank of England amended its economic forecasts to show a faster initial recovery followed by a much slower return to pre-pandemic levels of economic growth. After leaving interest rates unchanged at 0.1%, the Bank said that a robust recovery in consumer spending is expected to boost the rebound in the next few months, leading to a 9.5% drop in GDP over the year, compared to a previous estimate of a 14% contraction. But in the third quarter, when the furlough scheme ends, it says the recovery will slow down, and will only return to pre-pandemic levels at the end of 2021. It also painted a more optimistic picture on employment, saying that unemployment would rise to 7.5% by the end of the year, down from a prediction of nearly 10% it made in May. This is below estimates from most economists. Part of the rebound in consumer spending can already be seen. Retail sales rebounded sharply in June and almost 175,000 new cars were purchased in July after sales collapsed during previous months. However, many economists worry that the surge in business activity in sales is the result of “pent-up” demand from the lockdowns that will taper away by the autumn. Employment data in the US was less bad than expected, with initial jobless claims still rising by 1.2m over the past week, although that is the lowest since the pandemic started. Continuing claims also fell, but Congress is still debating whether to extend its extra weekly unemployment payments which had been introduced in March. The payments expired last week, leaving millions facing a drastically reduced income.

Company announcements that caught our attention this week:

Date Company Comment

04/08/2020 Diageo The pandemic has hit the drinks giant harder than expected. Profits fell by 47% to £2.1bn in the year to the end of June, with most of the damage done in the final three months as coun- tries around the world closed bars, clubs and restaurants in their lockdowns. Sales were down 9% to £11.7bn in the year as a whole, but fell by 23% in the last quarter. Organic net sales fell 8.4%, compared with a 7.3% fall expected by analysts. While sales fell by more than 30% in every other region, revenues in North America declined by just 1%, with tequila sales up markedly. The final dividend of 42.47p is flat compared on a year ago, but takes the total dividend to 69.88p – up 2% on last year.

06/08/2020 ITV ITV's first-half profit was almost wiped out as the Covid-19 fallout caused a slump in revenue and rise in exceptional costs. Pre-tax profit for the six months to the end of June fell to just £15m from £222m. Revenue fell from £1.48bn to £1.22bn and advertising revenue fell 21% to £671m as companies cut back during lockdown. Production income dropped by 17% to £630m as it was forced to pause production of 230 programmes. The company said about 70% of the affected programmes had restarted, and that advertisers were also returning, but that the outlook was too uncertain to provide guidance for the rest of 2020. Shares closed up 3.94%.

Sources: US Institute of Supply Management; IHS Markit; Bank of England; US Labor Dept, company reports and accounts

Brewin Dolphin Research Key company diary dates 11 Aug Prudential plc Interim results

12 Aug Admiral Group plc Interim results

13 Aug GVC Holdings plc Interim results Economic highlights over the next week Tue 11 Aug – UK Unemployment rate JUN – The UK unemployment rate was at 3.9% in the three months to May, the same as in the previous period and below market expectations of 4.2%.

Weds 12 Aug – Preliminary UK GDP Growth Rate Q2 – Britain's economy shrank by 2.2% in the first quarter of 2020, compared with a preliminary estimate of a 2% fall.

Weds 12 Aug – Preliminary Business Investment UK Q2 – Business investment in the declined 0.3% in the first three months of 2020, worse than initial estimates of a flat reading and following a similar fall in the previous period, final estimates showed.

Index movements* Index Value %Change FTSE 100 6,105 -0.44% FTSE 250 17,638 2.26% AIM 911 1.69% Dow Jones 27,202 2.49% S&P 500 3,328 2.13% Hang Seng 25,103 0.88% Nikkei 225 22,515 0.53%

Currency movements* Currency Pair Value %Change £:$ 1.31 1.38% £:€ 1.11 0.46% £:¥ 138.74 1.82%

Best & worst performing sectors (rel. to FTSE 350)* Best & worst FTSE100 performing stocks*

Sector %Change Company %Change Basic Resources 3.71% BAE Systems 10.04% Technology 3.33% Land Securities Group 8.73% Insurance 2.67% Glencore 7.71% Financial Services 1.61% Imperial Brands -6.89% Chemicals 1.28% Imperial Brands -7.96% Oil & Gas 0.47% Diageo -8.80%

*Weekly movements until close of business 05/08/2020. Sources: Bloomberg, Refinitiv

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