Week in review: tensions and trade war, while tech tests the boundaries

David Attwood and Eimear McKeown, Multi-Asset Solutions

Violence erupted in Hong Kong once again this week. In one incident, which was videoed and circulated on social media, an anti-government protestor was shot and injured by police. In another, a pro-Beijing supporter was set aflame after arguing with protestors. The demonstrators are calling for higher democratic standards and improved police accountability in the Chinese territory. The airline Cathay Pacific issued another profits warning as a result of the disruption. The Hang Seng Index suffered a sharp decline, dropping 4.8% over the week to close on Thursday.

The effects of the Hong Kong protests aren’t confined to stocks listed there. The UK’s Burberry, that titan of tartan-lined trenchcoats, is just one international brand that is feeling the unrest’s influence. Hong Kong is a major market for its luxury goods. Burberry said its sales in the area were down 10% and that it had cut £14 million from the value of its 12 Hong Kong stores. Despite this, Burberry’s operating profits for the first half of 2019 checked in at £202 million, a 17% increase compared to the same period last year.

Several of the UK’s largest companies went ‘ex-dividend’ this week. These included GlaxoSmithKline, Royal Dutch Shell and J Sainsbury. If an investor buys one of these stocks after the cut-off point, they are ineligible to receive the next dividend payout. It’s therefore usual for the share price to drop by a corresponding amount in the ex-dividend period. Overall, the FTSE 100 Index of large-cap stocks was 0.91% behind over the week to Thursday’s close.

Recession risk recedes

Meanwhile, the UK narrowly avoided entering recession. The Office for National Statistics said the economy expanded by 0.3% in the third quarter. This figure puts the annual rate of economic growth at just 1%, however  its weakest level since 2010.

It was a similar story in Germany. There, the economy grew by 0.1% between July and September. While the positive figure was better than expected, activity in Germany is still weak. As a large-scale exporter, the country’s economy has been pulled down by the ongoing trade dispute. The FTSE World Europe (ex UK) Index fell 0.51% over the week.

Elsewhere in Europe, the Spanish electorate decided once again that majority government was overrated. It returned the socialist PSOE party as the largest in parliament, but it can only govern with the consent of a consortium of smaller parties.

Pork gets pricier

Speaking of other UK data releases, wages rose 3.6% over the year to September (on a three-month moving average), comfortably ahead of a 1.7% per year inflation rate (which in turn decreased to 1.5% per year in October). In China, however, real incomes are suffering. According to a report released this week, consumer prices are close to an eight-year high, mainly as a result of higher food costs. African swine fever has cut a swathe through the country’s pig herds, and the deadly virus has constricted the supply of pork. According to China’s statistics bureau, the price of pork in October nearly doubled compared to the same time a year before.

Trump talks trade

President Trump demonstrated the trade war’s wherewithal to move markets earlier in the week. His comment that US taxes on Chinese imports could still be "raised very substantially" knocked confidence in equities on Wednesday. US stocks recovered to post a small gain, however. The S&P 500 Index was up 0.11% for the week to Thursday’s close. The public also had its first chance to hear evidence in the case to impeach Mr Trump. Several diplomats provided testimonies.

Meanwhile, several large US technology firms seemed to be feeling constrained by their own sector. Instead, they have identified the financial services sector as an appropriate avenue for growth. Google (listed as Alphabet), plans to roll out a checking account with Citigroup. And Facebook has introduced a new payment system, allowing money to be transferred via its platform. Both companies are under pressure from US Congress and President Trump, who maintain their threats of further regulation or outright break-up.

And finally…

He’s better known for his earworm-inducing ode to traversing the oceans, but this week Sir Rod Stewart revealed to a magazine that it is in fact railways that drive the rhythm of his heart. And we’re not talking about any old downtrain trains, either. Rather, Sir Rod has spent the past 23 years working on an intricate 124ft model railway, which runs around a highly realistic US cityscape. Met with scepticism that he had built the impressive replica himself, given his busy musical career, he called into a UK radio programme to confirm that the work was all his. Now his fans have no reason to believe otherwise. Sir Rod also defended his pastime calling it a “wonderful hobby”. Anyone who dares to refer to his handiwork as a “train set” is likely to be met with short shrift, however. The most likely response will be an “I don’t want to talk about it.”

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