Market Updates

Global Selloff Relents after Rally
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Rising US treasury yields, falling US tech stock prices, and incessant tweeting by President Trump were all factors contributing to the global sell-off this week. President Trump’s tweet questioned the Fed’s tightening policy. It appears the news of the rate hikes took some time to be digested by bond investors with BlackRock’s debt ETF recording a record outflow of almost $2bn in a single day. The bond market contagion spread to the US Equity market with technology stocks bearing the brunt of the headwinds.

However, the rout appears to not be as strong as headlines make out. With earnings reports for tech companies pencilled in for the 25th October, it wouldn’t be a surprise to see share prices for tech stocks rally as investors become attracted by resilient earnings prices and strong cash flow statements. Overall, it appears that the age-old adage of exercising caution and investing for long term growth continues to the best route for investors.

EM: Brazil's Assets Rally as Investors Favour Jair Bolsonaro
Brazil’s general election was held last Sunday, with far-right leader, Jair Bolsonaro almost winning the first round outright, falling just short after obtaining 46 per cent of the vote. He is now set to runoff against Fernando Haddad, candidate for the Workers Party who had 29 per cent of the votes on October 28th. Bolsonaro plans to cut the deficit and privatise state companies. His plans have proved popular with investors and as a result the Ibovespa index rose to around six per cent after the announcement. The Brazilian real also continued to extend its rally this month.

In contrast, the positive news hasn’t spread to the wider emerging markets. The MSCI emerging markets index was down three per cent this week, the Taiwan Taiex and Hang Seng indexes were also down this week as investors remained risk averse due to the global rout happening. However, towards the end of the week it appears that the losses for each of the respective indexes were being clawed back.

Utilities: SSE and Innogy Merger Receives Final Approval
It has been confirmed this week that the big six is set to become five after SSE and Innogy SE’s merger received approval from the Competitions and Markets Authority. The merger will make the new provider the second largest energy company in the UK after Centrica. The reason for the approval was that the watchdog believed both companies weren’t close enough rivals to warrant any concerns. SSE is expected to demerge its 66 per cent stake to shareholders with Innogy SE holding the remaining 34 per cent once the deal is concluded. There was little movement in the SSE share price post announcement reaching a high of £11.37 before coming back down £11.24 towards the tail end of the week.

In addition, Ofgem’s yearly state of the market report also came out this week. Interestingly the number of energy suppliers increased to 73 up from 60 last year. The increased competition has also allowed for more consumer choice with 1.4 million people having leaving one of the big six energy providers between June 2017 and June 2018. As a result, the overall profit margin for the big six fell for the first time since 2014 from £1bn to £0.9bn for 2017.

Technology: Google Appeals against 4.3bn Euro Fine
Google has appealed against a 4.3bn euro fine handed out by the European commission. The company was determined by the commission to have breached its antitrust rules earlier in July. One of the reasons for this was that it made companies who produce Android phones pre-install its Chrome browser. This was possible due to the devices requiring Google Play in order to download apps. The second claim was that Google had made payments to manufactures and mobile network operators to agree to exclusively pre-install the Google Search app on their devices.

In other related news, Google also failed to disclose that the social networking site Google+ had a bug in which any third-party developer could see the profile information of users on the site. The flaw which existed from 2015 until this year could have impacted up to half a million private users. As a result, Google have confirmed they will be closing the site after the leak was made public this week.
Author: FE Analytics