FTSE falls, tensions rise and Peppa Pig moves: The Markets in August

It is often a struggle to find news flow over the main holiday month of August, but not this time.

Article updated: 2 September 2019 3:00pm Author: Graham Spooner

Having hit a 12-month high in July the FTSE 100 fell back to levels last seen in early March, mostly on the back of escalating tensions between the US and China over trade and the fall in the renminbi. Pouring oil on these flames was growing concerns over the global economy and of course Brexit. To add to the growing negativity was the inverted yield curve, which has a good track record of being a precursor to recession. The markets were increasingly nervous with the US Dow index falling one day by over 3% as a result of falling bond yields, with the yield on the US ten-year treasury note falling below two-year yields. This “inversion” last occurred in 2007.

Bears also jumped onto other indicators with a fall in industrial output from China and growing fears regarding the economic health of European powerhouse Germany. Figures from Germany reported an 8% fall in exports over the past year and it’s GDP contracted by 0.1% over the second quarter.

A strategist at Nomura predicted a spike in volatility which will come in two waves, while UBS, one of the world’s largest wealth managers, moved to an underweight position on equities for the first time since 2012.

Before all this doom and gloom leads you to wanting another holiday, some of the above has led to investors in gold benefitting, with the precious metal rising to a 6-year high.

Factoring in the negatives you may have returned from holiday expecting markets to be somewhat lower than they are but one of the reasons they are not is the anticipation of various stimulus measures in order to give the economy a boost, such as further tax and rate cuts.

Offers, targets and takeovers

A famous British name attracted the attention of an overseas predator, this time from Hong Kong for Greene King, the pub and brewing group that can trace its history back to 1799. The 850 pence cash offer was a significant premium to the share price, with the group’s property portfolio likely to be the main reason for the approach rather than its beer. Peppa Pig will also have a new owner as US group Hasbro blew down the house that is Entertainment One with another cash offer.

Elsewhere in the market speculation on other potential targets as a result of the weak pound revolved around Morrison’s, ITV, Whitbread and Mitchells & Butlers. There were also reports that activist investors were still pushing for change at Barclays and Playtech. Unfortunately another FTSE 100 constituent Micro Focus came out with a revenue warning, which of course led to a sharp fall in the price that could result in relegation to the FTSE 250.

Betting on bad news

The role of short sellers in the market was to the fore in the month with their involvement in ASOS, Aston Martin and Burford Capital. There were the usual arguments over the rights and wrongs of these professional investors who look for overvalued (in their opinion) companies in order to benefit from a fall in the share price.
We are fed up with mentioning Brexit, but the pace as we enter the final straight is increasing, with ‘no deal’ coming up on the rails and looking likely to justify its recent move to market favourite.

Finally our start of year prediction of a World Cup and Ashes double incredibly remains on track. Hopefully the weather will remain fine in order to keep cricket on the front pages; although how the next two tests can match the last is beyond me.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Graham Spooner portrait photo
Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.

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