GlaxoSmithKline, Tesco and update on Britain's economy

Earnings news at GlaxoSmithKline (GSK), unsettled investors and the share price dropped to levels not seen in over a year. Having earlier told the market to expect an increase of as much as 8% the company warned its earnings are more likely to be flat this year. Like many other global companies, Britain’s biggest drugmaker has been hurt by the strong pound, which was partly responsible for its recent disappointing second quarter results. GSK employs over 97,000 people in over 100 countries and has a sizeable operation in Worthing.

Another global company and large employer in Sussex that came back on the ‘radar screen’ was Tesco. It shares have also fallen to a year low on news of the departure of their chief executive and yet another profit warning. Apparently Tesco’s participation in the year’s supermarket price war has proved ineffective, with the group remaining 6% more expensive than Asda on branded products. The failure of the company’s ‘Build a Better Tesco’ UK strategy 3 years on from its launch was another reason for the CEO’s exit.

Britain’s economy is now bigger than it was at its pre-financial crisis peak, after official data showed gross domestic product increased by 0.8% in the second quarter of the year. It may not always feel like it but our economy is growing faster than those of every other developed country, which has recently been confirmed by the International Monetary Fund, who upgraded their forecast from UK growth to 3.2% this year and 2.7% in 2015, describing the numbers as an ‘upside surprise’. However, the IMF warned in its quarterly World Economic Outlook that the crisis in Ukraine and continued unrest in the Middle East risked creating an oil price spike that could destabilise the global economy.

Back to a bit of local news and good cheer – it was a pleasure supporting the Juice 107.2 Appeal and their ‘Biggest Breakfast’ event. Thank you to all those Sussex coffee shops and restaurants that kindly helped to make the morning a great success.

Sports Direct, AbbVie, Shire, Meggitt, ITV, Trinity Mirror, 21st Century Fox and Time Warner

Last week drew to a close in a subdued manner following the Malaysian Airways disaster on Thursday afternoon and further news of Israel’s offensive in Gaza.

In the UK, the British Retail Consortium reported a surprisingly weak set of like-for-like sales numbers for June. That came ahead of the announcement that inflation had surprisingly increased to an annual rate of 1.9% in June. This news has added fuel to the fire in terms of when the Bank of England will move on interest rates. That said, the core inflation measure has been unusually volatile over the last four months, swinging 0.4 percentage points per month, so any conclusions should be made with caution. Expectations that a first rate hike could now come as early as the end of 2014 has lifted Sterling further.

On the company front, Sports Direct beat earnings estimates with a 15% increase in annual underlying operating profits. However, the stock sank into the red as the company said recent strong trading was offset by England's disappointing performance at the World Cup. Mike Ashley, the group’s controversial controlling shareholder was also in the news this week after he turned down his controversial inclusion in the group’s bonus plan for 3,000 of its permanent employees.

Takeover activity remains high with the US drug company AbbVie taking over Shire Pharmaceuticals in a deal that values the group at £32bn. Elsewhere, aircraft parts maker Meggitt was boosted by takeover speculation as was ITV and Trinity Mirror. Deal-making in the media sector is definitely picking up, with Twenty-First Century Fox making a play for Time Warner, which was rebuffed.

A number of large companies will be updating the market this week, however it is likely that geopolitical concerns will continue to occupy investors’ minds for a while longer yet.

IAG, easyJet, TUI Travel, Thomas Cook, Greggs, SSP and Banco Espirito Santo

On a poor week for the wider stock market, UK airline shares lost further altitude, following a profit alert from rival Air France-KLM. International Airlines Group (IAG), owner of British Airways and Iberia, and the low-cost carrier, easyJet, slid after its Paris-based peer slashed guidance for full-year earnings, due to overcapacity issues on its long-range routes.

The alert dented investor confidence in other travel-related stocks. Local Crawley-based TUI Travel also felt the pinch, as did Thomas Cook. Dealers said that nervousness about the Middle East, particularly a possible invasion of Gaza by Israel, also weighed on sentiment towards the sector.

Shares in Greggs slid after announcing that its third biggest shareholder, Troy Asset Management, had offloaded its entire 5.4% stake in the baker. Some 5.5m shares are understood to have been sold at 536½p apiece.

SSP, the business behind the Upper Crust and Caffe Ritazza food chains, which has a number of outlets in Sussex, made a successful debut as a listed company with a market value of just under £1bn. Shares in the group, which is led by former WH Smith boss Kate Swann, were priced at 210p, 5.5 times oversubscribed and initial trading was at a premium. Private equity-owner EQT is expected to remain as a major shareholder.

Wall Street has retreated from its recent highs, following the FTSE 100 and European bourses lower amid worries about the health of the Portuguese financial system and other peripheral eurozone nations. Investor concerns are centred on Portugal and the health of Espirito Santo Financial Group (ESFG) and Banco Espirito Santo (BES), the country's biggest-listed lender which has an investment banking business in London.

As equity markets were sold-off investors took shelter in the precious metals miners and physical gold and silver were back in demand.

easyjet, Mothercare, Saga, Sports Direct, Poundland and US jobs data

It has been a volatile week for easyJet, the budget airline. A downgrade from analysts and a sharp fall was followed by a minor recovery, after strong passenger numbers for the month noted a 92% load factor – the measure of aircraft capacity utilisation.

Takeover excitement boosted Mothercare - American company Destination Maternity has had two approaches rejected by the British company and some analysts believe the news could draw out other potential bidders.

Saga missed out on the wider market rally after receiving a lukewarm reception from analysts at some of the banks that floated the company. The initial public offering of the over-50s insurer and travel group is widely regarded as a high-profile flop. Sold to investors at 185p, shares in the company disappointed on their first day of trading and then fell below the flotation price. The main sticking point for many investors at the time of the float was that Saga was being valued as a leisure stock, and not an insurance one. The company has a strong consumer brand, but it is insurance that faces the most scrutiny with the vast majority of its earnings coming from financial services.

Sports Direct, was one on the big risers last week on news that shareholders had backed the retailer’s third attempt to hand founder Mike Ashley a £200m bonus. Analysts think that resolution of this issue removes a degree of uncertainty around the business and the company can now re-focus on the longer-term growth story.

Strong first-quarter numbers from Poundland, which has a number of stores in Sussex, sent shares in the recently-floated retailer upwards.

The encouraging American jobs data inevitably boosted markets on the other side of the Atlantic, with the Dow Jones Industrial Average breaking through the 17,000 level for the first time.

Barclays, TUI Travel, housebuilders, retailers and geopolitical fear

This will be another week to forget for Barclays after more controversy embroiled the firm. Shares fell following news that New York’s special securities regulator was to sue the bank for allegedly misleading its institutional investors using its “dark pools” in favour of high frequency traders. The idea of a dark pool is that it allows investors to be anonymous when they trade big blocks of shares. Barclays’ shares were weaker over fears for the imposition of fines as well as a loss to future business and yet more damage to its reputation.

TUI Travel, which has its headquarters in Crawley, found some strength following news that the group was to enter an all-share merger with its German parent company TUI AG.

Housebuilders, such as Persimmon and Barratt Developments, were generally relieved to hear of softer than expected measures from the Bank of England to cool the housing market. This news temporarily lifted pressure on the sector that had been braced for potential reactionary measures under increasing political pressures.

Burberry was another share that found some strength, supported by an upbeat research note on the luxury goods retailer from Barclays noting the smooth transition of management. However, the same broker was less enthusiastic about fellow retailer Marks & Spencer informing their clients that “consistent clothing market share losses undermine the management’s turnaround plan”. They claimed that those investors expecting M&S to buy back shares, boost its dividend, or receive a takeover approach by a private equity group are likely to be disappointed.

Despite some positive news for the economy, most markets had a flat week.  In months past we would have attributed it to fears of earlier rate hikes but instead this is being described as a response to fears of escalation in the Middle East. Geopolitics seems to have trumped monetary policy and a Chinese slowdown as the greatest fear on the minds of investors as evidence by a number of recent investor surveys.