WeeklyWatch – Car manufacturers join forces amid sales slowdown

04 November 2019

Stock Take

The world’s fourth-largest car manufacturer?

Gianni Agnelli, grandson of the founder of Fiat, was the richest man in modern Italian history – not to mention a bona fide style icon. He took the helm of the Italian car manufacturer in 1966, and was thus in control of a significant 4.4% of Italian GDP. He was also named alongside James Bond and John F. Kennedy as fashion designer Nina Cerutti’s three great inspirations.

The signature Fiat 500 hatchback may have retained its icon status, but the company itself has lost its dominance. As a result, last week Fiat Chrysler Automobiles (FCA), owner of Jeep, Alfa Romeo and Maserati, confirmed a merger with PSA, parent company of Peugeot, Citroën and Vauxhall, to form the world’s fourth-largest car manufacturer. The combined entity would have a market value of $50 billion and sell 8.7 million vehicles a year. The merger comes amid a global auto sales slowdown, plus the challenge of electric vehicles and threat of autonomous vehicles.

Slide in petrol prices affects oil majors

Over a third of all oil is used in cars and lorries, meaning that the pain of sliding prices at the pump was shared by some of the oil majors last week. Brent crude is down at around $60, having soared close to $80 in April. Shell’s profits fell by 15% and BP’s were down 40%. The two companies are the largest and third-largest listings (respectively) on the FTSE 100 – add in a 24% profit decline for the index’s second-largest company, HSBC, and it’s easy to see why the FTSE 100 dropped last week. That said, the oil price may not worry Saudi Aramco, which spends just $3 extracting a barrel. The world’s largest company finally confirmed on Sunday that its domestic IPO would be imminent.

SUVs revealed as threat to climate

Climate change campaigners might embrace these challenges to the oil industry, but developments through October were far from one-way traffic. US President Donald Trump stated his fossil fuel ambitions for the US (see ‘In The Picture’ below), and the International Energy Agency published a report showing that the share of SUVs in major car markets worldwide has risen from under 20% in 2010 to almost 40%. That makes SUVs the second-largest contributor to the rise in global CO2 emissions after the power sector – ahead even of heavy industry, lorries and aviation. SUVs were responsible for all of the growth in oil demand from passenger cars between 2010 and 2018: 3.3 million barrels-a-day.

A positive third quarter for US earnings

The energy sector now has its lowest-ever weighting in the S&P 500 (below 5%), so it was down to other sectors to deliver a positive third quarter for US earnings, with Facebook among the highlights. Three other developments mattered, too. On Wednesday, the Fed announced a 0.25% cut to US interest rates, but signalled less support in coming months, which soured sentiment. On Thursday, US GDP for the third quarter came in at 2.9%, well above expectations. Finally, on Friday, the US payrolls report showed that 128,000 new jobs were added in October. The S&P 500 clocked an all-time high.

Chris Ralph, Chief Investment Officer at St. James’s Place, commented:

“Earnings have been largely positive, although exceptions such as Caterpillar could indicate some potential slowing ahead. But GDP growth shows the US economy is still very healthy, while the message from the Fed is that there may not be a need for further cuts, and US indices are trading at all-time highs. In short, we shouldn’t be too concerned about the performance of equity markets in the US and globally at this point in time.”

Fiscal loosening on the cards for the ECB

Yesterday Mario Draghi ended his term as Chair of the European Central Bank, with Christine Lagarde taking over at the helm. She was quick to echo his support for fiscal loosening, potentially setting herself up for an argument with some of the eurozone’s northern members, not least Germany. Stocks in Europe ended close to where they had begun the week (Airbus was a positive), as they did on the Chinese mainland – the latter despite disappointing economic data and trade deal fears. Even Hong Kong stocks had a positive week, despite figures showing the territory has slipped into recession.

A Christmas general election

Fiat and the ECB were not the only institutions witnessing the end of an era last week. In the UK, John Bercow stepped down as Speaker of the House of Commons, ending an influential and sometimes animated (see ‘The Last Word’) 10-year tenure. He leaves the House with a Withdrawal Agreement gaining at least a form of preliminary agreement.

And that’s where the certainty ends. This December’s vote has already sparked a series of ‘election specials’ to frustrate the forecasters. Donald Trump criticised both Jeremy Corbyn as a would-be Prime Minister and Boris Johnson’s Brexit plan, and called for the PM to join forces with Nigel Farage. As for Farage, he said the Tories should cast aside their current Brexit plan and forge a ‘Leave alliance’ with The Brexit Party – if not, Nigel Farage’s party will contest “every seat in England, Scotland and Wales”.

At the very least, it looks set to be an unusual election, with the potential to be a four-way fight in England and Wales. Having long denounced the practice, realism may yet persuade the main parties to encourage tactical voting and cut deals accordingly. As Del Boy always liked to say, “He who dares, wins”.

Wealth Check

Many of us might be keeping a close eye on the countdown to the General Election or the extended Brexit deadline, but don’t forget that the clock is also ticking for Self-Assessment tax returns! With the January deadline less than 100 days away, HMRC is urging individuals to ‘get their ducks in a row’ in order to beat the festive rush.1

Nearly 12 million people submitted returns in the last window.2 While the deadline for paper Self-Assessments passed on Halloween (along with another key deadline you might have heard about…), those sending digital returns are advised to get it done as soon as possible.

Angela MacDonald, HMRC’s Director General for Customer Services advises:

“Avoid the last-minute rush by completing your tax returns on time and then enjoy the upcoming festive period. Last year, more than 2,000 people sent their tax returns on Christmas Day. Starting the process early, and giving yourself time to gather all the information you need, will help avoid that stressful, late rush to file.”3

Self-Assessment returns can involve quite a bit of preparation – whether it’s seeking out taxpayer reference codes or riffling through paperwork for invoices and bank statements – so it’s perhaps little surprise that it’s a task that’s often left until the last minute.

However, careful planning can ensure the process is relatively straightforward. Not only that – it can also provide you with the opportunity to maximise reliefs and exemptions, such as those associated with pension contributions. If you need any advice on your Self Assessment, contact your Wellesley adviser today.

1,3 https://www.gov.uk/government/news/self-assessment-taxpayers-have-one-week-left-to-file-their-return
2 https://www.gov.uk/government/news/get-your-ducks-in-a-row-with-100-days-to-go

In the Picture

Emma Hunt, Head of Responsible Investing at St. James’s Place, reports on the month of October on markets, covering aspects such as the US-China trade war, Asia growth results and events in Europe.

The Last Word

Mr Gove! You really are a rather over-excited individual! You need to write out 1,000 times: “I will behave myself at Prime Minister’s Questions”.

John Bercow, who stepped down last week as Speaker, reprimanding Michael Gove in 2014

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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