Mixed Bag, China Concerns

Risk Off

Risk came off on Monday as stocks retreated, and yields declined a bit more in the wake of the US ISM manufacturing PMI on Friday. European shares are tracking lower this morning again with the FTSE 100 down another third of a percent to test the 7,600 support.

The DAX also slipped a quarter of a per cent to trade below 17,700. Wall Street dipped a touch after hitting record highs on Friday. The dollar is a tad firmer, oil rejected the move higher to retest its 200-day SMA. Bitcoin fell sharply after reaching an all-time high. Apple declined 2.5%, taking its YTD drop to almost 6% after it was fined €1.8bn by the EU.

On a (Sausage) Roll

In London, Gregg's shares advanced as the company pledged to up its dividend and open even more stores. Total sales were up a fifth in 2023, whilst LFL sales in company-managed shops were up 13.7% year-on-year.

Underlying profit before tax excluding exceptional income was up 13.1% to £167.7 million. The dividend was raised by 5% to 62p. Greggs is the ultimate trade-down, the ultimate recession-proof dining-out option.

UK Rental Market Recovering

Foxtons says the London rental market is getting back to normal. Record rent increases amid short supply helped the estate agent offset a torrid time for homebuyers, but market conditions are settling down now. Lettings revenues rose 16%, whilst sales income declined 14%; total revenues rose 5% for the full year 2023, with operating profit +2%. Shares ticked a tad lower.

Another Tech Firm Bites the Dust

Spirent shares shot to the top, rising 58%, after it accepted a £1bn bid to go private. US communications equipment maker Viavi said it would buy Spirent for 172.5p per share, representing a 61% premium to Monday’s closing price.

The move just adds to the sense that the shallow waters of the London market are not enough for tech firms to thrive. There is a lot for the Chancellor to consider ahead of tomorrow’s Budget if he is serious about support for the London market and the city in general.

Scrapping the 0.5% stamp duty reserve tax would be a start; but a pro-growth, pro-investment regime change is really what’s required.

The Dragon in the Room

China set a 2024 growth target of “around 5%” and will boost defence spending by 7.2%...that growth figure may be ambitious, with a lower fiscal deficit also being set: where stimulus? But the worry is the military spending; the ultimate Thucydides Trap, the aphoristic belief that bedevils the outlook and stratagems of the US in its dealing with China.

The trap is that it’s ultimately self-fulfilling; like the sleepwalkers who took us into the Great War, a belief in a pre-ordained, inevitable war between the rising power and the incumbent. For those not in the know, a Thucydides Trap is when an emerging power threatens established power - leading to conflict.

The increase in spending is the biggest in five years. China also officially dropped mention of "peaceful reunification" with Taiwan in a government paper, apparently hardening its position. Meanwhile AMD has been barred from selling an AI chip it had made specifically for China – the US Commerce Department blocked it saying it’s still too powerful.

Trump says he will introduce more tariffs on China should he win in November. And it’s reported today there is some alarm in Westminster at a British university working with scientists with links to the Chinese armed forces.

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