Weekly Market Commentary – 10th January 2020

Iran-US War Fears Subside

This week saw the welcome retreat of the political risk that dogged so much of 2019. The potential war between the US and Iran looks less likely than it did a week ago as the cycle of escalation that was feared never materialised. The passing of the Brexit bill also brings to a close a turbulent chapter in British political history. Both issues are likely to raise their heads again in 2020, but for now it’s a relief to see them both move on.  Elsewhere we get a chance to see what a Corbyn election victory might have looked like, as Spain formed a socialist coalition government this week. It isn’t quite accurate to compare this result to our own recent election. The left-wing socialist party did almost as badly as our own but has managed to secure a position as minority coalition partner. It will be interesting to see if any of their policy ideas gain traction, as many of Jeremy Corbyn’s policies were far more popular than he was.

 Companies: Aston Martin Stock Continues to Falter

Aston Martin first listed its shares for £19 each on October 2018. Since then the prices have fallen to £4.50. A run of consistently bad news has seen the share price plummet and the announcement this week saw the stock take another hit.  The luxury British carmaker confirmed it expected earnings to total £130-140m last year – a fall of around £100m from the year prior. Sales from Aston Martin dealers to consumer were up 12 per cent but the actual volume of cars requested by the dealers fell 7 per cent.

While the wheels seem to be coming off for Aston Martin, Rolls Royce continue to find another gear. The company posted bumper full year profits sending shares higher after the announcement. It beat its record number of cars sold by 25 per cent, powered by Cullinan SUV sales.

Global: US-Train War Threats Causes Market Turbulence

Markets reacted violently to Iran firing ballistic missiles at a US airbase in Iraq in retaliation for the killing of their top general. Fears of an all-out war twice triggered crude prices to break $70 dollars per barrel mark, before receding back to $65. Safe-haven assets like US Government Bonds, Gold and the Japanese Yen rallied.

It was only after a tweet sent out by Iran’s foreign minister that markets calmed. Mohammad Zarif tweeted that Iran had made a proportionate response and didn’t feel the need to go to war with the US. So far, looking at the rhetoric from both sides, it appears the threat of war is subsiding.

In the meantime, Iran may have to contended with a different scandal. Shortly after the missiles hit Iraq all 176 passengers of the Boeing 737 en-route to Kiev were killed shortly after take-off from Tehran. There are suggestions the plane may have been collateral damage in the missile strike which will complicate the situation. 

Spain: Forms first coalition Government since 1930s

After months of political uncertainty and two inconclusive elections, Spain finally has a functioning government. Interim Prime Minister Pedro Sanchez, leader of the socialist party PSOE won 120 seats but fell short of the 176 seats required to form a one-party government. Sanchez brokered a deal with far left Podemos and will lead Spain’s first coalition government since the restoration of democracy.

Whether a marriage between the hard-left and centre-left will work remains to be seen. In the meantime, the two parties have managed to agree to hike taxes for high earners and focus on reducing emissions and labour legislation improvements.