The late Gianni Agnelli was the richest man in modern Italian history and a style icon to boot. The grandson of Giovanni Agnelli, founder of Fiat, Gianni himself took the helm of the Italian car manufacturer in 1966, and thus controlled 4.4% of Italian GDP. “The Rake of the Riviera” was later named by Nina Cerutti as one of the fashion designer’s three great inspirations, alongside James Bond and John F. Kennedy.
The signature Fiat 500 may have remained small and stylish, but the company has lost its dominance, and last week Fiat Chrysler Automobiles (FCA) confirmed a merger with PSA, parent company of Peugeot 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. FCA’s stock rose heartily last week; PSA’s stock dipped, but that had more to do with disappointing corporate earnings.
Sliding prices at the pump meant that pain was shared by some of the oil majors too; over a third of all oil is used in cars and lorries. Brent crude is down at around $60, having soared close to $80 in April. That may not overly worry Saudi Aramco, which finally confirmed on Sunday that its domestic IPO would be imminent; the world’s largest company spends just $3 extracting a barrel. But the oil price was one of the factors weighing on other majors. 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% profits decline for HSBC, the index’s second-largest company, and it’s easy to see why the FTSE 100 dropped last week.
Climate change campaigners might welcome signs of the market making life hard for the oil industry, but developments through October were far from one-way on that score. Not only did Donald Trump express his fossil fuel ambitions for the US, but 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% today. 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.
The energy sector now has its lowest-ever weighting in the S&P 500 (below 5%) and it was other sectors that delivered 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.
“Earnings have been largely positive, although exceptions such as Caterpillar could indicate some potential slowing ahead,” said Chris Ralph, Chief Investment Officer at St. James’s Place. “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.”
Meanwhile, Mario Draghi ended his term as chair of the European Central Bank, handing over the reins to Christine Lagarde. 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.
Fiat and the ECB were not the only institutions witnessing the end of an era. In the UK, John Bercow stepped down as Speaker of the House of Commons, ending an influential and sometimes lively tenure. He leaves the House with a Withdrawal Agreement gaining at least a form of preliminary agreement.
And there 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 prime minister to join forces with Nigel Farage. As for Farage, he said the Tories should ditch 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 least, it looks set to be an unfamiliar election, with the potential to be a four-way fight, at least in England and Wales. Having long denounced the practice, pragmatism may yet persuade the main parties to encourage tactical voting and cut deals accordingly. As Del Boy in Only Fools and Horses liked to put it, “He who dares wins”.
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