Italian political turmoil
Following interior minister Matteo Salvini’s tabling a motion of no-confidence, Italian prime minister Giuseppe Conte has resigned, accusing his coalition partner of risking “a dangerous spiral of political uncertainty and financial instability”. Political squabbles in Italy are hardly novel, but if a new government cannot be formed, the country will be heading towards an early election. Ten-year Italian bond yields, having hit as high as 1.81 per cent earlier this month, were sent tumbling by 10 basis points to 1.32 per cent by the burgeoning political crisis. Meanwhile, the spread against benchmark German bunds has narrowed, sitting at just over 2 per cent.
Brakes applied
HS2 reviewed
The future of the HS2 high-speed railway linking London to the North has been called into question as the UK government has launched an independent review into “whether and how” construction of the line should continue. Prime minister Boris Johnson came under pressure during the recent Conservative party leadership contest to review the project, but has said he would “hesitate” to scrap HS2 despite expressing concerns about costs. According to a review by HS2 chairman Allan Cook, the cost of HS2 is expected to increase by up to £30m, with a final cost of the project coming to around £70bn to £85bn.
Spark out
Outage investigated
Following the submission of National Grid’s (NG.) initial report earlier this month, Ofgem officially launched an investigation into the blackout of 9 August. The regulator believes “there are still areas where we need to use our statutory powers to investigate these outages”. It will be examining whether any of the parties involved – National Grid’s electricity systems operator and transmission arm, 12 distribution networks and the two power generators that failed – breached their licence conditions. National Grid has reiterated its defence that this was “an extremely rare event” and has blamed a lightning strike as the underlying cause.
BHP warns
Chinese demand concerns
Iron ore prices fell to a 10-week low this week following a warning from BHP (BHP) that it expected average benchmark prices for steelmaking raw materials to reduce over the next year. Prices climbed to a five-year high in July, but are down 30 per cent so far this month, as concerns have mounted that Chinese steel demand could falter following a surge in production during the first half of this year.
Mitie streamlines
Debt reduction planned
Continuing its strategy of simplifying operations and reducing debt, Mitie (MTO) has announced the sale of its catering and hospitality business to CH&CO for up to £85m in cash. The deal is expected to complete in early September, with the sale proceeds being used to shore up the balance sheet and be reinvested in the business. Peel Hunt estimates the ratio of net debt to cash profits will fall from 1.3 times to 0.7 times for FY2020 but has reduced its adjusted pre-tax profit forecast by 11 per cent to £70.4m.
Negative yields abound
Safe-haven rally
Germany has sold its 30-year debt at a negative yield for the first time ever this week, selling a bond maturing in 2050 with a yield of minus 0.11 per cent. The bond is also the first to be sold without coupon payments, which means investors that hold it to maturity will get nothing back until 2050. Government debt yields across Europe have sunk in recent weeks in anticipation of the European Central Bank resuming its quantitative easing programme. That trend has been mirrored in the UK, with traders seeing a cut to interest rates before the end of the year as more likely than not, based on futures data.
Hot UK tech
Foreign investors flock
Investment in the UK tech sector has surged in the first seven months of 2019, eclipsing the total figures for 2018. A total of £5.5bn-worth of foreign investments were recorded through to the end of July, according to research from the UK Digital Economy Council and Tech Nation. Undoubtedly, a contributory factor was the further deterioration of the pound against the currencies of the UK’s main trading partners. As the UK heads towards its proposed split with the European Union on 31 October, it’s significant that the analysis showed that most of the inward investment came from corporations based in the US and Asia.
A look at the Zap-Map shows there are now 24,948 electric vehicle (EV) charge points in the UK as part of a network of 9,199 EV charging stations. Although this outstrips the total number of petrol stations, the figure is still well short of estimates for the optimal number required for the anticipated roll-out of EV motorists in the UK over the next 10 to 20 years.
The point is that we are likely to witness profound industrial changes accelerating over the period. This should entail significant opportunities for investors, although we still believe that the best chance of plugging into a new source of earnings will be through supporting infrastructure rather the vehicle manufacturers.
