Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Gold is grabbing the headlines today after the yellow metal exceeded $4,000 per oz in trading last night. This latest high marks the latest stage in what has been a meteoric rise in the gold price, which has now doubled in the last two years. Some are pointing to the ongoing US government shutdown, where Federal workers have been sent home, possibly with no pay, if overnight reports of President Trump’s intentions prove accurate. But US government shutdowns come along as often as US politicians wish them to, so why has gold been so frothy about this one? Some might point the finger towards France, where President Macron’s government is once more leaderless and unable to properly govern. France is increasingly looking like a warning sign that the spending needs of the nation’s social democracy are outpacing its ability to write cheques. Either way, despite stock markets hitting new highs around the world in recent weeks, it looks like some investors are looking for a safe haven and chasing gold ever higher for now.
The UK market has opened gently higher, with the FTSE 100 trading almost 20 points better to 9,501 at the time of writing, a new high for London’s leading index. Financials are leading the rise, with Lloyds Banking Group better in early trade after news on the Motor Finance Review (see below). Gold miners are also amongst the leaders, unsurprisingly given gold’s new highs. Both Endeavour and Fresnillo are around 2% better this morning. In the mid-cap section of the market, student accommodation provider Unite Group is 5% weaker after a poorly received trading update which has also dragged sector peer Empiric down by 3%.
Last night, US tech stocks ran out of steam, with many of the leading names succumbing to profit taking, sending the Nasdaq 100 index down 0.5% last night. The wider market was also dragged lower, with the S&P 500 index losing almost 0.4%. Tesla was the most significant loser, shedding 4.5%, with other big names from Microsoft to Nvidia all weaker. It wasn’t one-way traffic though, AMD, Netflix and Palantir bucked the trend and pushed higher. Investors are still taking stock of some massive deals announced in the AI space in recent days. First, we saw Oracle soar as it revealed expectations for huge AI generated revenues, followed by major deals between AMD, Nvidia, Open AI and others that have committed hundreds of billions of dollars to AI-linked investments. Some are saying these deals are not all that they seem, however. Big AI vendors, like Nvidia, have started signing deals where their clients commit to spending many billions on AI chips, but where the AI producer also invests many billion into the buyer of those chips. Some might wonder whether the buyers would be as keen to buy, were the chip producer not giving them the monies to do it with.
The FCA revealed that the Motor Finance scandal is expected to cost the financial services industry around £11bn to clean up. That confirms recent expectations that the issue will end up costing banks and other lenders a lot less than earlier estimates. Lloyds Banking Group have today issued a statement recognising the FCA’s statement and promising further information about the overall impact on Lloyds in due course. Much of this was already known.
Specialist lender, Close Brothers, one of the most impacted firms had already seen its stock rally around 100% from the lows seen late last year, but this latest confirmation has still allowed the stock to rally 6% in early trading today, whilst Lloyds themselves are 2% better.
Independent oil and gas producer Serica Energy has warned of a hit to production after further mechanical issues emerged at the Triton FPSO unit in which it owns a stake. The FPSO is essentially a cross between an oil tanker and a rig, which both collects the oil from seabed wells and stores it onboard for eventual transfer to a conventional tanker. Problems with the flaring system have brought production to a near halt, costing Serica the loss of 25,000 barrels a day of output. Unsurprisingly the market has not welcomed the news, with Serica’s shares down almost 12% this morning. CEO Chris Cox described the situation as “incredibly frustrating”, especially given that Serica is an investor into Triton, not the operator, so these issues are largely beyond their control.
Bad news too for Vertu Motors, one of the UK’s leading motor dealership chains. The cyber-attack on Jaguar Land Rover has led to their JLR dealerships suffering lost sales as output from the group was brought to a halt. Vertu reckon the cost to the group will be about £5m, which represents a (hopefully) one-off hit of as much as 20% to this year’s expected profitability. Vertu’s stock has dipped 3% to 58p on the news this morning.
In the currencies and energy markets this morning, the dollar is strong, sending sterling down to $1.34, while Brent crude futures have rallied 60c to $66.1, firmly in the middle of oil’s trading range over the last few months.”
The author has a personal investment in Gold Bullion Securities Ltd
