TheChek News Flow

Spanish manufacturers report worst conditions in six years

Majority of factory executives in key poll see contraction in output

Spanish manufacturers reported tumbling orders and falling output as the eurozone economy continues to be hit by global trade angst and weakening growth.

The closely watched IHS Markit purchasing managers’ index fell to 47.9 in June, down from 50.1 in May. The figure was lower than the 49.5 forecast in a Reuters poll. A reading below 50 indicates a majority of companies reported falling output.

“Spain’s manufacturing sector entered into contraction territory during June, with the respective PMI reaching its lowest level in over six years” said Paul Smith, economics director at IHS Markit. “The sector is being buffeted by a challenging economic environment, characterised by ongoing global trade tensions and political uncertainties”.

This was the first reading below 50 in more than five years. The report said output was down due to “tumbling volumes of incoming new work”.

The Spanish economy has outperformed the average of the eurozone for the last four years and it continues to do so partially because of its lower reliance on an export-led manufacturing sector than other major economies such as Germany or Italy.

It is important to keep abreast of what is driving fund performance

Why is it that whenever a buccaneering titan falls from grace, most blame is levelled at that individual? Sure, when assets halve in two years — the case with Neil Woodford’s Equity Income fund — the person managing the money bears most responsibility. But investors have liability, too.

Woodford’s now-frozen fund ploughed money into illiquid assets but then too many investors, raging about underperformance, pulled cash out. But it is not as though these investors were oblivious to Woodford putting their money into illiquid assets.

The issue is the fact that investors struggled to understand just how illiquid these assets were and, importantly, when to pull their cash.

Investors require regular insights into strategy. They cannot rely on net asset value, which makes it next to impossible to understand intrinsic value. Instead investors need a detailed view of what is driving fund performance. In this way, the headteacher who has retired to leafy Sussex, and is still paying fees to Woodford’s frozen fund, could have known the illiquidity involved and been able to make a call on withdrawal.

It boils down to individuals being able to assess the time it will take to liquidate a fund, which will be longer if the fund is invested in non-listed equities. While regulators are forcing funds to publish more information, one cannot rely on rulemakers alone.

Investors have to demand far more from their fund manager. This should include detail of positions taken as well as the type of exposure. An institutional investor putting in £500m will require this, so why shouldn’t midsized or small investors?

Some funds will refuse to give such insight but these are rare. About $30tn of the $80tn of assets under management, 37 per cent, is in funds that promise daily liquidity despite investing in potentially illiquid assets. With other funds heavily invested in illiquid assets, Woodford should not be seen as an isolated incident.

As the industry digests the evidence of Andrew Bailey, the Financial Conduct Authority chief, to the Commons Treasury select committee, investors have to decide if they know enough to hold fund managers to account. Individuals with a few hundred thousand in an active fund need to ask questions about liquidity risk. If fund managers refuse and investors still commit their money, they must accept some blame in the event of a collapse.

Private equity group Investindustrial weighs cash offer for further 3% of carmaker

Aston Martin’s largest shareholder is considering increasing its stake in the luxury carmaker, whose shares have tumbled since its listing in London last year.

Italian private equity group Investindustrial on Monday said that it is considering making a cash offer for 6.84m shares at £10 each, which would represent approximately 3 per cent of the company. The offer would be made through an independently managed subsidiary, Strategic European Investment Group.

Aston Martin’s shares closed on Friday at just over £10, having been priced at £19 in an October IPO.

The listing had valued the company at £4.3bn and raised £1.1bn for existing shareholders including Investindustrial and the Kuwaiti funds Adeem Investments and Primewagon, which sold a quarter of the company in the offering.

Investindustrial is Aston Martin’s biggest shareholder, owning 31 per cent of the company. The carmaker recorded a loss in its first-quarter results, released in May, as higher costs hit its bottom line.

Comments come in response to growing Russian and Saudi Arabian dominance

Iran will not block an extension of the Opec+ production deal, its oil minister Bijan Zanganeh said on Monday, but warned that the cartel could “die” if Saudi Arabia and Russia continue to “unilaterally” set output policy.

The comments from Mr Zanganeh clear a potential hurdle to Opec and its allies from maintaining production curbs for at least another six months, but point to a deepening split in the group over the growing dominance of Riyadh and Moscow.

Russian president Vladimir Putin announced at the G20 in Japan at the weekend that he and Saudi Arabia’s crown prince, Mohammed bin Salman had agreed the supply deal should be extended by 6-9 months, illustrating how production policy is increasingly being decided away from the cartel’s other members.

“I have no difficulty with the extension of the cut,” said Mr Zanganeh. “My problem is unilateralisation” which is “threatening the existence of opec”.

He warned that Opec was “going to die” if these processes continued, referring to the increased influence of the Russia-Saudi energy alliance at the expense of other members of the cartel. 

Russia is not an Opec member but has been allied with the group since 2016.

Opec ministers are meeting on Monday in what is expected to be a rubber-stamping of the decision to extend the group’s official 1.2m barrel a day output cut – in place since January – until at least the end of the year.

Brent crude, the international oil benchmark, rose 2.5 per cent to $66.33 a barrel ahead of the formal meeting of ministers and after the resumption of trade talks between the US and China. 

The so-called Opec+ group, including non-members like Russia and Mexico, will then meet on Tuesday.

Iran has been excluded from the cuts deal as its oil exports have been hit by US sanctions. 

Stocks in Asia climbed along with U.S. equity futures and the yuan after the American and Chinese presidents reached a truce in the trade war and agreed to resume talks. Treasuries, gold and the yen declined.

Futures on the S&P 500 rose 0.9% and the risk-on trade strengthened Monday with benchmarks in Japan and China up almost 2% in afternoon trading. European futures pointed to more modest gains. The deal between Presidents Xi Jinping and Donald Trump validated investor hopes after mixed signals heading into Saturday’s meeting. Oil rose as Russia struck a deal with Saudi Arabia to extend the OPEC+ production deal potentially into early 2020.

Nikkei +2.15% Hang Seng -0.28% CSI +2.63% Shanghai +1.98% Shenzen +3.08%

Eur$ 1.1330 CNH 6.8465 CNY 6.8473 JPY 108.35 GBP 1.2686 CHF 0.9833 TRY 5.7165 WTI$ 60 +2.62%

S&P +1.09% EuroStoxx +0.87% FTSE +0.86% Dax +1.36% SMI +1.08%

Macro :

- *CHINA JUNE MANUFACTURING PMI AT 49.4; EST. 49.5

- Watch Oil Stocks as Russia, Saudi Arabia Signal Support for Cuts

- Ugly Duckling Europe Phone Stocks Lure Contrarian Money Manager

- Asia Factory Sentiment Dealt a Blow in June as Trade War Simmers

Keep an eye on :

- ABI BB : AB InBev CEO Said to Mull Budweiser Asia Pacific Listing: FT

- ADL GY : Adler Sells Retail Assets With EU141.1m Gross Asset Value

- ALV GY : Allianz Is Committing EU350m in Equity to Joint Venture With VGP

- AMAT US : Applied Materials to Buy Kokusai Elec From KKR for $2.3b: Nikkei

- ATL IM : *ITALY PANEL SAID TO SUPPORT REVOKING AUTOSTRADE'S CONCESSION

- BSLN SW : Basilea Extends Phase 2 Study With Cancer Drug Derazantinib

- GBB FP : Bourbon Names Gaël Bodénès as CEO

- CMBN SW : Cembra Money Bank Buys Cashgate; Confirms 2019 Guidance

- COPN SW : Cosmo’s Eleview Gets Canadian Approval for Eleview Usage

- ALCYB FP : Cybergun Plans to Renegotiate Bonds Debt With Maturity Oct. 2020

- DAMAC UH : Damac Bid for Roberto Cavalli Approved, WWD Says

- DBK GY : Deutsche Bank Plans to Cut as Many as 20,000 Jobs in Revamp (1)

- DBK GY : *DEUTSCHE BANK PLANS TO HIRE 300 IN WEALTH MANAGEMENT: REUTERS

- DUFN SW : Dufry Signs 7-Year Contract for Stores at Helsinki Airport

- ENEL IM : Italy's Enel Is Considering to Sell Its Romanian Assets: Sole

- EQNR NO : Prosafe Gets Peregrino Contract From Equinor for Safe Concordia

- FDJ IPO : L’Etat a retenu les banques pour la privatisation de FDJ

- FER SM : Ferrovial’s Amey to Pay GBP215M to Exit U.K. Road Deal: Filing

- FRE GY : Fresenius Kabi Recalls Volumat MC Agilia Pump, Vigilant Drug’Lib

- HNSA SS : Hansa Biopharma Attractive Again After Share Price Slump: DI

- KN FP : L'AMF requiert deux millions d'amende contre Natixis IM, Namfi et Caceis

- NDX1 GY : Nordex to Deliver 38 Delta4000 Turbines to U.S.

- NOVN SW : Lonza to Buy Sterile Fill, Finish Facility From Novartis

- LAT FP : Latécoère Acknowledges the Intention of Searchlight to Launch a Cash Tender Offer

- LONN SW : Lonza to Buy Sterile Fill, Finish Facility From Novartis

- MC FP : *SAFILO CONFIRMS DIOR LICENSE TO EXPIRE DEC. 31, 2020

- NG/ LN : *NATIONAL GRID SELLS GAS NETWORK TO CHINA'S CIC-BACKED GROUP: FT

- NDA SS : Nordea CEO Von Koskull to Retire by End of 2020

- NOVN SW : Novartis: Data Show Long-Term Migraine Efficacy of Aimovig

- ORA FP : Orange Considers Sale of Mobile-Phone Towers, Le Figaro Says

- UG FP : French June New Car Registrations Down 8.42% From Year Ago: CCFA

- RAL FP : Rallye Weighs Extending Debt Maturities Up to 10 Years: Echos

- RNO FP : French June New Car Registrations Down 8.42% From Year Ago: CCFA

- SFL IM : *SAFILO CONFIRMS DIOR LICENSE TO EXPIRE DEC. 31, 2020

- SAN SM : Banco Santander SA is among the initial bidders for Tesco Bank’s 3.7 billion-pound ($4.7 billion) mortgage portfolio, the Sunday Times reported, without saying where it got the information

- SGSN SW : SGS Buys Majority Stake in Maine Pointe; No Terms

- TELIA SS : Telia Upgraded to Overweight at Barclays; PT 50 Kronor

- TMO LN : Time Out Chief Rejects Calls for Digital Media Consolidation: FT

- UBSG SW : Swiss Left Threatens UBS, Credit Suisse With Environment Rules

- UNI SM : Unicaja to Propose Rodriguez de Gracia as CEO, Replacing Sanchez

- VIFN SW : *VIFOR PHARMA CHAIRMAN CONFIRMS FY REV TARGETS: THE MARKET

- WPP LN : WPP Plans to Sell 25% Stake in Chime, Sunday Times Reports

* Cofinimmo Upgraded to Hold at SocGen; PT 115 Euros

* Fuchs Petrolub Upgraded to Buy at Berenberg

* Merlin Upgraded to Hold at Berenberg

* Metso Upgraded to Buy at Jefferies; PT 40 Euros

* Six Flags Upgraded to Overweight at KeyBanc; PT Set to $62

* Telia Upgraded to Overweight at Barclays; PT 50 Kronor

>>> Down

* Carnival Downgraded to Hold at Berenberg

* IAG Downgraded to Market Perform at Bernstein

* Lufthansa Downgraded to Market Perform at Bernstein

* Norwegian Air Downgraded to Underperform at Bernstein

* SSAB Cut to Underweight at JPMorgan; Price Target 29.50 Kronor

>>> Initiation

* Millicom Reinstated at SEB Equities With Buy; PT $660

* NENT Rated New Sell at SEB Equities; PT 210 Kronor

* Scout24 Resumed at Morgan Stanley With Overweight; PT 52 Euros

>>> Call

* Carnival Performance Weakening, But Valuation Fair: Berenberg

* Fuchs Petrolub Has Overwhelming Cash Flow Potential: Berenberg

* Metso Is Progressing, Rating, PT and Estimates Raised: Jefferies