MARKET ACTIVITY & EUROPEAN OPENING CALLS – 21/9/18

PM May arrived in Salzburg in a positive frame of mind.  I fear she left dejected. The Chequers proposal looks dead in the water. I don’t think I can ever remember a PM of the UK so savagely rejected by an unelected body! Either her advisors Messrs Robbins and Barrow misread the mood of EU negotiators, or Mrs May did not listen to their advice. Back to the drawing board or is it goodnight Vienna and NO DEA!  The FTSE 100 and the Pound seemed surprisingly very relaxed –

 

Markets continued to throw caution to the wind with the FTSE 100 +36 at 7367 with the Pound continuing to march on to £1.3274 – Miners were all the rage and investors took a renewed appetite for insurance, banks and housebuilders. Diageo & Unilever were also popular. Burberry eased by 4%, with analysts underwhelmed by its new fashions. This weekend should see the outcome for SKY – Comcast or 21st Century. One suspects that Comcast will land the spoils but Disney could acquire many of 21st Century assets.

 

DAX +0.88% 12326, CAC +1.07% 5451

 

DJIA +0.95% at 26656, S&P +0.78% at 2931, NASDAQ +0.98% at 8028 – Though Street of Dreams attained record levels thanks to growing convictions about the U.S. economy, it would be folly not to consider the threat of a Beijing-Washington trade spat, which could easily morph into the sort of a bellicosity that could disrupt global economic growth,

 

ASIA this morning joined in the party, with momentum responding to record high on Wall Street– ASX +0.51%, Shanghai +0.98%, Hang Seng +0.83%, NIKKEI +0.88%

 

Bonds – Japan 0.11%, Germany 0.47%, France 0.79%, Spain 1.50%, UK 1.59%, Portugal 1.86%, Italy 2.90%, US 3.07%, Greece 4.03%

 

Cable $1.3274, €/£0.8876, €/$1.1785, $/Y112.72 – Gold $1213.60 – Nymex $70.22, Brent $78.73

 

UK companies posting results today & this week – Friday – SIG, Smiths Group

 

Economic data posted this Friday – UK PSBR, US PMI

 

Opening calls FTSE +20  at 7387, DAX +41 at 12367, CAC +11 at 5462, DJIA futures +67 at 26723

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

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MARKET ACTIVITY & EUROPEAN OPENING CALLS 19/9/18

Marsh McLennan to buy JLT for just short of £5 billion – directors to share £100m – BMW, VW Daimler under investigation for restricting emissions treatment systems.

Tesco will open mini convenient stores called ‘Jack’s’ after Tesco’s founder Jack Cohen

 

FTSE 100 -2 at 7300, DAX +0.51% at 12158, CAC +0.28% 5364 – Top riser on Footsie was utility SSE, up 3.55% to 1,122.50p, while top laggard was GVC Holdings, which dropped 3.49% to 995p.

It came despite revenue rising in the online and European retail segments in the latest half year as it identified further cost savings from its Ladbrokes Coral acquisition. Ocado finished the session up just 0.79% having opened up over 4% on a good trading statement with revenue up 11.5% and goods baskets up 11.4% thanks to Casino

 

DJIA +0.71% at 26246, S&P +0.54% at 2904, NASDAQ +0.76% to 7956, – Abbvie shares take a tumble -2.89% as allegation that the drug company illegally pushed blockbusters – DOW surges 185 points as US-China trade spat barbs are not as bad as feared – AUTOZONE -1.97%, General Mills -7.62%

 

ASIA this morning – ASX +0.46%, Shanghai +0.97%, Hang Seng +1.00%, NIKKEI +1.27%.

 

Bonds – Japan 0.13%, Germany 0.48%, France 0.79%, Spain 1.50%, UK 1.57%, Portugal 1.84%, Italy 2.80%, US 3.05%, Greece 4.04%

 

Cable $1.3147 €/£0.8875, €/$1.1673, $/Y112.30 – Gold $1206.70 – Nymex $69.87, Brent $78.99

 

UK companies posting results today & this week – Wednesday – Babcock International, Kingfisher, Stagecoach, Thursday – French Connection Group, SOCO International, Kier Group, IG Group, Friday – SIG, Smiths Group

 

US companies posting results today & this week – Wednesday – Red Hat, Thursday – Darden Restaurants, Micron Technology, United Natural Foods

 

Economic data posted this week – Wednesday – UK Inflation Data, UK House Prices, US Housing starts, Thursday – UK Retail Sales, US Existing Home Sales, Friday – UK PSBR, US PMI

 

Opening calls FTSE +7 at 7307, DAX +18 at 12176, CAC +6 at 5370, DJIA futures +21 at 26267

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKET ACTIVITY & EUROPEAN OPENING CALLS

Yesterday – FTSE 100 down 2 at 7302, DAX down 0.23% at 12096, CAC down 0.07% 5348 – A major UK shareholder in Unilever is to vote against the FTSE 100 company’s plans to stop its dual British-Dutch structure and is urging other investors to follow suit. – GVC, IHG, Burberry down 1.5-3%. Centrica, easyJet, RBS & Evraz amongst the gainers in a quiet session

 

DJIA -0.35% at 26062, S&P -0.56% at 2889, NASDAQ -1,43% to 7895, – FEDEX unchanged with results in line & ORACLE -3.6% iCloud sales falling short

Netflix is the biggest faller down 3.9%, followed by Amazon off 3.2%. Apple 2.6%

 

ASIA this morning – ASX -0.44%, Shanghai -0.12%%, Hang Seng -0.72%, NIKKEI +1.52 %. Trade war tariff concerns tariffs on $200 billion to be imposed by Trump administration – NIKKEI continues to blaze the trail to a 7-month high thanks to a lower Yen and demand for tech stocks

 

Bonds – Japan 0.10%, Germany 0.46%, France 0.77%, Spain 1.48%, UK 1.54%, Portugal 1.82%, Italy 2.87%, US 2.99%, Greece 4.00%

 

Cable $1.3154 €/£0.8886, €/$1.1690, $/Y111.93 – Gold $1203.10 – Nymex $68.63, Brent $77.62

 

UK companies posting results today & this week –, Tuesday – Ocado, Spire Healthcare, Faroe Petroleum, Wednesday – Babcock International, Kingfisher, Stagecoach, Thursday – French Connection Group, SOCO International, Kier Group, IG Group, Friday – SIG, Smiths Group

 

 

 

US companies posting results today & this week – Tuesday – Autozone, General Mills, Wednesday – Red Hat, Thursday – Darden Restaurants, Micron Technology, United Natural Foods

 

 

Economic data posted this week – Wednesday – UK Inflation Data, UK House Prices, US Housing starts, Thursday – UK Retail Sales, US Existing Home Sales, Friday – UK PSBR, US PMI

 

 

Opening calls FTSE -39 at 7263, DAX -49 at 12047, CAC -18 at 5330, DJIA futures -24 at 26038

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

WEEKLY FAYRE

 

TODAY’S FAYRE – Monday, 17th September 2018

 

Tread lightly, she is near

Under the snow,

Speak gently, she can hear

The daisies grow.

 

All her bright golden hair

Tarnished with rust,

She that was young and fair

Fallen to dust.

 

Lily-like, white as snow,

She hardly knew

She was a woman, so

Sweetly she grew.

 

Coffin-board, heavy stone,

Lie on her breast,

I vex my heart alone

She is at rest.

 

Peace, Peace, she cannot hear

Lyre or sonnet,

All my life’s buried here,

Heap earth upon it.

 

Oscar Wilde – playwright & poet – 1854-1900

 

Reams have been written on the tenth anniversary of the Banking and credit crisis. Gordon Brown has never shown ANY sign of ‘mea culpa’, humility or contrition for the measurable damage that he, politicians and soft regulation that contributed to the catastrophic financial crash. However, he does have a point that another financial crash in the years to come cannot be ruled out, if the world continues to be reluctant to cooperate with each other over issues such as trade tariff wars, climate change and cybercrime.

 

In years gone by, had comments attributed to Emily Thornberry in the FT’S Jim Pickard’s article that Labour would not vote in favour of the PM’S Chequers plan and had Governor Carney been have alleged to have said that house prices would fall 35% in there was a ‘NO DEAL’ Brexit scenario, (which he clearly did not say0, markets would have thrown their toys out of their respective prams. The FTSE 100 would have sold off; and the Pound would have disappeared down the plughole! As it happened, the FTSE 100 closed in positive territory on the week – even Friday saw London’s premier index add 0.31%. As for Sterling, it was up a cent on the week to $1.3070. There was some very sloppy reporting by the ‘REMAIN’ obsessed media on Mark Carney’s comments made in his meeting with the Cabinet on Friday. One suspects that his comments were a regurgitation of the Bank Stress tests carried out by the BOE to prove that the recapitalisation of the banks meant it could sustain a 35% drop in property prices, 4% interest rates and a 4.7% drop in GDP in the event of another financial meltdown!

 

 

INDEX 10/9/18 14/9/18  % gain/loss  
FTSE 100 7277 7304 +0.37%  
XETRA-DAX 11950 12124 +1.46%  
CAC40 5250 5352 +1.94%  
DJIA 25992 26154 +0.62%  
 S&P 500 2881 2905 +0.83%  
NASDAQ 7939 8010 +0.89%  
Hang Seng 26922 27286 +1.35%  
Nikkei 22253 23095 +3.8%  
Shanghai Comp 2698 2682 -0.59%  

 

Equities had a decent run on the rails last week, except for the Shanghai Composite, which eased by 0.59% – down 20% YTD. Concerns over the trade spat and the robustness of their banks still hovers over markets like a cumuli nimbus cloud, despite ‘emerging market’ assets rallying a tad last week. There is a school of thought that says President Trump may yield on his hereto draconian stance with China. The S&P 500 is heading towards a new ‘high!’ However, the threat of another rate increase saw the 10-year Treasury yield breach 3%. Oil is only a smidgen short of $80 a barrel. There was, late last week, a warning shot across the bows from Appaloosa Management’s David Tepper, who also owns the Carolina Panthers. He has $14 billion under management.  He believes that the US ‘bull’ market may be coming to an end. He is concerned about the Sino/US trade tariff spat. However there appears to be a small chink of light at the end of the tunnel, in that China has had an invitation to engage in further trade talks. On the economic front, US retail sales were a little softer than expected, but University of Michigan saw industrial production beat forecasts.   The NASDAQ made a small recovery last week with Apple, which announced new initiatives for iPhones and watches leading a qualified charge. The content of the FED’S Beige Book suggested that the US economy was making steady, rather than spectacular progress.

 

Here in Old Blighty, it was the mining sector’s continuing deterioration that took a modest toll on the FTSE 100. Energy stocks bounced on higher oil prices, with BP and Shell to the fore. There were great results from Dunelm and Galliford Try, which saw both share prices make double digit gains.  AB Foods’ Primark also made decent progress, with sales growing by 5.5%. Wm Morrison also posted a decent trading statement. Former Tesco director, Dave Potts, has done a terrific job.  Together with Tesco, they are attempting to make a real fist of keeping the discounters – Aldi and Lidl in their sights.

 

Tesco are expected to make further staff cuts in their large supermarkets and metro stores, with a view to increasing profit margins.  John Lewis posted an apology of a profit of circa £1 million – a drop of 99%. Chairman Charlie Mayfield suggested that BREXIT was a contributing factor. I don’t think so.  I suggest poor management, indifferent technology, an inadequate John Lewis website and a drop in the standard of service were the main reason for the fall in profits. Does John Lewis really need to spend £5m on its Christmas advert; no doubt most of it ending up in Sir Elton John’s coffers.

 

There were plenty of nuggets of corporate news to ruminate over. Blackstone are considering buying properties from Network Rail (5000 properties and viaducts and arches). Debenhams future continues to provide great challenges for the management. Another profits warning did not help this retailer’s cause and the share price fell 10%. Chairman Sir Ian Cheshire said that Debenhams is considering selling its Danish operation Magasin Du Nord for about £200 million. Sports Direct’s Mike Ashley owns 30% of Debenhams and is keeping a close eye on developments. Sports Direct also encountered its own problems last week, with chairman Keith Hellawell being forced to resign, under shareholder pressure.

 

 

CYBG confirmed that the authorities had approved its £1.7 billion takeover of Virgin Money. News filtered that private equity was considering buying RPC Group and its shares subsequently bounced 17%. On Thursday the MPC kept bank rate unchanged at 0.75%. There is little doubt that concern over BREXIT was very much on the committee’s mind. Turkey raised rates to a staggering 24%. On a charitable note, Amazon’s Jeff Bezos has donated $2 billion to philanthropic causes.  Hedge funds are still baying for blood on Carillion – shares down from 64.00 eleven months ago to 14.20 on Friday, with many market observers feeling these hedge funds have unfinished business. ITV (valued at £6.4 billion has apparently entered the race to buy Endemol, valued at £3 million from Apollo/21st Century – the makers of Big Brother, The Fall, Master Chef. Endemol, a Dutch operation has been through a number of hands in recent years – Telefonica, Berlusconi’s Mediaset. It became heavily debt-laden and was taken out of its misery in 2012 by Apollo and 21st Century. Endemol represents another opportunity to take on Netflix and Amazon.

 

UK companies posting results this week – Monday – Gleason, Dairy Crest, Tuesday – Ocado, Spire Healthcare, Faroe Petroleum, Wednesday – Babcock International, Kingfisher, Stagecoach, Thursday – French Connection Group, SOCO International, Kier Group, IG Group, Friday – SIG, Smiths Group

 

US companies posting results this week – Monday – Oracle, FedEx, Tuesday – Autozone, General Mills, Wednesday – Red Hat, Thursday – Darden Restaurants, Micron Technology, United Natural Foods

 

Economic data posted this week – Wednesday – UK Inflation Data, UK House Prices, US Housing starts, Thursday – UK Retail Sales, US Existing Home Sales, Friday – UK PSBR, US PMI

 

 

David Buik

Communications

Mobile – 07788 144 877

 

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MARKET ACTIVITY & EUROPEAN OPENING CALLS 17/9/18

Reams have been written on the tenth anniversary of the Banking and credit crisis. Gordon Brown has never shown ANY sign of ‘mea culpa’, humility or contrition for the measurable damage that he, politicians and soft regulation that contributed to the catastrophic financial crash. However, he does have a point that another financial crash in the years to come cannot be ruled out, if the world continues to be reluctant to cooperate with each other over issues such as trade tariff wars, climate change and cybercrime.

 

 

INDEX 10/9/18 14/9/18  % gain/loss  
FTSE 100 7277 7304 +0.37%  
XETRA-DAX 11950 12124 +1.46%  
CAC40 5250 5352 +1.94%  
DJIA 25992 26154 +0.62%  
 S&P 500 2881 2905 +0.83%  
NASDAQ 7939 8010 +0.89%  
Hang Seng 26922 27286 +1.35%  
Nikkei 22253 23095 +3.8%  
Shanghai Comp 2698 2682 -0.59%  

 

Equities had a decent run on the rails last week, except for the Shanghai Composite, which eased by 0.59% – down 20% YTD. Concerns over the trade spat and the robustness of their banks still hovers over markets like a cumuli nimbus cloud, despite ‘emerging market’ assets rallying a tad last week. There is a school of thought that says President Trump may yield on his hereto draconian stance with China. The S&P 500 is heading towards a new ‘high!’ However, the threat of another rate increase saw the 10-year Treasury yield breach 3%. Oil is only a smidgen short of $80 a barrel. Retail sales a little light but Michigan industrial production better than expected

 

Here in Old Blighty, it was the mining sector’s continuing deterioration that took a modest toll on the FTSE 100. Energy stocks bounced on higher oil prices, with BP and Shell to the fore.

 

ASIA this morning – ASX +0.24%, Shanghai -1.06%%, Hang Seng -1.00%, NIKKEI % +1.20% – US/China trade tensions rise again.

 

Bonds – Japan 0.10%, Germany 0.44%, France 0.76%, Spain 1.48%, UK 1.53%, Portugal 1.84%, Italy 2.79%, US 3.00%, Greece 4.04%

 

Cable $1.3079 €/£0.8894, €/$1.1633, $/Y111.96 – Gold $1199.60 – Nymex $68.95, Brent $78.02

 

UK companies posting results this week – Gleason, Dairy Crest, Tuesday – Ocado, Spire Healthcare, Faroe Petroleum, Wednesday – Babcock International, Kingfisher, Stagecoach, Thursday – French Connection Group, SOCO International, Kier Group, IG Group, Friday – SIG, Smiths Group

 

US companies posting results this week – Monday – Oracle, FedEx, Tuesday – Autozone, General Mills, Wednesday – Red Hat, Thursday – Darden Restaurants, Micron Technology, United Natural Foods

 

Economic data posted today – Wednesday – UK Inflation Data, UK House Prices, US Housing starts, Thursday – UK Retail Sales, US Existing Home Sales, Friday – UK PSBR, US PMI

 

Opening calls FTSE -13 at 7291, DAX -21 at 12103, CAC -10 at 12103, DJIA futures -35 at 26119

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKET ACTIVITY & EUROPEAN OPENING CALLS

The MPC – Bank of England has left UK interest rates on hold at 0.75%, despite GDP 0.6%, Construction +4.5%, Service sector grew – manufacturing poor

It has also left its quantitative easing programme unchanged. Worry over BREXIT outcome – wage inflation 2.6% – inflation – 2.4% to 2.5% first up move since November last year. Mr Carney told the Cabinet a ‘NO DEAL SCENARIO’ could see property prices fall by 35% adding the warnings of inflation/interest rates rising to 4%, after the Pound is trashed & GDP falling by 4.7%

 

 

YESTERDAY’S EUROPEAN CLOSE –

FTSE 7281 -0.43% DAX 12056 +0.19%% CAC 5328 -0.08% – Marks and Spencer is down almost 3% and Morrisons was 1.6% lower, despite Morrisons reporting decent results, but investors seem to be a bit gloomy about grocers. The question now is where can Morrisons go from here? There remains some intense pressure from discounters such as Aldi and Lidl, though Tesco has lately announced its own discount chain aimed at countering the German upstarts

The performance of WM Morrison Supermarkets in the second quarter of the year has remained impressive in the view of many. The company recorded like-for-like (LFL) sales of 6.3% excluding fuel, which takes its LFL sales growth in the first half of the year to 4.9down 2% but from 219p to 260p YTD shares – up 18.7%

Revenue moved 4.5% higher in the first half, with underlying profit before tax rising by 9% to £193 million. This enabled the company to pay a further special dividend of 2p per share, which takes its interim dividend to 3.85p per share. This is an increase of 132% versus the same period of the previous year.

 

GVC – 0.38% – 944 to 1058p YTD +12%

 

DOW +0.57% S&P +0.53% NASDAQ +0.75% – On the Street of Dreams Apple on the march again – introduces new iPhones and Apple watches (+2.42% at $226.41) – IBM 1.6%, INTEL +1.4% – DISNEY, MICROSOFT, MERK & UNITEDHEALTH all +1% – CPI – The Labor Department said its Consumer Price Index increased 0.2 percent last month after a similar gain in July – less than expected

 

ASIA – ASX +0.65%, Shanghai -0.13%, Hang Seng +0.80%, NIKKEI +0.96% – Markets generally positive but nervous as US-China trades tensions linger

 

Bonds – Japan 0.11%, Germany 0.42%, France 0.73%, Spain 1.46%, UK 1.50%, Portugal 1.85%, Italy 2.79%, US 2.95%, Greece 3.98%

 

Cable $1.3111 €/£0.8913, €/$1.1691, $/Y111.82 – Gold $1210.40 – Nymex $68.78, Brent $78.28

 

UK companies posting results this week today – JD Wetherspoon, Investec

 

 

US companies posting results today – Dave & Buster’s Entertainment

 

Economic data posted today – US Retail Sales & Industrial Production

 

Opening calls FTSE +16 at 7297, DAX +30 at 12086, CAC +14 at 5342, DJIA futures +7 at 25152

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

LET’S REVISIT THE CRASH of 2008/9 – Many of the issues are often forgotten!”

The Crash! – 10 years on… The memories remain vivid!

 

By David Buik

 

If I was forced to lay the blame for the apocalyptic 2008/9 financial crash and the deepest recession since 1929 at one person’s feet, it would unequivocally be at former Federal Reserve Chairman Alan Greenspan’s.  Why? He had been at the helm of the Fed since 1987 and had handled the financial whips and scorns of time relatively deftly.  However, the advent of the Bush administration in 2000 crystallised the possibility of a major recession in the US.  Consequently, Greenspan encouraged all American banks to lend every ‘nickel and dime’ they could lay their hands on to every ‘John Doe’, particularly if he/she wanted to buy a property in the likes of deepest Nebraska. There was doubt that many of these borrowers had the capacity to either service this debt or repay it.  The fact that there were inadequate regulatory controls didn’t help and the situation was exacerbated by the Glass Steagall Act being revoked in 1999.

 

This may sound like a harsh appraisal. However, at that time, investment banks around the world, particularly in the US, had learnt how to use derivatives to full affect as well as the innovative ability to package these loans up in to small parcels, which were easy to sell to unsuspecting wealthy retail investors.  The packaging came from loans transacted by the banking fraternity as well as by Fannie Mae and Freddie Mac.  This was sub-prime lending at its most virulent.

 

In 2002 HSBC paid $14 billion for a subprime operation called Household.  By 2006 HSBC, to its eternal credit, flagged up that this style of lending may not be all it was cracked up to be.  Bad debts were increasing by the day.  Throughout 2007 anxiety over the robustness of the world’s banking system was growing.

 

By March 2008 the US Treasury Secretary Hank Paulson rattled JP Morgan’s Jamie Dimon’s cage, imploring him to take Bear Stearns off the street and into JPM’S portfolio.  Bear Stearns was all but insolvent through its involvement in mortgage lending and related bond activity.  JP Morgan paid $2 a share amounting to $236 million and in September 2008 JP Morgan swept up Washington Mutual for $1.9 billion.  The situation was becoming alarmingly acute by the day.  On 15th September Lehman Bros finally went down for $50 billion on $600 billion worth of assets.  It’s very easy to be wise after a catastrophic event of this magnitude.  However, Paulson’s decision not to bail out Lehman Bros, which presumably had Ben Bernanke’s – the new Federal Chairman – backing, proved to be an act of folly.  Why? The many international banks which had transacted thousands of deals with Lehman Bros had no opportunity to cross these deals.  Consequently, the losses incurred by the financial fraternity were much greater than they should have been. 

 

Not only were banks becoming deeply involved, but so were insurance companies and specifically AIG, which was bailed out the following day for $85 billion.  The toxic effect of the collapse in the global banking and credit crisis was felt right across the world.  Unemployment in the US rose from 4.7% in 2007 to 9.8% in 2009, the equivalent of 14 million people unemployed.  The subsequent recession was very deep.  On 29th September 2008 the Dow Jones fell 777 points – the largest drop in any single day in history.

 

We should now look at the help provided by the Fed to the banking sector in the form of quantitative easing.  Initially it was $700 billion which was wholly inadequate. However, it was added to on a regular top up basis.  On 3 October 2008 the “Troubled Asset Release Program” was introduced by the US Treasury and the Fed.  Every bank was forced to participate, even the great Goldman Sachs and JP Morgan!  Even though the recession was probably deeper in the US than anywhere else in the western world the recovery, due in the main to quantitative easing, was more rapid.  Credit should also be given to the Dodd Frank Act which saw regulation change more dramatically and quickly than it was in the UK and Europe.  Just look at the way Wall Street recovered! – Dow Jones from 6626 on 6th March 2009 to 25995 on 7th September 2018 – up 292%.  The NASDAQ composite from 1293 on 6th March 2009 to 7922 on 7th September 2018 up 512%.

 

So much for the United States! Here in Old Blighty the situation was just as desperate.  The first sign of financial stress the public was subjected to was in September 2007 when the BBC’s Hugh Pym took a stroll down Moorgate to see the queues lining up outside Northern Rock PLC. I accompanied him as at the time I was BGC Partners’ market commentator.  People were panicking until Chancellor Alistair Darling made it clear that depositors would be paid in full up to £81,000.  Then the queues disappeared. Though Gordon Brown in his heyday was a decent Chancellor, he was entirely wrong blaming sub-prime lending on the banking and credit crisis in the UK. It is generally accepted that RBS was injudicious in paying a gargantuan £26 billion for the investment banking division of ABN AMRO.  This was a ‘pup’ laden with bad debt, which might easily have fallen into Barclays’ lap at a lower price.  Apart from that deal the demise of the banking sector was almost entirely due to poor credit analysis and soft regulation which both Labour and the Conservatives were surprisingly comfortable with.  Bank balance sheets just grew ridiculously, with RBS allowing its balance sheet to reach £2.2 trillion – larger than the Government’s balance sheet of the day – aided and abetted by copious acquisitions made all over the world.  In the case of HBOS its lending to property requirements was bordering absurd.

                                                                                                                              ,

Northern Rock was really the catalyst of the collapse of the UK’s financial system.  In August 2008 it went down for £3 billion.  Adam Applegarth, Northern Rock’s ebullient and bombastic CEO, was allowed together with its naïve and ill-disciplined board to agree mortgages over 100% of the property’s value, whilst borrowing short-term money.  Many of these people who borrowed never had the capacity to service their debts in the property market, that was on fire.  The bad debts of Northern Rock were eventually garaged in the new Government arm – UK Financial Investments.  Chancellor Darling was inspirational at grasping the nettle with this initiative and the troubled waters were temporarily calmed.

 

In April 2008 RBS went to the market for a £12 billion rights issue to pay for ABN, which investors bought hook line and sinker.  Within weeks the share price of RBS had halved.  In July 2008 HBOS went to its shareholders for £4 billion, the same happened.  By November it was near enough all over for both RBS and Lloyds Banking Group, whom we understand was persuaded by the Government to take in HBOS in to its portfolio, with indecent haste, to avoid the embarrassment of another bank going in to public ownership.  Both were bailed out by the Government for circa £75 billion.

 

As we know all know, Lloyds is now out of the tax payer’s control with a small profit, though it took nine years.  RBS is still underwater.  The break even for the tax payer is 503p.  The current price is 242p.  The likelihood of the tax payer getting its money back is zero.  RBS, since 2008 has lost over £100 billion and now that the litigation seems to have finished, one suspects that the Government will unload the taxpayer’s stake within the next two years to private enterprise. Had Barclays not arranged a cash injection of $8 billion from Qatar, the ‘Bald Eagle’ could well have found itself in the ‘lifeboat’, despite between 50% and 60% of its profits emanating from Barclays Capital, its investment banking division, over the previous decade.  Subsequently, the legitimacy of this injection is being challenged in the high court. HSBC, thanks to its global diversity avoided official help, though access to central bank liquidity and QE was essential. At the end of the day ‘Household’ eventually cost the ‘local bank’ over $50 billion in losses!

 

The road to recovery in the UK has been painful.  However, few could begrudge significant praise to Lord Mervyn King, Sir Paul Tucker and colleagues for the brilliant, undemonstrative and calm manner they handled, on behalf of the BOE, the liquidity required to get the banking sector back on its feet.  I think few people realise how close the UK was to financial Armageddon – I am not exaggerating.  Quantitative Easing to the tune of initially £425 billion rising to £475 billion gave the market the fillip for renewed confidence to the financial system overall.  The FTSE has rallied from 3,530 on 9th March 2009 when QE was introduced to 7,278 on 7th September 2008 – up 106%, a mere bagatelle in comparison to the US markets. However, QE was a necessary evil, stimulating a renaissance of confidence. Frankly, it was an exercise in ‘free money’ that raised the spirits of the banks, enabling the economy to gird up its loins, whilst a few people made a shed load of money.  Mind you QE in the UK was ‘small beer’ in comparison to the US facility, which totalled $4.5 trillion! What no one knows is what the ramifications and fall-out from QE will cost.

 

The damage to society from the recession has been virtually irrevocable.  Unemployment rose from 5.7% in 2008 to 8.5% in 2011.  So many people lost their jobs, their houses, with many families destroyed.  Unsurprisingly there has been a massive manifestation of resentment, anger and bitterness towards those responsible for the collapse of the economy – a few greedy bankers, poor regulation and inept politicians, who allowed the banking sector’s balance sheets to grow by ludicrous proportions.  So much has been written about RBS’s Fred Goodwin, his Chairman Sir Tom McKillop and HBOS’s Lord Dennis Stevenson and James Crosby.  Their incompetence and lack of judgement knew no bounds. Two issues have upset me. Firstly, no senior banker has ever been brought to book; it’s always “the oil rag rather than the engine driver” that has been blamed and punished. Finally, there has been too much banker bating. This has been counterproductive for the recovery process. Only very few people behaved badly. Not all bankers are pariahs. 

 

The recovery of the economy has been anaemic at best, though unemployment is now down to 4%. However, the well to do have become richer and those that had little seem to have less!  The UK took a long time to grasp the regulatory nettle with Gordon Brown looking for guidance from the European Union.  Why? I have no idea, as the EU has been even slower getting to grips with its banking sector.  The EU only introduced QE in 2015.  The UK wasted so much time with Gordon Brown initially prevaricating in making decisions.  He grew in to the crisis well.  However only two people really came out of this crisis with their reputations in tack – Lord Alistair Darling who was a cool, calm and collected Chancellor all the time and in the background Lord Paul Myners, whose commercial savvy proved value for money.

 

From 2010 Chancellor George Osborne was seen in a very positive light, in terms of leading the country out of economic bondage. However, though not George Osborne’s fault, there is little doubt that low interest that prevailed for a decade and the need for QE, a ‘necessary evil’, have seriously damaged savers. Savers are an essential ingredient for a strong economy. It has also wrecked pension schemes and may well have damaged investment for the recovery process.

 

Under the stewardship of Lord Mervyn King initially and subsequently Mark Carney, the Bank of England has been extremely diligent in regulating the banks.  Each bank requires almost ten times the amount of capital to do the same business it did ten years ago.  Andrew Bailey as head of Prudential Banking masterminded these changes and last year was appointed Managing Director of the FCA.

 

What have we learned from this financial meltdown and could this happen again?  Despite a like-warm economic recovery, UK banks have proved to be a poor investment for some years.  Not only did the banks’ trashed balance sheets prevent recovery, but there was a small matter of PPI payments which cost the banks £30 billion.  Again, this proves that aggressive sales, greed and poor regulation have been just as toxic as casino banking, as Sir Vince Cable likes to refer to it as.

 

Those of us who worked as brokers in the money markets knew by May 2007, that there was “trouble at mill.” As wholesale money brokers at BGC Partners, we, like other leading parallel companies were unable to provide little, if any deposits for Northern Rock, Bradford & Bingley and Alliance Leicester Building Society. The information board in our dealing room just said ‘SHOW ME THE OFFER’ in red ink! The Bank of England knew the difficulties these mortgage banks were having raising funds. Confidence in the wholesale deposit market started to dissipate by the day.  By the beginning on 2009, it was all but non-existent. There was an eerie feeling across the city. The noise of frenetic and hysterical trading grew daily, but it was interest rate swaps, FRAs, foreign exchange and bond trading that created the cacophony of noise, not the old-fashioned interbank deposit market! At times pandemonium prevailed!

 

Throughout 2008/9 I was a frequent commentator on television and radio on the banking crisis and credit crunch – often appearing six to eight times in a day, such was the dearth of choice. These appearances were not down to any specialist talent or prowess. It was because few representatives from the banks themselves were prepared to comment, in case their situation was prejudiced or compromised. I remember BBC Today’s John Humphrys very frustratingly appealing for a banker to come forward to discuss the issues of the day with him, whilst I was in the studio.  It never happened until much later.

 

 

Could what happened in 2008/9 ever be repeated? – unlikely but possible. Regulation is much tighter than it was, particularly tough banking ‘stress tests’ being constantly revised and implemented. However, I am disturbed that President Trump seems comfortable relaxing regulation in the US. Asia and particularly China has so much growing and expansion to deal with. Together with the economic explosion taking place on the sub-continent, it will be hard to keep the lid of safe regulation, particularly in the wake cyber-crime, which makes the global banking sector look vulnerable. Remuneration is still far too high, but the fact that bonuses are now paid mainly in share options rather than cash should lead to greater stability and the ability to take rewards granted back, if profitability proves to be erroneous. The Daily Mail’s James Burton makes a strong comment today that the reputed £178 million the bosses of four largest UK banks have earned, is wholly unacceptable. In isolation this is true. However, in international markets, quality people cost money and the need for a number of these specialised operators was essential to get these banks back on their feet. Consequently, the bosses are in neon lights. If the job gets done by the professionals, then the bosses will want their pound of flesh. In the case of Stephen Hester and Ross McEwan, they have never been seriously remunerated for their thankless task.

 

In closing it worries me that the bank manager is becoming an endangered species. To compensate with much tougher capital requirements banks are relying too heavily on technology with a view to cutting costs. I find it hard to reconcile making decisions on loans to clients – both corporate and consumer – without seeing the whites of their eyes. The Bank of England’s Chief Economist, Andy Haldane has spoken very eruditely of the dangers of a technological revolution, which could savage jobs. Let me chuck my ‘two cents worth in’ – human contact in banking is a fundamental requirement! This is more than just a warning!

 

David Buik

Communications

Mobile – 07788 144 877

 

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MARKET ACTIVITY & EUROPEAN OPENING CALLS

Yesterday the ERG threw its 2 cents worth in to the pot over the Irish Border problem, which appeared to draw a like-warm reaction from the Government.  Also unless I don’t understand English any more, President of the EU J-C Juncker was clear in the rejection of the Chequers proposal and was looking for more compromises and concessions. I’d be surprised if many would get through Parliament.

 

New York has overtaken London as the world’s most attractive financial centre, a survey said on Wednesday, as Britain’s decision to leave the EU prompts banks to shift jobs out of the city to keep access to Europe’s single market. It should be pointed out that the extra 8% surcharge tax on banks in London vs the Trump tax cut to 21% in New York may have something to do with it!

 

YESTERDAY’S EUROPEAN CLOSE –

FTSE 7313 +0.39% DAX 12032 +0.52%% CAC 5332 +0.92% – In a quiet session the performance of energy stocks like BP, Shell and Tullow provided the momentum. DUNELM (+11.6%), GALLIFORD TRY (+10.5%) posted glittering results. Sports Direct’s chairman Keith Hellawell, Tony Blair’s former drugs Czar resigned – share responded by adding 3.46% – Mark Carney staying until January 2020

 

DOW +0.11% S&P +0.04% NASDAQ -0.23% – On the Street of Dreams Apple announced a new iPhone (-1.24% at $221) – The FED’s Beige Book the economy is growing modestly in most districts, but the introduction of trade tariffs is starting to curb investment.

 

 ASIA – ASX-0.42%, Shanghai +0.14%, Hang Seng +1.37%%, NIKKEI +0.91%

 

Bonds – Japan 0.10%, Germany 0.41%, France 0.72%, Spain 1.46%, UK 1.50%, Portugal 1.85%, Italy 2.79%, US 2.96%, Greece 4.04%

 

Cable $1.3046 €/£0.8914, €/$1.1634, $/Y111.39 – Gold $1211.20 – Nymex $69.91, Brent $79.31

 

UK companies posting results this week Tuesday – GVC, Wm Morrison

 

US companies posting results today – Thursday – Kroger, Adobe Systems

 

Economic data posted today – BOE MPC, US CPI

 

Opening calls FTSE -8 at 7305, DAX -27 at 12005, CAC -17 at 5315, DJIA futures -10 at 25988

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKET ACTIVITY & EUROPEAN OPENING CALLS

YESTERDAY’S EUROPEAN CLOSE –

FTSE 7273 -0.08% DAX 11970 -0.13% CAC 5283 +0.27% – The Office for National Statistics said average weekly earnings excluding bonuses in the three months to the end of July increased by 2.9% compared with a year ago, up from 2.7% in the quarter to the end of June. JD SPORTS +0.0% and 14.6% YTD – ASHTEAD +5.3% – IMPS -3.3%, BATS -2.7%. Miners remained weak with Anglo American, BHP and Rio all losing an average of 1.3% yesterday.

 

DOW 25971 +0.44% S&P 2888 +0.37% NASDAQ 7972 +0.61% – Street of Dreams relatively buoyant with energy & telecoms leading the way. On tech front, Apple +2.5% Facebook +1.07% and Microsoft +1.70% were the leading gainers.

 

ASIA – ASX -0.02%, Shanghai -0.33%, Hang Seng -0.38%, NIKKEI -0.49% – China seeks permission from WTO to impose sanctions on US in response to action taken by US

 

Bonds – Japan 0.10%, Germany 0.43%, France 0.74%, Spain 1.46%, UK 1.50%, Portugal 1.88%, Italy 2.79%, US 2.96%, Greece 4.04%

 

Cable $1.3005 €/£08905, €/$1.1584, $/Y111.49 – Gold $1991.10 – Nymex $69.89, Brent $79.38

 

UK companies posting results this week Tuesday – Dunelm, Galliford Try,

 

US companies posting results today – Thursday – Kroger, Adobe Systems, Friday – Dave & Buster’s Entertainment

 

Economic data posted today – US PPI & Beige Book

 

Opening calls FTSE unchanged at 7273, DAX +22 at 11992, CAC +13 at 5496, DJIA futures +10 at 25981

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

MARKET ACTIVITY & EUROPEAN OPENING CALLS 11/09/18

 

Today is the 17th anniversary of 9/11 when 2996 people perished in the WTC – North & South Towers and the Pentagon –648 were Cantor Fitzgerald employees and 63 from Eurobrokers – spare a thought for them and their families RIP.

 

FTSE 7279 +0.02% DAX 11986 +0.22% CAC 5269 +0.33% – Barnier’s encouraging noises lifts Sterling, underpins FTSE – miners still slump, but banks rally!

 

DOW 25857 -0.23% S&P 2877 +0.19% NASDAQ 7924 +0.27% – 4-day retreat on tech sector stopped

The day’s gains were fairly broad-based, with eight of the 11 primary S&P 500 industry groups finishing in positive territory led by utilities and real estate, while the Dow Jones Transportation Average rallied to a record.

 

ASIA slightly better with a serious mark up for the Nikkei 225 – rumour of another Trump/Kim meeting – ASX +0.58%, Shanghai +0.30%, Hang Seng +0.08%, NIKKEI +1.19%

 

Bonds – Japan 0.11%, Germany 0.40%, France 0.72%, Spain 1.45%, UK 1.47%, Portugal 1.87%, Italy 2.75%, US 2.93%, Greece 4.15%

 

Cable $1.3038 €/£0.8891, €/$1.1598, $/Y111.43 – Gold $1198.90 – Nymex $67.60, Brent $77.50

 

UK companies posting results this week Tuesday – Cairn Energy, JD Sports, Vectura, Ashtead,

 

US companies posting results today – Thursday – Kroger, Adobe Systems, Friday – Dave & Buster’s Entertainment

 

Economic data posted today – Tuesday – UK Labour statistics, US Job Openings & Wholesale Inventories,

 

Opening calls FTSE +13 at 7292, DAX +41 at 12025, CAC +19 at 5288, DJIA futures +60 at 25914

 

75% of retail investors lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.