TODAY’S FAYRE – Thursday 9th January 2014

“ Seasons of mists and mellow fruitfulness,
Close bosom-friend of the maturing sun;
Conspiring with him how to load and bless
With fruit the vines that round the thatch-eves run;
To bend with apples the moss’d cottage-trees,
And fill all fruit with ripeness to the core;
To swell the gourd, and plump the hazel shells
With a sweet kernel; to set budding more,
And still more, later flowers for the bees,
Until they think warm days will never cease,
For Summer has o’er-brimm’d their clammy cells.

Who hath not seen thee oft amid thy store?
Sometimes whoever seeks abroad may find
Thee sitting careless on a granary floor,
Thy hair soft-lifted by the winnowing wind;
Or on a half-reap’d furrow sound asleep,
Drows’d with the fume of poppies, while thy hook
Spares the next swath and all its twined flowers:
And sometimes like a gleaner thou dost keep
Steady thy laden head across a brook;
Or by a cyder-press, with patient look,
Thou watchest the last oozings hours by hours.”

John Keats – poet – 1795-1821

Last night was a first time for me! – Theatre tickets in the ‘West End’ costing £100 a pop to see Michael Grandage’s production of Shakespeare’s King Henry V at the Gielgud Theatre with Jude Law in the starring role! The production in isolation, playing to a packed house and to tumultuously fantastic notices, was excellent – vibrant, dramatic, amusing when required and nationalistic in the extreme. However Jude Law is no Henry V. His voice has no resonance and he was too small for that stage. He had little in the way of presence and was short on gravitas. Laurence Olivier and Kenneth Branagh have been in a league of their own for decades and it is unlikely that their portrayals will ever be eclipsed, certainly not in my life time!

I think it is fair to say that the Street of Dreams never got out of the blocks yesterday, as dealers and investors ruminated over the content of Ben Bernanke valedictory FOMC meeting and the stance taken by the committee towards tapering QE. Up until the announcement there had been a degree of lethargy, despite the ADP employment Index for the private sector showing that 238k jobs had been created last month as against estimates of 200k. There was some M&A activity – Forest Labs (+18%) paying $2.9 billion for TPG’S shares in Aptalis. However the mood was reflective. Even Macy’s (+4.8%) hosing out 2500 people hardly brought a ripple to beautiful freezing downtown Manhattan, apart from the fact that investors love seeing blood run down the street after wholesale redundancies. The FED in its infinite wisdom and majesty decided that the recovery of the US economy was meaningful and that unnecessary risk taking should be avoided at all costs. Tapering should be taken in measured steps with a degree of flexibility. There was also a feeling that the excessive QE over the past 5 years may have damaged the recovery process, though there was no alternative at the time, as wholesale money markets were moribund. The fact that Richard Fisher, a monetary ‘hawk’ has joined the FED board as a voting member suggests has joined the FED board as a voting member suggests discussions on these sensitive issues will be more lively than before!

At the end of the session on Wall Street the DOW had eased by 0.4%; the S&P 500 was flat and the NASDAQ added 0.3%. IBM announced that promotion of its Super Computer division. Twitter dropped 3.5%, JC Penney by 10% and Constellation Brands added a perky 9.6% on great profits. In Asia this morning it was a very mixed picture though China seems to be more on top of inflation than it has been – 2.5% last month. The ASX was up 0.16% at the close, Shanghai was easier by 0.54% and the Hang Seng by 0.49% at lunchtime. The NIKKEI had fallen quite a by 1.5% towards the close.

J Sainsbury managed by the skin of its teeth to post its 36th quarter of continuous like for like sales gains – -0.2%, but Justin King struggled, though a flat out burst of innovative marketing around Christmas, saw Sainsbury home. Waitrose put this achievement in the shade announcing Christmas holiday sales had increased by 4.2%. Supermarket activity certainly seems to be fragmenting, with Waitrose at the top end gaining and Aldi and Lidl made their presence count at the more parsimonious end of the spectrum, where the pennies count. Mothercare had an absolute mare! Despite 20%+ discounts being implemented in early December, Mothercare withdrew the free delivery service. Sales collapsed in the UK and internationally – normally a fertile hunting ground. It shares were larruped, losing 30%, which was dispiriting news for Simon Calver the CEO. Persimmon saw revenues up by 21% with 11, 528 houses being built in the last quarter. Sales were up 30% in the second half of the year.

The news this morning on the supermarkets was fairly dire with Tesco (shares down 3.9%) seeing like for like sales fall by 2.4% overall (3rd quarter running) – UK -1.6% and Asia 5%. On line sales did increase by 6%. There is a feeling that Phil Clarke is getting a grip on Tesco’s festering problems. Wm Morrison (shares down 5.7%) looks to be having wretched time with Christmas sales down a whopping 5.6%. I am not sure that the same can be said for Dalton Phillips’s fortunes. M&S (shares up 1.6%) – promises, promises! – There’s always tomorrow. Despite Marc Bolland posting M&S’S 10th quarterly drop in sales, it appears he has hung his hat on the positive comments on the autumn fashions aired earlier in the week. Like for like sales fell by 0.2%. General merchandising dropped by 1.1% and food was the standard bearer up 4.1%. We wait with bated breath for Belinda Earl to wave her magic wand! M&S posted £1 billion profit in 1997 and 2008. This year a paltry £640m is estimated!

It is interest rate day today. Rates in the UK have been at 0.5% since 9th March 2009 – QE day! They are expected to remain unchanged until 2016. Maybe Mark Carney’s forward guidance will gain traction if he changes the unemployment threshold from 7% to 6.5% before contemplating a hike in rates. Certainly if growth gathers momentum and unemployment breaches the 7% threshold by the summer (7.4% at present) the pressure on Mr Carney’s MPC, which seems united in its quest to keep rates down, will be so intense, he and it will have to give up the unequal struggle. With Inflation at say 2.2% and wage increases at 0.7%, there is another obvious conundrum for the Governor to deal with!

EU unemployment was confirmed at 12.1% yesterday. Everyone, except me and a few other cynics is so ‘gung-ho’ about Europe’s recovery! Bond yields have fallen out of bed! Mario Draghi has been recast in life as Merlin. Though the repo rate remains unchanged at 0.75%, the EU is dogged by the threat of deflation. I am amazed at the level of euphoria!

Finally a few weeks ago Panmure spoke up that small and mid-caps would see greater growth and activity on a pro-rata basis. The year is hardly a week old; yet at least 10 stocks have rallied by between 20-40% with no relevant news flow! FTSE 100 stocks have remained relatively somnolent.

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
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