TODAY’S FAYRE – Sunday 12th January 2014

“It is eighteen years ago, almost to the day –
A sunny day with leaves just turning,
The touch-lines new-ruled – since I watched you play
Your first game of football, then, like a satellite
Wrenched from its orbit, go drifting away

Behind a scatter of boys. I can see
You walking away from me towards the school
With the pathos of a half-fledged thing set free
Into a wilderness, the gait of one
Who finds no path where the path should be.

That hesitant figure, eddying away
Like a winged seed loosened from its parent stem,
Has something I never quite grasp to convey
About nature’s give-and-take – the small, the scorching
Ordeals which fire one’s irresolute clay.

I have had worse partings, but none that so
Gnaws at my mind still. Perhaps it is roughly
Saying what God alone could perfectly show –
How selfhood begins with a walking away,
And love is proved in the letting go.

Cecil Day-Lewis – academic, author & poet – 1904-1972

Lord Mandelson, in a keynote speech in the House of Lords, exasperated his co-peers and those who follow or are at odds with his political ideology, when the former Labour Cabinet minister did a complete 180 degree U-turn on his stance on a referendum over the UK’s continued membership of the EU with the following astonishingly arrogant statement – “What the public want is for politicians to give a lead on Europe, not grandstanding over a referendum!” Lord M – you could not possibly have misread the mood of the electorate more, if you had tried to! What the country wants is a balanced debate on the subject – which we have yet to have – followed by a PROMISED vote on the subject.

It is becoming increasing clear that the only politician guaranteed a cabinet seat in the next government is DPM Clegg. PM Cameron may well rue the day he invited this disloyal band of mavericks to form a coalition government with the Conservatives. The Lib-Dems have been disingenuous in handing a 5% advantage to Labour over boundaries changes at the next election. Labour only need 33% of the vote against the Tories requiring 38%. Let’s hope the votes in Clegg’s Sheffield constituency turn their wrath on Mr Clegg for his about-turn on student fees. As the days go by I, like millions of others, get more irritated by the fact that a ‘tin-pot’ political party with 54 seats can decide the destiny of a so-called democracy!

Expectations from the data posted across the global spectrum last week and some of the encouraging company news might well have heralded a greater reaction from equities than was manifested. In normal circumstances, Janet Yellen’s appointment as FED chairman and Stanley Fischer’s nomination by President Obama as the FED’s No2 plus the minutes of the FOMC and of course details on US payrolls and unemployment numbers would have been more than enough to titillate the taste buds. Add to that ECB & MPC meetings as well as unemployment in the EU being confirmed at 12.1% and UK GDP for the 4th quarter coming in a tad below the expected 8% at 7%, according to NEISR, equities should have been bouncing around like a cork in a bath not forgetting the slew of differing UK retail results. At the end of the week the S&P 500 added a parsimonious 0.13%, the FTSE100 0.14%, European stocks an average of +0.69% and the NIKKEI lost 2.2%. The data out of China was not exhilarating with signs of growth falling as well as trade not being as robust as we had expected. One piece of news that would have cheered VW was the fact that it had ‘flip-flopped’ with GM as the major overseas car manufacturer.

On the Street of Dreams the sessions were relatively somnolent, Alcoa posted 4th quarter results on Friday and a huge loss was posted resulting in the share losing 5%. There were decent performances from Tiffany and Microsoft on Friday. It is now eyes down for a full house on the earnings front starting on Monday – Monday – AMGEN, CHARLES SCHWAB, HB FULLER, Tuesday – JP MORGAN CHASE, WELLS FARGO, Wednesday – BANK OF AMERICA MERRILL LYNCH, Thursday – AMERICAN EXPRESS, BLACKROCK, CITIGROUP, CAPITAL ONE, GOLDMAN SACHS, UNITED HEALTHCARE, Friday – BONY, MORGAN STANLEY, SCHLUMBERGER. For equities to crack on, the market will need a significant improvement on 3rd quarter earnings. I am not wholly convinced that they will get them. Some US companies looked fully valued at present.

There was a tone of caution from the FED on the tapering of QE, warning the market that each piece of data should come in to play on merit rather than the FED reduce the facility by $10 billion as a matter of course. That was not surprising once Friday’s Non-Farm Payrolls were presented – I know that the unemployment rate fell from 7% to 6.7%, BUT only 74k jobs were created in December? I know the weather was atrocious during part of the month but why so few jobs? – The Participation Rate continues to fall in the US. It’s now down to 62.8% from 63% – the lowest level since 1978. Simply put, people are leaving the job market. Disturbingly it is falling faster in younger age groups. Payroll data is always subject to revision, but that number was a big estimation miss – 196K! Talking of inclement weather the plunge in temperatures could cost US economy $5bn in lost revenue and shave the equivalent of 0.2pc off first quarter GDP! GDP is likely to come in at 0.7% for the 4th quarter of 2014.

Here in Old Blighty it was all about retail – Great numbers from John Lewis, Next and House of Fraser, following in the wake of dire efforts from Debenhams the previous week and unenviable efforts from Tesco and Morrison this week, with shareholders taking quite a chunky bite out of their respective share prices. Tesco improved immeasurably with on line sales as did M&S. M&S’s Marc Bolland schmoozed and ‘sweet-talked’ the street by posting a 4.1% increase in food sales and a 6% increase in on-line sales. BUT the fashions remained dowdy and uninteresting, though analysts and hacks were convinced that Belinda Earl’s team was getting the show on the road – unconvinced here from Fulham! Shares rallied by approx. 3.5% net on the week. Next week expect trading updates from ASOS, Primark (AB FOODS), Dixon Retail and maybe even Burberry to be decent. Here are next week’s offerings – Monday – GREENE KING (TS), Tuesday – ASHMORE (TS), ASOS (TS), BALFOUR BEATTY (TS), BARRATT (TS), COUNTRYWIDE (TS), Wednesday – BURBERRY (TS), TAYLOR WIMPEY (TS), TULLOW OIL (TS), Thursday – ABERDEEN AM (TS), AB FOODS (TS), BOVIS HOMES (TS), DIXONS RETAIL (TS), HALFORDS (TS), HOME RETAIL (TS), LADBROKES (TS), OCADO (TS), Friday WILLIAM HILL (TS). ECONOMICS for the week – Tuesday UK INFLATION, Thursday RICS HOUSING SURVEY & Friday UK RETAIL SALES

The credibility of the Bank of England’s (BoE) policy of forward guidance continues to come under pressure. While nobody was surprised by its decision this week to keep both QE and rates on hold, the widely-expected statement to effectively lower the unemployment threshold from 7% to 6.5% for a rate hike did not materialise. The BoE is in somewhat of a quandary; it either admits that its economic forecasts have been badly wrong, or moves the goalposts on forward guidance only five months after first issuing it. Perhaps the MPC feel that incoming data from the UK economy might yet vindicate them, but time for them is running out.
BGC’S Mike Ingram bluntly points out – “Given that the market in Short Sterling remains convinced that the UK first rate hike will be at the end of this year, they are implicitly betting on imminent BoE fudge. The press was certainly expecting the BoE to announce a lowering of the rate hike threshold to a 6.5% unemployment rate this week.”

Mario Draghi’s job at the ECB is equally unenviable with deflation staring the EU in the face. There were no stimulus initiatives with the ECB keeping its powder dry for the time being. I am gobsmacked at the manner bond yields Europe have fallen. Is the EU economy really going to rise like the Phoenix from the ashes? BP had a bit of a body blow with US judges rejecting bonus claims submissions. BP has already paid out $11 billion in compensation with another $17 billion being claimed. And the US has a special relationship with GB….. Really?

French oil titan Total are rumoured on Monday to announce a deal under which it will join an exploration licence in Lincolnshire, central England, currently operated by US company Ecorp. Singapore-based Dart Energy and UK-listed Igas and Edgdon resources are also partners in the project. On the oil front Nymex crude has fallen from its recent high a year ago of $122 a barrel to $92 and by 16% from $107 in recent months – That will filter though, though it is taking its time!

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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