TODAY’S FAYRE – 30th January 2014 – TAPERING, CARNEY, MARKETS

“I visited the place where we last met.
Nothing was changed, the gardens were well-tended,
The fountains sprayed their usual steady jet;
There was no sign that anything had ended
And nothing to instruct me to forget.

The thoughtless birds that shook out of the trees,
Singing an ecstasy I could not share,
Played cunning in my thoughts. Surely in these
Pleasures there could not be a pain to bear
Or any discord shake the level breeze.

It was because the place was just the same
That made your absence seem a savage force,
For under all the gentleness there came
An earthquake tremor: Fountain, birds and grass
Were shaken by my thinking of your name.”

Elizabeth Jennings – poet – 1926-2001

So its 3 babies sired by Hugh Grant to 3 different fillies and no marriage! I see! And he has the effrontery to hold himself up as a paragon of ethical virtue, slamming the press and receiving more attention than even the press’s defence has been allowed! – He jests!

There is certainly plenty of dough in the South of England! It’s standing room only in first class on the ‘Haslemere flyer’ and there is a 9-year waiting list to get into the No: 1 station car park. 5 years ago the waiting time was 6 months!

In all honesty, I think those market protagonists, who thought that Ben Bernanke or the majority of the FED would have mercy on emerging countries’ economies and would thus be prepared to hold back on further tapering, deluded themselves, despite it being Bernanke’s valedictory meeting. The FOMC voted UNANIMOUSLY to taper another $10 billion off QE, leaving only a $65 billion facility. There was no mention by Bernanke of emerging markets coming under the cosh. He might well have said – “Who are they?” The US remains isolationist and seems ambivalent to the world’s concerns unless it affects them pragmatically. Why would they change the habit of a lifetime?

We can only hope that the perception that Janet Yellen, who becomes FED chairman on 1st February, has a more dovish approach to global monetary policy. Maybe she will be prepared to reconsider the US’s stance towards tapering if emerging countries threatening to fall off a cliff. Certainly, after a very brief rally, the punters went in the ring, metaphorically ripping the skin off the face of the Lira, the Rand, the Peso et all! It was not a pretty sight with images of a potential Passchendaele styled rout! We have now entered uncharted waters and the level of volatility in the next few months should come as no surprise. Markets don’t do uncertainty!

Yesterday the Street of Dreams was finally underwhelmed by the introduction of further tapering. After the bell all three main indices had fallen by just over 1%. We have now seen nearly 6% off the DOW so far this month. 77% of companies from the S&P 500 have so far reported. Profits are up by an average of 6.6% and sales by a parsimonious 2.6%. Boeing sales did not pass muster – down 5.3%, Shares in Yahoo! despite good profits were tonked! – Sales were light – -7.8%. AT&T are still rumoured to be ruminating over Vodafone – -1.2%. Good news from Dow Chemicals and DuPont saw their stock rise 3.9% and 1.9% respectively.

This morning the tapering news brought nothing to Asia’s party and more to the point nor did China’s PMI number which fell below 50 for the first time in 6 months to 49.5. It is Chinese New Year next week from the Snake to the Horse. So today ahead of holidays next week markets in Shanghai and Hong Kong were sepulchral and easier at the close – ASX -0.8%, Shanghai Composite -0.48%, Hang Seng -0.82% and the NIKKEI -2.45%. There is still massive concern about the threat of a Chinese credit crisis. That won’t go way ain a great hurry.

The overly ebullient and cocky Alex Salmond and his band of merry men and women would not have expected the nuances from a speech made by a civil servant – though a very serious one in the name of Governor Mark Carney, who visited Scotland yesterday – to tell them how it was if they gained independence – well, how it might be. If Scotland leaves the union but wants to keep the Pound, there are clear risks. Scotland would undoubtedly have to surrender some sovereignty and the same would apply if it joined the Euro. Mr Carney was charm personified! I wish he had said – Independence? So be it! No Sterling; no access to gilt market and no BOE regulation! You want out! You have it! Of course, he can’t say that! As time goes by I hope good sense prevails and that Scotland remains in the Union, where it belongs. Scotland has been warned unambiguously.

That ‘fisheries’ man – Michel Barnier – reincarnated as EU Commissioner for regulation is determined to step on UK banking corns, insisting that by 2017 proprietary trading in banks in London will be banned, as it will in the EU. Apparently Germany, France (surprisingly) and UK want this initiative watered down. We need George Osborne to put his hob-nailed boots on and boot the UK out of any binding regulatory agreement. This obsession with EU regulation has to stop; if not, the City will bury itself as the major global financial centre.

This morning the FTSE eased by a further 29 points at 6514 at 9.15am. Confidence is shot to ribbons and until there is further clarification on emerging markets, the level of uncertainty will dictate the market’s reluctance to take on further risk. Diageo’s numbers disappointed -4%. BSKYB saw revenues up by 6.3% to £3.76 billion with record SKY-HD subscribers. The dividend has been increased by 9%. In isolation Panmure’s Alex de Groote thinks the headline numbers are good. However BT, which posts numbers tomorrow, has yet to put its buying boots on. So competition will be fierce and BSKYB (+3%) will have to invest heavily to stay up with the pace on football and sport in general. The long-term issue is that the cost to the consumer from both camps will increase. How much can the subscriber eventually afford? Alex also pointed out that Trinity Mirror may have been over-trashed and this might be a buying opportunity. He was quite sweet on DMGT as well, as its investment in Zoopla may eventually prove to be a decent little ‘Arfur Daley!’ 888 Holdings posted good numbers with Panmure remaining supportive.

These are David Buik’s personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
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