TODAY’S FAYRE – 24th February 2014 – HSBC & markets

“Half of my life is gone, and I have let
The years slip from me and have not fulfilled
The aspiration of my youth, to build
Some tower of song with lofty parapet.
Not indolence, nor pleasure, nor the fret
Of restless passions that would not be stilled,
But sorrow, and a care that almost killed,
Kept me from what I may accomplish yet;
Though, half-way up the hill, I see the Past
Lying beneath me with its sounds and sights,–
A city in the twilight dim and vast,
With smoking roofs, soft bells, and gleaming lights,–
And hear above me on the autumnal blast
The cataract of Death far thundering from the heights.”

Henry Wadsworth Longfellow – poet – 1807-1882

Mitchell Johnson may well have been the star bowler in the recent “Ashes” series down under, but there is no doubt in my mind that Dale Steyn, the South African fast bowler is currently the greatest plier of his trade on the planet. Watching him destroy Australia on a slow and relatively benign wicket, taking 4 for 55 in 20 overs was a sight to behold – He bowled quickly; cut the ball just enough with some reverse swing. It was text book fast bowling! He has no peer in the realm.

So it’s Russia or the EU that Ukraine is looking to for support, depending on which political faction you support. Though Ukraine is a pimple, in terms of international financial society, politically it is a veritable carbuncle. The withdrawal of financial aid from Russia could mean that Ukraine will default. Can Olli Rehn and his EU cohorts act quickly enough to fill the gap? History says it is unlikely. One would have to fancy Putin’s chances of bringing influence to bear in the long term. Ukraine is in the middle of Russia and possession is 9 points of the law!

The G20 finance and Central bankers’ meeting in Sydney saw little in the way of tangible policies, though Mario Draghi did say that further stimulus initiatives may be required, presumably to stave off the threat of deflation, though the ECB President did not spell it out in words of one syllable.

On the face of it China might have thrown a temporary spanner in the works if the rumour that Chinese banks will be restricting any extension of loans to property companies is confirmed. Asian stock markets had their feathers ruffled. Though the ASX finished just in positive territory, at one time the Shanghai Composite was down over 2% and the NIKKEI and Hang Seng were easier by 1%+. However towards the close the Hang Seng was only down 0.8% and the NIKKEI a paltry 0.19%.

European equities opened on the back foot. Initially the FTSE was down 10 points thanks to buoyant results from Bovis, Bunzl and to a slightly lesser degree AB Foods. Vodafone was up 3% early on. There were some buy recommendations last week and on Friday 130 million shares were crossed. That is grown up by any standards. Simon Calver resigned as CEO of the trouble Mothercare. At 9.25am the FTSE 100 settled down 13 at 6824.

At 8.15am HSBC announced a 9% increase in profits for the year of HK28.5 billion (US$22.6 billion). Return on shareholders’ funds was 25.4% up from 22.8% in 2012. Earnings per share were up 38% to HK$13.95 per share (HK$10.11 per share in 2012). The total dividends of HK$5.50 per share for 2013 (HK$5.30 per share in 2012). Tier 1 capital ratios both 13.8% at 31 December 2013 under Basel III; (capital adequacy ratio of 14.0% and core capital ratio of 12.2% at 31 December 2012 under Basel II). 40,000 jobs have been lost in recent years. The bank is now mean and lean and impairment charges jumped a smidgen by HK150m to HK536m – a mere bagatelle in comparison to other banks. HSBC employs 250,000 people. The bonus pool was £2.36bn – equivalent to 15% of pre-tax profits. The bank will ask shareholders for permission to pay 200% bonuses to some individuals, something a bank has to do if it wants to breach guidelines that cap bonus payments at 100% of salary. The numbers look a tiny bit short, but the bank on a global basis looks strong. HSBC’s shares eased by 3.79%

This is an important week in the US with many retail operators posting numbers. Retail is key to growth in the US – 70% of GDP so outlook on the following companies will be important – HOME DEPOT, LOWE’S, TARGET, MACY’S, TJX, JC PENNEY, BEST BUY & GAP. With some economic data looking a little soft in the US thanks to the weather, some reassurance will be required.

Other UK companies to report this week include – Tuesday – GKN, LADBROKES, Wednesday – CSR, GREGGS, DIRECT LINE, ITV, HAYS, PETROFAC, RESTAURANT GROUP, TAYLOR WIMPEY, SEGRO, TRAVIS PERKINS, WEIR GROUP, Thursday – BATS, BARRATT DEVELOPMENT, CAPITA, COUNTRYWIDE, DOMINO PIZZA, KAZAKHMYS, MAN GROUP, MERLIN ENTERTAINMENT, PREMIER OIL, NATIONAL EXPRESS, REDROW, REED ELSEVIER, RSA, STANDARD LIFE, WPP, XCHANGING Friday – MONDI, OLD MUTUAL, PEARSON, RIGHTMOVE, WILLIAM HILL & UBM.

We are only just over 100 points of the all-time high for the FTSE 100. Unless the global data turns ugly it is possible that 7000 could be eclipsed in the next 3 months. Remember the FTSE only rallied by 14% last year thanks to poor performances from the mining sector. The DAX added over 25%; so there is some catching up to do!

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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