TODAY’S FAYRE – Sunday 11th May 2014

TODAY’S FAYRE – Sunday, 11th May 2014

“MY dear, my dear, I know
More than another
What makes your heart beat so;
Not even your own mother
Can know it as I know,
Who broke my heart for her
When the wild thought,
That she denies
And has forgot,
Set all her blood astir
And glittered in her eyes.”

William Butler Yeats – poet – 1865-1939

I shall be at Craven Cottage this afternoon, supporting Fulham and to say ‘goodbye’ to 13 years of excitement, fun and camaraderie in the Premiership. Our game against Crystal Palace is all about pride. We have hopes and aspirations to return from the Championship before too long. Meanwhile the Etihad and Anfield host two mouth-watering contests against West Ham United and Newcastle United to decide who will be Champions – Manchester City or Liverpool. Barring an unexpected twist to this tale surely the ‘light blues’ must prevail?

It will be interesting to see whether Wednesday’s BOE’S quarterly Inflation Report proves to be Governor Mark Carney’s ‘Pandora’s Box’ or whether he sticks by his forward guidance plans to raise interest rates in 2016. Cracks are appearing in terms of timing! Has the massive improvement in the state of the UK’s economy endorsed by the NIESR last week, as well as the OBR, which suggests the recession is over and that growth has returned to pre-2008 levels, ruined he Governor’s script? Estimates for GDP for 2014 stand at 2.9% and 2.4% for 2015.

Retail spending is booming. We have seen some measurable investment; can it be sustained? Unemployment has fallen to 6.9%. The economy is much broader based with an export drive currently under a wet sail. However the government, despite efforts to cuts its borrowing still maintains too healthy a budget deficit and ‘Fred-Bog-in-the-Street’ still borrows gargantuan sums of money and sustains mortgage requirements dangerously, as to be off the Richter scale. This remains a very worrying feature of our society and must be addressed. However, the Chancellor has every confidence that the MPC has the tools in its kit bag to stop the property market over-heating. Many have their doubts, unless this attractive facility is withdrawn and that seems doubtful, though mortgages are not quite so easily available.

To date the MPC has been disinclined to taper the current QE facility of £375 billion. Clearly the BOE seems convinced that the recovery remains very brittle. The wholesale money markets remain relatively illiquid though there has been a small improvement in recent years. The improved economic outlook seems likely to trigger a rise in interest rates to say 1% before May 2015, which is over a year ahead of schedule and maybe up to 2.5% the following year. Sterling flirted with $1.70, but eased back to &1.6849 at the end of the week.

By comparison, the US is making good progress with its tapering plans with the FED bringing down the monthly facility from $85 billion to $45 billion last week. Conversely the ECB and Mario Draught are ruminating over dropping rates below 0.25% next month to fight the threat of deflation. In the same breath the vibes that the worst is over with the EU’s recession and that the show is back on the road, are being shouted from the roof tops in Brussels. This is reflected in the massive drop in bond yields. I still remain cynical about this so- called recovery. The one fact that is indisputable is that these 3 economies are in totally different spaces in terms of their respective recovery, with the banking system, though stronger than a couple of years ago, is far from ready to go ‘cold turkey’ without the assistance of their ‘fix’ from their respective central banks.

Last week many equities did well to maintain their poise; the DOW also hit an all-time high. But clouds of uncertainty created from some of the hotspots in Ukraine plus dispiriting economic data from China stunted any real progress. The S&P and FTSE 100 finished the week just a smidgen below the Plimsoll line. European stocks gathered in an average of +0.32% and the NIKKEI saw profit takers, easing by 1.7%.

Corporate finance is grabbing all the best headlines. This week we await further details on Alibaba’s gargantuan IPO – just looking to raise $1 billion, but the Chinese e-commerce titan – bigger than Amazon and eBay put together – could be valued at $150 billion. No Doubt Carphone Warehouse and Dixons will end up in the scratcher by the end of the week in a £3.7 billion merger. We await further vitriol to be poured on the Astra/Pfizer deal by our politicians and trade union leaders. However it is becoming clear that Astra shareholders have told Pascal Soirot and his directors to become engaged with Pfizer’s management to discuss the merits of an alliance. The deal is also being backed by some scientists. Scientists in Cambridge will take some solace from the fact research in the UK will be underwritten to some reassuring degree. At the end of the day, post all the huffing and puffing, it will be the shareholders who decide the fate of the deal. In passing those dissatisfied in the drugs industry will get plenty of chance to set up their own ‘start-up’ operations.

Talk about rising like the Phoenix from BP’s ashes! – Tony Hayward appointed chairman of Glencore/Xstrata – another Teflon Tone! Sir Philip Green is rumoured to be taking a 25% stake in Mysale, an Australian and Asian online retailer prior to its public IPO. Finally BSKYB is to expand its empire by buying further stakes in its operations in Germany and Italy for an alleged £22 billion. Barclays has had great PR this week. Antony Jenkins will do well to turn Barclays’ back on a chunk of investment banking without damaging the bank’s profit stream. Apart from cost cutting there is little evidence of a drive for fresh alternative business being successful. Time will, alone, tell!

The following companies post results next week – UK Monday – GEM diamonds! Tuesday – EASYJET, TUI travel, XCHANGING, NATIONAL express! Wednesday – HILTON FOODS, ADMIRAL, JOHN WOOD GROUP, 3iii GROUP, PARTNERSHIP, Thursday – OLD MUTUAL, VEDANTA, MANCHESTER UMITED, RANK ORGANISATION, CAIRN ENERGY, AVIVA, PREMIER FARNELL, TALKTALK, MERLIN ENTERTAINMENT, Friday – INTERTEK, BOVIS HOMES, SIG, GRAINGER
US – Monday – ELIZABETH ARDEN, Wednesday – MSCY’S, VALERO ENERGY, JACK-IN-THE-BOX, Thursday – WALMART, JC PENNEY and NORDSTROM.

These are David Buik 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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