TODAY’S FAYRE – Sunday 8th June 2014 – markets IPOS & gossip!

TODAY’S FAYRE – Sunday, 8th June 2014

“She walks in beauty, like the night
Of cloudless climes and starry skies;
And all that’s best of dark and bright
Meet in her aspect and her eyes;
Thus mellowed to that tender light
Which heaven to guady day denies.

One shade the more, one ray the less,
Had half impaired the nameless grace
Which waves in every raven tress,
Of softly lightens o’er her face,
Where thoughts serenely sweet express
How pure, how dear their dwelling-place.

And on that cheek, and o’er that brow,
So soft, so calm, yet eloquent,
The smiles that win, the tints that glow,
But tell of days in goodness spent,
A mind at peace with all below,
A heart who’s love is innocent.

George Gordon, Lord Byron – poet – 1788-1824

It isn’t that long ago since I posted Lord Byron’s inspirational poem. However I felt it expedient to do so again. It portrays a ‘feel-good’ factor!

Though La Boheme, Tosca and Madama Butterfly are the most popular of Puccini’s offerings, La Fanciulla Del West should never be underestimated. It offers all the passion, drama and schmaltz as his more famous operas, as was demonstrated at Opera Holland Park in the first production of their season last Friday. Indeed, La Fanciulla proved to be highly enjoyable as well as successful at taking us on an emotional journey by using the music to present a varied yet coherent experience set around life in a gambling casino in Las Vegas, rather than a bar near a gold mine shaft in about 1850. The opera certainly is not lacking in drama, though perhaps it is a little short on memorable arias. Well worth a visit.

There is no doubt that the two most momentous pieces of news last week were the radical, though well chronicled, initiatives adopted by the ECB to fight deflation and Friday’s US Non-Farm Payrolls, which saw 217k jobs created in May with unemployment remaining at 6.3%.

There were few surprises in the ECB’s action – repo rate dropped to 0.15%, deposit rate -0.1% and the implementation of a NLTRO facility of E400 billion plus the promise from Draghi of more to come in the form of QE, if these measures don’t pull the EU economy out of the doldrums. Many believe that this all too little too late. We’ve been here before. It’s the same as the US, UK and BOJ – QE dressed up in another set of clothes, which will take years to have the desired effect.

Let’s take a look at some of the ramifications. Equity markets are beginning to look quite fully valued. US investors who ploughed their dollars into Euro based equities are not only facing equity market risk but also currency risk. And if Draghi has his way, and if the French government and most Eurozone governments have their way, the euro will fall sharply against the dollar. And then any losses from declining stocks, as American investors are yanking out their money while they still can, will be compounded by having to convert those proceeds into dollars. There is every possibility of a very unpleasant and violent correction. Initially investors loved Draghi’s blether, but if his medicine does not have the desired effect, it could be tin hat time!

As for the US employment data, it would appear that the US is recovering from the damage inflicted by its heinous winter weather. However meaningful cuts in interest rates seems a long way away. Fed Chairman Yellen still believes that help is still required despite having almost halved QE by $40 billion down to $45 billion. At the end of last week, in painfully somnolent trading conditions, the S&P 500 added 1,26%, the FTSE 100 +0.20%, European stocks by +0.80% and the NIKKEI, which rarely behaves logically these days +3%! It was also brought to my attention that Dubai’s stock exchange had rallied by nearly 100% in the last year. What a remarkable recovery!

Despite warning shots across the bows from a cynical market place which has started to suffer from indigestion, large IPOS are continuing to be offered for sale – details are starting to appear for AA and Game Digital. There is even talk of Costcutter, which has 2500 outlets considering a floatation. There is also huge retail interest in TSB’s forthcoming IPO this month. The market also eagerly awaits with some frenzy Alibaba’s IPO due this month and valued may be as much as $150 billion. This combination of eBay/Amazon in China was founded jointly by Jack Ma and Joseph Tsai in 1999. On the other side of the coin there has been evidence of short selling in Saga and

Most of the involved 7 investment banks have published research on TSB. As TSB doesn’t make an acceptable return within their time horizon they have pretended it does by changing the balance sheet and valued it off that. It is thought that the 25% of TSB coming to the market could be offered below book value – maybe a t a 10% discount at £1.44 billion, rather than £1.6 billion. We should hear confirmation, one way or another tomorrow, after a price meeting arranged by JPM and Citigroup. Panmure Gordon has tried calling the head of IR who isn’t returning our call. Panmure has also called the FCA who tells us it is nothing to do with them. Panmure is unable to publish independent research, which the market should be entitled to without access to this information the book-runners have. Maybe our frustration will abate this coming week and information is disclosed. There is a feeling that with so many additional offerings from Lloyds, TSB and others still in the pipeline, this discount will provide necessary momentum. Many though that Dr Cable was thinking along those lines 8 months ago with Royal Mail Group.

There were plenty of nuggets of news last week to capture investors imagination until the World Cup, Royal Ascot, the Test match and Wimbledon sees the financial world almost become moribund. ASOS posted a profits warning which saw its shares cascade initially by 31%, though on Friday they rallied by 7.4%. Sir Ken Morrison lashed out intemperately at Dalton Phillips, Morrison’s CEO for his incompetence! The pay packages of the likes of Angela Ahrendts, Justin King, and Marc Bolland dropped measurably, though they are unlikely to suffer the slings and arrows of outrageous fortune. Ironically US bank executives are expected to see their pay rise by 27% this year! By the by, in posting his final and valedictory set of numbers for J Sainsbury, Justin King may disappoint the market with a 1.5% drop in sales for the last quarter.

Bank of America was fined $12 billion for mortgage selling discrepancies and the US authorities imposed a $10 billion fine on BNP for ‘breaking’ sanctions with countries like Iran. The Sunday Telegraph tells us that EE are expected to sever connections with Carphone Warehouse. This news could affect the merger with Dixons. BT, having already committed £2 billion to football rights are now entering films by contributing £30 million to Curzon World. The Sunday Times tells us that James Henderson may replace Ralph Topping as CEO at William Hill. Shell may be looking for a new Chairman to replace Jorma Ollila.


These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

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