TODAY’S FAYRE – Friday, 25th July 2014
“Not to sleep all the night long, for pure joy,
Counting no sheep and careless of chimes
Welcoming the dawn confabulation
Of birch, her children, who discuss idly
Fanciful details of the promised coming –
Will she be wearing red, or russet, or blue,
Or pure white? – whatever she wears, glorious:
Not to sleep all the night long, for pure joy,
This is given to few but at last to me,
So that when 1 laugh and stretch and leap from bed
I shall glide downstairs, my feet brushing the carpet
In courtesy to civilized progression,
Though, did 1 wish, I could soar through the open window
And perch on a branch above, acceptable ally
Of the birds still alert, grumbling gently together.”
Robert Graves – author, playwright & poet – 1895-1985
I was listening to the Russian Ambassador in London – Alexander Vladimirovich Yakovenko – giving a press conference on television yesterday. It’s either priceless stuff or the West is about to be acutely embarrassed. He repudiated the concept that Russia had anything to do with the shooting down of MH17 indirectly or directly. As he said show me the visual evidence! It was rather like ‘Arfur Daley’ talking to the police, having been accused of some scam – “What me Guv? I don’t know what yer on about? I was nowhere near that manor – trust me! – not even close!”
It will be interesting to see how badly sanctions affect the recovery and growth in Russia. It was interesting to note that the IMF cut its forecast to ribbons yesterday – down by 1.1% in 2014 to just +0.2%. I have a funny feeling that Europe might suffer rather more than it thinks it will. The Rouble has hardly been affected. Energy and gas are the main imponderables and Russia seem very much in the driving seat. BP’s stake in Rosneft looks vulnerable. You get the feeling that Russia will close ranks with China.
Putin’s behaviour may well be reprehensible, but Western governments have not been really on their game for some months and the lack of resolve to get on top of Putin’s unassailable power, shown by the EU has been bordering on pathetic – commercial ramifications or not! Even if the US and European investors decide to remove their money from Russian projects, the damage caused from the loss of energy/gas supplies as a quid pro quo could be even more devastating. The EU seems to have few visible contingency plans for energy.
Though Initial Jobless Claims are improving (lowest level for 8.5 years) and though the market is expecting at least 200k+ jobs to have been created in July when Payroll numbers are posted next Friday, the Street of Dreams was in a holiday mood, with turnover barely selecting second gear. There was also a modicum of concern about home sales having fallen by 8.1% last month. Despite 77% of those S&P 500 companies, who have already reported beating expectations the 3 main indices hardly moved – DOW -0.02%, S&P +0.05% and the NASDAQ -0.04%. The weekend in the Hamptons beckoned. Facebook’s shares cracked on with renewed energy (+5%) with mobile advertising revenues increasingly measurably. Ford’s efforts were decent but investors banked profits. Caterpillar missed and eased by 3%. It was announced that Greg Foran will replace Bill Simon as President and CEO of Walmart.
After hours Amazon’s Jeff Bezos set down the company’s stall. Sales were up 23% to $19.34 billion, but the company made a greater loss than expected – $126 million or -27 cents rather than expectations of -15 cents. Investors vented their spleen by taking the shares down by 10% to $322.50. Investors are due some profits and dividends. The frustration of continuing to pay for ‘jam tomorrow’ is running very thin. Amazon also knows that Alibaba will take its IPO bow in September. This company is a combination of Amazon and eBay. It made $1.3 billion last quarter. Over to you Mr Bezos. Yes you need to get your technology and infrastructure right! But you also have to pay the bills and feed the shareholders.
In London yesterday the FTSE 100 added 23 points to 6821. Unilever saw profits up by sales not quite so robust, particularly in emerging markets. easyJet’s numbers were good, but for understandable reasons investors are not excited about airline margins and costs. Kingfisher missed quite badly, particularly B&Q (sales down 3.2%). Kingfisher’s shares fell by 8%. It looks as though Iain Conn of BP will replace Sam Laidlaw as CEO of Centrica. Confirmation of this appointment is expected next Thursday, when Centrica posts results. Rumours are buzzing around that Carillion may merge with Balfour Beatty. SAB Miller’s results were OK – sales up 3%, revenues up 6%. DMGT did well out of its investment in Zoopla but revenues did fall by 6% in the last quarter.
Banks are still grabbing poor headlines with Lloyds allegedly about to be fined £300 million for LIBOR misdemeanours. Barclays is fighting tooth and nail to prevent a courts case, which could indict it for defrauding investors in the HFT ‘dark pools.’ It intends to defend its corner vigorously.
IMF upgraded the UK’s economy for the 4th time by 0.4% to 3.2% for 2014 and has suggested the UK could grow its economy by 2.7% next year. This is good news for the Chancellor ahead of the election, but it must not be forgotten that the IMF is often behind the curve. Also there are still issues with the UK’s economy. Growth could fall off in the second half of the year, particularly if the EU, Germany excluded, does not come back on the bridle. Also wage increases are very low – just +0.3% last month – way below current inflation levels. So the consumer has less disposable income, which drives retail. Retail is 60% of growth. There is still far too much consumer borrowing – dangerously high! Against that background, how can interest rates go up in a meaningful way? If the consumer is forced to service debt at a higher level, retail will suffer even more.
This morning BkyB confirmed its intentions of buying 57% of Sky Deutschland at about E7 a share (£2.9 billion) and Sky Italia lock stock and barrel for £2.1 billion to make a full pan-European TV service with 20th Century Fox maintaining its 39.14% stake in BskyB. This deal will increase viewers or subscribers from 30 million to 97 million. Revenues were better than expected for the last year – up 6.5% to £7.6 billion with an operating profit of £1.26 billion.
FINALLY GOOD NEWS FOR THE WEEKEND – ROSS McEWAN CEO OF RBS POSTED A 92% INCREASE IN PROFITS TO £2.7 BILLION A WEEK EARLY. This will take some heat out of the kitchen ahead of FX allegations etc.
Results or trading statements are due out today from – AFRICAN BARRICK GOLD, LONMIN, C&W COMMUNICATIONS, BSKYB, VODAFONE (TS) and UNITED UTILITIES.
These are David Buik personal views
Twitter – @truemagic68
D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
http://www.panmure.com – The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee(s). If you are not an intended recipient, please delete the message and any attachments and notify the sender of miss-delivery: any use or disclosure of the contents of either is unauthorised and may be unlawful.