TODAY’S FAYRE – Sunday 27th July 2014

TODAY’S FAYRE – Sunday, 27th July 2014

“The girl’s far treble, muted to the heat,
Calls like a fainting bird across the fields
To where her flock lies the panting for her voice,
Their black horns buried deep in marigolds.

The climb awake, like drowsy butterflies,
And press their red flanks through the tall branched grass
And as they go their wandering tongues embrace
The vacant summer mirrored in their eyes.

Led to the limestone shadows of a barn
They snuff their past embalmed in the hay,
While her cool hand, cupped to the udder’s fount,
Distils the brimming harvest of the day.

Look what a cloudy cream the earth gives out,
Fat juice of buttercups and meadow-rye;
The girl dreams milk within her body’s field
And hears, far off, her muted children cry.”

“The Milkmaid”

Laurie Lee – poet – 1914-1997

There will never be a recording of Bellini’s ‘Norma’ as that made in 1981 by ‘La Stupenda’ Dame Joan Sutherland in the title role with a fantastic supporting cast of Luciano Pavarotti, Marilyn Horne and John Alexander. However Opera Holland Park has made a real fist of its production of this rarely performed opera, which required quite exceptional performances from ‘Norma’ and ‘Adalgisa’ as performed by Yvonne Howard and Heather Shapp. They were terrific, but Dame Joan’s melodic coloratura arias will ring in my ears forever.

We lost the 2nd test match at Lord’s against India – fair and square – deservedly so. However I have to say the antics of MS Dhoni, the Indian captain, was rather akin to those of a playground bully, in the manner that he and his side, particularly Jadeja, are gunning for Jimmy Anderson. The sledging and antagonism is all part of the international game, with Indian cricketers far from retiring violets in the grand scheme of cricket. A captain of Dhoni’s distinction should not behave like a ‘snitch.’ This altercation should have been cleared up in the dressing room. How very disappointing!

Despite international tension increasing as a result of MH17, Ukraine and the horrors of Gaza, international equities on the whole held on to most of their gains. Having flirted with record ‘highs’, the S&P surrendered just 0.02% on the week. The FTSE 100 faired rather better adding 0.6%, with European bourses up by a similar amount and the NIKKEI up by 1.6% thanks to better economic data. The FED seems comfortable to leave rates where they are at present, thanks to the successful manner QE has been tapered. Tapering will be finished by October with the final $15 billion being withdrawn. Japan is increasing QE. The ECB is on red alert to do so as well, if the EU’s economy does not come back on the bridle. Many think it will. I do not subscribe to that theory apart from Germany.

Friday’s UK GDP results were in line with expectation – +0.8% for the 2nd quarter with an estimated annualised rate for 2014 of 3.1%. This came in the wake of the IMF adjusting its forecast for the UK for the 4th time to 3.2% and to 2.7% for 2015. The strength of the UK economy has returned to where it was pre-Lehman Bros in 2008, when the financial sector wiped out 7.2% off national output, wrecking the public finances in the process. The UK’s economy appears to be much more balanced than it was with manufacturing output, industrial production and exports being rather more robust than they were. The Pound, though lower at the end of the week at $1.6990 against the Greenback, is making the expansion of exports rather tougher going than had been hoped for. Of course imports of fuel and the like are cheaper. With wage demands still some way below inflation, the prospect of higher interest rates receded. The majority think the first 25 basis points will be added in November. Maybe, but rates cannot go up measurably until next summer. Against that philosophy, we in the UK have had 6 years of zero interest rates – all but – however debt has frustratingly increased! Every time I see a young person pay Starbucks £2.60 for a double tall skinny cappuccino I know he/she almost certainly cannot afford it! Also what is also indisputable is the fact that London and parts of the South East are booming. The rest of the country are still waiting for the goodies.

In the wake of better economic and financial news, it’s such a pity that Messrs Miliband & Balls could not recognise the improvement and could only talk about the PM’s spinning and image. But that is politics.

On the whole it was a decent week for earnings in the US, with 77% of those who have reported beating expectation. This week there is another massive slew of earnings on both sides of the pond to ruminate over. In the UK the following step up to the plate – Monday – RECKITT BENCKISER, FILTRONICS, Tuesday – DOMINO’S PIZZA, BP, GEM DIAMONDS, GKN, DRAX GROUP, TULLETT PREBON – Wednesday – RIGHTMOVE, BARCLAYS, TRAVIS PERKINS, WS ATKINS, GREGGS, DIGNITY, MONEYSUPERMARKET.COM, NATIONAL EXPRESS, 3is, TRINITY MIRROR, ITV, SEGRO, Thursday – LLOYDS BANKING GROUP, ROYAL DUTCH SHELL, COUNTRYWIDE, BG GROUP, CENTRICA, BT GROUP, BODYCOTE, SPIRENT, WEIR GROUP, MERLIN ENTERTAINMENTS, SCHRODERS, THOS COOK, ROLLS ROYCE, BAE SYSTEMS, Friday – DIRECT LINE, SMITH & NEPHEW, RBS, WILLIAM HILL, MAN GROUP. The strong pound is expected to affect the profitability of many top companies such as Diageo, BP, RDS and Rolls Royce.

In the US the following post interim results – Monday – DENNY’S, Tuesday – AETNA, REYNOLDS AMERICAN, McGRAW HILL, MERCK, CORNING, PFIZER, AMGEN, TWITTER, WYNN RESORTS, Wednesday – VALERO ENERGY, PITNEY BOWES, GOODYEAR, REVLON, SPRINT, LORILLARD, KRAFT, METLIFE, WHOLE FOODS, Thursday – EXXON MOBIL. LINKEDIN, CME, KELLOGG, CONOCOPHILLIPS, MASTERCARD, EXPEDIA, LEGG MASONPIXELWORKS, Friday – PROCTOR & GAMBLE, CHEVRON and Ford.

Last week was full of corporate news. Having been refused Time Warner’s hand in marriage in an $80 billion deal with 20th Century Fox, Rupert Murdoch set to work to tidy his European operation up. BskyB (39% owned by 20th Century) bought 57% of Sky Deutschland and all of Sky Italia for £5 billion, which will increase its audience from 30 million to 90 million. Carillion and Balfour Beatty are to pool resources. The market love the idea and both shares added 10% in value. Facebook’s value overtook that of IBM – $180 billion! Tesco’s CEO, Phil Clarke gave up the unequal struggle as well as shareholder pressure with the announcement by Chairman Sir Richard Broadbent that Clarke would be leaving after 40 years with the supermarket on 1st October to be succeeded by Dave Lewis from Unilever. The whole Tesco operation needs overhauling if Tesco has any chance of regaining lost ground to Aldi and Lidl. I somehow doubt it anyway, but ‘nil desperandum.’ The week after next RSA CEO Stephen Hester is expected to announce £200 million of write-offs.

Last week was a mixed one for banks. Standard Chartered came under attack for a lack-lustre performance in recent months. Sir John Peace the chairman is purportedly looking externally and internally for candidates to succeed Peter Sands, whose stewardship has been rocked with controversy over the past 2 years. Then on Friday, RBS’S CEO Ross McEwan set down his stall with RBS’s profits a week earlier than expected. I doff my titter to Ross McEwan, his board of directors and his spin doctors – maybe Roland Rudd to the fore! Mr McEwan knows that some very dark cumuli nimbus clouds still hang over the portals of Bishopsgate, despite disclosing an excellent pre-tax profit of £2.7 billion, triggered by an improving economy, a week early. Bad debts are down by £1.9 billion.

There are potentially huge litigation issues outstanding – FX fixing, PPI and SME treatment- to answer to. If found guilty these could attract penal fines! So best investors’ furrowed brows are soothed.

George Osborne may have scrapped with Stephen Hester about selling RBS back to the public before the election. With so many imponderables, surely hell has a better chance of freezing over than this sale to the public going through before May 2015. In fact I doubt it will happen before 2017. There are potentially too many skeletons in the cupboard. Investors love to buy a recovering ‘snip’, but these assets may be just too indigestible for the time being. The balance sheet is still too large. McEwan will be looking to help matters along by selling citizens Bank for $15 billion.

This week three of our most troubled banks post results. RBS we know about. However in the case of Lloyds Banking Group, which is expected to post a 25% increase in profits, reflected by the improvement in the economy, to £3.6 billion. Impairment charges may have been halved and only another £500 million, totalling £8.5 billion, provisions for PPI claims will be announced. The Chancellor will be keen to see the sale of another £12 billion of Lloyds shares being made before the election, as opportunities to sell the rest of Royal Mail (£1.35bn), The Land Registry (£1.2bn), Eurostar (£400m) and The Student Loans Company (£12bn) may have receded.

As for Barclays, due on Wednesday, the implementation of radical changes in culture will have cost £660 million and with 19,000 jobs likely to go, it will not be surprising if profits fall 20% from £3.6 billion to £2.9 billion. What we don’t know about all these banks are the imponderables – the cost of FX manipulation if there is a case to answer!

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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