TODAY’S FAYRE – AFTER THE STORM!

TODAY’S FAYRE – Thursday, 16th October 2014

“I am monarch of all I survey;
My right there is none to dispute;
From the centre all round to the sea
I am lord of the fowl and the brute.
O Solitude! where are the charms
That sages have seen in thy face?
Better dwell in the midst of alarms,
Than reign in this horrible place.

I am out of humanity’s reach,
I must finish my journey alone,
Never hear the sweet music of speech;
I start at the sound of my own.
The beasts that roam over the plain
My form with indifference see;
They are so unacquainted with man,
Their tameness is shocking to me.

Society, Friendship, and Love
Divinely bestow’d upon man,
O, had I the wings of a dove
How soon would I taste you again!
My sorrows I then might assuage
In the ways of religion and truth;
Might learn from the wisdom of age,
And be cheer’d by the sallies of youth.”

Alexander Selkirk – poet – 1676 – 1721

After gloomy US economic data, particularly on the retail front, appeared on the Street of Dreams yesterday coupled with an average set of numbers from Bank of America Merrill Lynch, almost in unison the ‘sell’ button was pushed by the traders on Wall Street. I have not witnessed a shake-out of that nature since 2008 and before that at the time of ‘9/11.’ The DOW reacted like a yoyo, such was the volatility and at one point it was down 460 points – the best part of nearly 3%. Europe was already heading for the ‘chopping block’ with blood running down the streets of London, Frankfurt, Paris and all European capital cities – FTSE 100 -2.83%, DAX -2.87%, CAC -3.63%, MIB -4.4%, IBEX -3.59% and Greece -6.3%.

Towards the end of this rather torrid session in New York, markets regained some sort of poise with the DOW closing only down 1.06%, the S&P 500 down by 0.81% and the NASDAQ by a modest 0.28%. This stock market turbulence across the world was the culmination from a compendium of international imponderables – lack of EU growth plus an absence of financial discipline – Ebola, company valuations, shortfall of growth in China and global geopolitical instability. However above all else we have seen a QE nurtured market rally almost indecent as well as unrealistic proportions since 9th March 2009 – the S&P 500 by 175%! And the FTSE 100 by 69%! Surely this is a well overdue and healthy correction, rather than a crash? These indices cannot keep going up unless it is accompanied by requisite growth and improved company performances. Volumes in New York were way above average with over 12 billion shares changing hands on the Street of Dreams. It is also worth noting that the Euro 600 Index is down 11% since its high in June and the FTSE 100 is down 9.8% since its high at the beginning of September. This correction is not thought by many to be a cathartic, cataclysmic capitulation!

Despite the general sell off in London yesterday, which saw energy, banks, mining and retail stocks take a good hiding, much of the headlines were grabbed by the Abbvie/Shire deal, which saw Shire’s share price rise from £35 to £51 yesterday morning before trading. Abbvie wanted a re-think. Shire’s shares fell 28% to £36. Many market observers thought the deal was dead – well that’s what the share price told us. It was confirmed this morning that Abbvie would recommend that the plug be pulled on the acquisition of Shire. It is thought that Abbvie has its collar fingered by the US government not to indulge in tax inversions. So there were are! There will be some positions which require nursing, as Shire’s share price could fall by another 10% this morning. The fact that Rio turned out some decent numbers yesterday went unnoticed. The UK’s employment data which saw unemployment down from 6.4% last quarter to 6% last month – just 1.97 million unemployed hardly grabbed a headline. The only blight on those numbers was lack of wage inflation – +0.9%.

After hours in New York, Netflix posted profits which were almost double but below expectation and the subscriber figures appeared to be 700k light. Investors vented their spleen and took the stock down by 26% – $7 billion in value. Also Walmart sales will only grow between 2-4%. Shares dropped 4.6%.

This morning there may be some respite with the FTSE possibly opening up by 30 points. Roche, the Swiss pharmaceutical titan beat expectations. BskyB announced a 6% increase on revenues to £1.93 billion with profits for Q1 up by 11% to £316 million. The acquisition of Sky Deutschland and Italia are expected to be completed shortly. Diageo’s sales fell by 1.7% in their third quarter. Oil came under pressure again yesterday with Nymex falling to $80a barrel and Brent to $83 and change. The Pound came under pressure against the Euro and Dollar Cable $1.5918 and E/$1.2819.

US RESULTS – Thursday – DELTA, UNITED HEALTH, MATTEL, BAKER HUGHES, GOLDMAN SACHS, GOOGLE, SCHLUMBERGER, Friday – MORGAN STANLEY, HONEYWELL & BANK OF NEW YORK, MELLON.

UK companies posting results and updates – GAME DIGITAL, WH SMITH, BSKYB, BOOKER, DIAGEO (TS), MONDI (TS), EVRAZ (TS), MAN GROUP (TS), SPEEDY HIRE (TS), RATHBONE BROS (TS), Friday – TRAVIS PERKINS (TS), PROVIDENT FINANCIAL.

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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