TODAY’S FAYRE – “THAT WAS THE WEEK THAT WAS!”

TODAY’S FAYRE – Sunday 19th October 2014

“I have been here before,
But when or how I cannot tell:
I know the grass beyond the door,
The sweet keen smell,
The sighing sound, the lights around the shore.

You have been mine before,
How long ago I may not know:
But just when at that swallow’s soar
Your neck turned so,
Some veil did fall—I knew it all of yore.

Has this been thus before?
And shall not thus time’s eddying flight
Still with our lives our love restore
In death’s despite,
And day and night yield one delight once more?”

Dante Gabriel Rossetti – poet – 1828-1882

‘Lunch with the FT’ has always been a particular favourite of mine, especially if I am really interested in the person, who is being interviewed. This week it was Kevin Petersen, who was being wined, dined and interviewed by Matthew Engel at Zuma in Knightsbridge. I have not eaten there for a decade, but I would hardly call it an intimate restaurant; nonetheless Matthew Engel seemed to get the best out of him, which is more than can be said for the ECB and its managers. Of course KP is arrogance personified, truculent and moody; but what a talent! Could the management not harness the talents of such a great player? It does not say much for their inter-personal skills that they consummately failed. All great sportsmen have egos! It’s just that KP’s is bigger than most. Like thousands of other devoted England fans, I miss his swashbuckling batting!

I was greatly heartened by Foreign Secretary Philip Hammond’s tough rhetoric towards the EU and its inability to get its economic act together. He implied that failure to do so could see the UK’s withdrawal. At last someone of standing has spelt the situation out unambiguously. Confidence in world leaders is at its lowest ebb in recent memory. In Germany only 15% say that they “trust” the professional group of politicians. One has to wonder just when will the German people start to say –‘Enough is enough!’? I am also delighted to hear that the UK is vehemently resisting adopting the EU’s draconian changes in the bonus systems for the banking fraternity, which in this country has a global presence.

Last week’s eclectic machinations, which pulled the plug on world stock markets for a few days, brought back memories of 2008/9. It was quite like old times! Hysterical traders seemed every bit as demented as they were in those dark days of the banking and credit crisis, though the rationale was very different from the threat to the collapse of the global banking system.

The remedial action taken by the Central banks by way of quantitative easing five years ago, which inexorably triggered the gargantuan rally of global stock markets, was the main contributory reason for the long-overdue correction, which manifested itself last week. Gains by the S&P of 159% and the FTSE by 70% in the past 5 years are by any standards are humungous and they cannot keep pushing on unchecked. Couple the continuing uncertainty over QE with global growth falling, serious issues over the EU’s inability to deal with dire economic conditions in Greece, Italy and even France and suspect stock market valuations all rearing their ugly heads at the same time, there was a ready-made explosive cocktail to bring about a measurable retrenchment! Markets at these levels looked unsustainable. The fox had to be put in to the chicken coup for market protagonists to regain a sense of proportion!

Looking at the net positions of many international bourses at the end of last week, one could be forgiven for thinking that investors and traders had witnessed anything more than some negative anxiety. The S&P 500 was down by 0.66%, the FTSE 100 by 0.47%, European stocks by an average of 1% and the NIKKEI was the exception to the rule, falling sharply by 5%. The fact that most US/European indices lost between 2.5% and 5% in the odd session during the week was shrouded and lost in the sharp rally at the end of the week, which transpired as a result of soothing comments by two Central banks on interest rates. The FED’s James Bullard – not a voting member in passing – felt that QE could be retained whilst imposing a pause on any pending rate hike whilst the rest of the world suffered, was plausible. Then the BOE’s brilliant Andy Haldane expressed his concern about the weaker global economy and the lack of wage inflation, which meant that rates were likely to remain low for some time for the ‘jobs-rich’ and ‘pay-poor’ recovery. He was quite gloomy about the future. He felt the climate had changed in the past 3 months. Many will recall that in August Governor Carney and the BOE had been quite hawkish about rates rising.

Oil fell also sharply with Nymex testing the $80 threshold before recovering strongly to $82.75. Brent rallied to $86.16 a barrel. Gold, by way of a hedge and stronger Dollar in recent times, was quite chipper at $1238 an ounce – up $15 on the week. For reasons best known to itself the Euro, after a dreadfully torrid time, was up 1.1% against the Greenback on the week.

Last week’s fearful gyrations coincided with the start of the 3rd quarter earnings season. Goldman and Morgan Stanley excelled. Citi and Wells Fargo passed muster but JPM missed, as did Google on Thursday. Netflix was larruped as investors were in an unforgiving mood – down a net 19%. In Old Blighty, Tesco, who suspended another 3 executives, pending the enquiry by Deloittes and Sainsbury were trolleyed as were energy and mining sector stocks, though they did regain some poise towards the end of the week. However there appears to have been evidence that a few Tesco managers misled its auditors about the level of sales and costs, which could have flattered the profitability of this supermarket titan. The outlook for Tesco’s profits for the 1st half of the year do not look promising for Thursday – maybe down 50% at £850 million.

Rolls Royce also had a day to forget on Friday with a profits warning. John Rishton said markets had become very challenging resulting in shares falling 11.5% – £2 billion in value. The £7 billion loss incurred by Shire when Abbvie pulled the plug on the takeover may have inflicted quite serious damage on some hedge funds, which may well have exacerbated the level of volatility in the FTSE 100 last week as some were forced to meet their obligations. BSKYB’s results were good thanks to digital sales. Next week is a huge earnings week on both sides of the pond and their quality will be closely scrutinised.

Advisers to Aldermore’s £800 million were wise to postpone the IPO in such torrid and volatile condition. Also there is a degree of anxiety and loss of appetite post TSB and Lloyds sales for bank shares in such an unattractive banking environment.

VIRGIN MONEY has been postponed until after 24th October (just raising £150m), BRITISH CAR AUCTIONS, COUNTRYWIDE & McCARTHY & STONE (yet another IPO for them) are in the pipeline. Also it would be advisable for EE (T-Mobile & Orange) to keep their aspirations for a £12 billion IPO on the back burner for the time being.

The market looks as if it might be suffering from an acute dose of indigestion. That does not mean the IPO market is no longer attractive. It means investors are price and value sensitive – in other words they are looking for a snip from BIG company offerings. They also want these IPOS to come on to the market when conditions are positive; if not at least benign! Jimmy Choo raided the market for just £545m. It had an international flavour and would have had some appeal to a specialised investors’ market. Its price hasn’t exactly leapt like the proverbial grilse – 144p at time of writing!

UK results & trading statements this coming week – Monday – SPORTS DIRECT – Tuesday – ARM HOLDINGS, ASOS, GKN, GO-AHEAD, INFORMA, INTERCONTINENTAL HOTELS, WHITBREAD, WILLIAM HILL, Wednesday – COMPUTERCENTER, GLAXO SMITHKLINE, HOME RETAIL, SPIRIT PUBS, Thursday – ANGLO-AMERICAN, TESCO, UNILEVER, INCHCAPE, NATIONAL EXPRESS, REED ELSEVIER, NOKIA (FINLAND), Friday – DECHRA PHARMACEUTICALS, LADBROKES, SHIRE, TSB.

US Companies posting interim results – Monday – HALLIBURTON, ALLERGAN, IBM, TEXAS INSTRUMENTS, APPLE, Tuesday – VERIZON, COCA-COLA, HARLEY-DAVIDSON, LOCKHEED MARTIN, OMNICOM, McDONALD’S, UNITED TECHNOLOGIES, REYNOLDS AMERICAN, YAHOO!, Wednesday – GENERAL MOTORS, BOEING, GENERAL DYNAMICS, NORTHROP GRUMMAN, BIOGEN IDEC, US BANCORP, BOSTON SCIENTIFIC, AT&T, Thursday – RAYTHEON, ZIMMER, AMERICAN AIRLINES, ELI LILY, AMAZON, MICROSOFT, CHUBB, Friday – FORD MOTOR, COLGATE-PALMOLIVE, BRISTOL MYERS SQUIBB, PROCTOR & GAMBLE.

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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