TODAY’S FAYRE – Sunday 2nd November 2014

TODAY’S FAYRE – Sunday, 2nd November 2014

“As the clouds that are so light,
Beautiful, swift, and bright,
Cast shadows on field and park
Of the earth that is so dark,

And even so now, light one!
Beautiful, swift and bright one!
You let fall on a heart that was dark,
Unillumined, a deeper mark.

But clouds would have, without earth
To shadow, far less worth:
Away from your shadow on me
Your beauty less would be,

And if it still be treasured
An age hence, it shall be measured
By this small dark spot
Without which it were not.”

Edward Thomas – poet & soldier – 1878-1917

Our visit to Warner Bros’ Harry Potter studios in Watford was a huge success. My grandsons are both authorities on the books and films and they loved it, though I am personally still none the wiser. I have never seen so many thousands of people enthralled with all the accoutrements that went with the making of these extraordinary films all about magic, make-believe and mumbo-jumbo. JK Rowling has provided so many thrills and such great delight for millions and she deserves all her success. All I can say is that I have never found a more painless way of dropping £250!

There must have been 50,000 people milling around the Tower of London on Friday, admiring the sea of 900,000 poppies surrounding the White Tower in the Indian summer sunshine. What a wonderful tribute to the ‘Fallen’ who gave us so much hope for the future!

We all woke up on Friday morning to discover that the Bank of Japan had ‘gone for broke.’ Governor Kuroda said it would increase its asset buying programme by the equivalent of £454bn a year – by about 15%. Japan’s economy is currently experiencing weak growth and has constantly been under the threat of deflation for 15 years. Investors clearly disagree with me, that the remedial action in the long-term will make little difference, if Friday’s response was anything to go by – The Nikkei went berserk and rallied by 4.8%. The Japanese authorities don’t seem to get it. They need infrastructure policies and capital expenditure projects NOW – not in 3 years-time! This is no time for consensus government – asking everyone from the handyman in the office basement to the CEO permission to change the style of paper clips. Its decision time; be bold or we are just going to experience another dose of ‘play-it-again-Sam!’ Faint heart never won fair lady! The Yen fell to its lowest level against the Greenback for 7 years. The Dollar rallied against most other currencies and Gold fell like a stone to $1161 an ounce.

There is little doubt that US GDP, which came in at 3.5% (est: 3%) for the 3rd quarter, also gave equity markets in New York that extra fillip. It seems ridiculous to think that investors were concerned by a measured retrenchment just 3 weeks ago, as US equities, with concern over Ebola, company valuations, falling growth in China, geopolitical issues and the threat of higher interest rates. Those concerns seem to have melted into the mists of time for the time being, as the Street of Dreams flirts with record levels again. In fact the S&P 500, by the close eclipsed that record in reaching 2018.05.

At the end of the week the S&P 500 had added 2.6%, the FTSE 2.5%, European stocks an average of 2.99% and the NIKKEI a whopping 7.4%, courtesy of the 4.8% leap on Friday. Across the pond interim results were good though investors gave Facebook and Twitter a good slapping for falling short of expectations. Exxon Mobil and Chevron posted upbeat numbers on Friday, considering the drop in crude oil prices. Groupon leapt by 20% thanks to better than expected efforts. Starbuck’s acolytes were slightly disappointed – down 2%. Linkedin’s sales were great, but still a loss but shares rose like a grilse – shares up 13%. Expedia was another barometer of the improving economy – up 4%.

Here in Old Blighty much of week was spent over the coverage and focus on the bank reporting season accompanied by not a little concern as well. In isolation Lloyds Banking Group, Barclays and RBS did not disappoint their acolytes. The headline numbers showed marked progress. Good profits were posted. However the ‘conduct charges’ – the terminology used by RBS’S Ross McEwan – were appalling – PPI increasing all the time with Lloyds donning the dunce’s cap in that department, requiring another £900 million provision. However the provisions made for FX rate fixing by Barclays and RBS (£400 million) were also quite frightening, endorsed later in the week by the provision of $600 million made by Citibank. Who knows, with a bit of luck and a following wind the taxpayer could get his/her money back from these two wayward performers in 3 years! It was interesting to note that Lloyds Bank’s internal inquiry on FX rate fixing found there was no case to answer. Standard Chartered Bank’s results posted last Monday, which saw a further 16% fall in profits did not please its shareholders. With bad debts rising, many feel that Chairman John Peace and CEO Peter Sands will do well to hold on to their respective jobs.

It seems as though JP Morgan Chase and Deutsche Bank may have questions to answer in the FX rate fixing arena. The closure of so many branches by Lloyds and the redundancy plans by all the major banks are of concern. Everyone understands the digital age, but banking is still a service industry – JUST – and requires considerable interpersonal skills; not very much in evidence these days. There was evidence that many banks are still falling short of their duties, as lending fell last month in general as well in the mortgage arena. Surely the closing of copious branches and thousands of redundancies just exacerbates the problem?

Guidance from the outcome of the FOMC meeting was key last week. Clearly Janet Yellen was slightly more hawkish than many had expected post the withdrawal of the final $15 billion QE facility. It seems that rates will remain low for a considerable period of time – how long is a piece of string? However the Labour market has less slack than was originally thought with unemployment down from 8% 5 years ago to 5.9% last month. So next summer the process of slowly rising interest rates could start. The hawks on the MPC took a small battering with both Minouche Shafik and Sir Jon Cunliffe venturing to suggest rates should remain where they are for the time being. A lack of wage inflation is a real concern.

Asian stocks also had a decent week. GDP in China was confirmed, as an update, at 7.3%. However Chinese manufacturing data posted on Saturday morning did not make great reading – the reading was 50.8 as against 51.2 last month. Russia agreed $4.6 billion gas deal with Ukraine, which may eventually benefit the EU; hope springs eternal! On Friday Russia raised its lending rate to 9.5% – up 1.5% when 0.5% was expected. Inflation in Russia is currently at 8.4%.

The SFO inquiry into the unorthodox and creative accountancy at Tesco hardly rocked the City. I think many would have been surprised if there had not been one. We all hope that SFO conclude their deliberations quickly and don’t take their normal interminable 2 years to reach a finding, which would trash the company unnecessarily. There may be a case for selling of Tesco Bank or part of it for £500m-£1 billion to ease the debt burden. Also many think that Lewis will dispose of the Blinkbox, which is a loss leader. United Biscuits should know its plight before too long. Will the maker of McVitie’s, Hob Nobs etc fall in to the arms of Kellogg, Ulker of Turkey or Burton Biscuits in the UK? Finally M&S posts numbers are on Wednesday. It is thought that general merchandise sales could have fallen 3.7% in the last 4 months – the very warm weather being partly to blame. However my retail advisor, Mrs Buik, reliably tells me that the ladies’ fashions are becoming less dowdy! Marc Bolland and Belinda Earl, however, are likely to feel the wheels of pain and anguish across their backs.

UK companies posting results or trading statements this coming week – Monday – HSBC, RYANAIR (TS), Tuesday – IMPERIAL TOBACCO, AB FOODS, L&G, ADVANCED COMPUTER SOFTWARE, UNITE, WEIR, 888 HOLDINGS, SANTANDER, Wednesday – M&S, OLD MUTUAL, FIRST DERIVATIVES, HILTON FOODS, JD WETHERSPOON, AER LINGUS (TS), MEGGITT, Thursday – GEM DIAMONDS, ASTRA ZENECA, RSA, XCHANGING, SUPERGROUP, SCHRODERS, COBHAM, TATE & LYLE, WM MORRISON, STV GROUP, HALFORDS, C&W, LONDON MINING, DAIRY CREST, INMARSAT, RANDGOLD, EXPERIAN, COCA-COLA HBC, Friday – NATIONAL GRID, ADMIRAL (TS), BOVIS HOMES (TS), TULLOW OIL (TS).

Monday – LOEW’S, SPRINT, TENET HEALTHCARE, Tuesday – OFFICE DEPOT, MOTOROLA SOLUTIONS, EASTMAN KODAK, Wednesday – DUKE’S ENERGY, TIME WARNER, DYNERGY, Thursday – GAP, WALT DISNEY, AOL. MOLSONS COORS, ZYNGA

These are David Buik’s 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
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.

David Buik
Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
http://www.panmure.com

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