TODAY’S FAYRE – Sunday, 9th November 2014

“What passing-bells for these who die as cattle?
Only the monstrous anger of the guns.
Only the stuttering rifles’ rapid rattle
Can patter out their hasty orisons.
No mockeries now for them; no prayers nor bells;
Nor any voice of mourning save the choirs, –
The shrill, demented choirs of wailing shells;
And bugles calling for them from sad shires
What candles may be held to speed them all?
Not in the hands of boys but in their eyes
Shall shine the holy glimmers of goodbyes.
The pallor of girls’ brows shall be their pall;
Their flowers the tenderness of patient minds,
And each slow dusk drawing-down of blinds.”

Wilfred Owen – poet & soldier – 1893-1918

It is just possible that PM Cameron will bitterly regret referring to UKIP as ‘fruit cakes, loonies and closet racists’. His intemperate remarks have certainly raised the political temperature as we head in to the General Election at the beginning of next May. Certainly the response on the social network from some of UKIP’s more unruly and ill-disciplined members is disappointing – such as referring to the delegates of the Tory party Conference as scum! Such talk is dangerously inflammatory and will only get worse as we approach the Rochester & Strood by-election on 20th November!

I find it absolutely extraordinary that three relatively insignificant countries, namely Finland, Sweden & Norway (not even a full member of the EU) with a total population of 20.1 million, however delightful they may be, should be lecturing the UK (population 64,2 million) on its immigration policy. There is absolutely no correlation between Scandinavia and the UK. The demographics are totally different. Some observers are interpreting that the Government believes that it has had a had a major result in having the EU levy of E1,7 billion postponed until July and September 2015 and halved if one includes next year’s rebate. We may have to look at the small print. Chancellor Osborne insists that the rebate was never an agreed calculation.

It hasn’t been a great week for the EU. President Hollande has seen his popularity rating drop to an all-time low – 13%. There has been violence and water cannons on the streets of Brussels. Spain has a 23% unemployment rate, Greece 26% and Italy 12.4%. Apart from Germany and Spain, which comes from from a very low base, there has been no measurable growth in the EU in recent months. ECB President Mario Draghi is slowly but surely getting sucked in towards full-on QE, much to Frau Merkel’s chagrin, by injecting €1trillion in to the EU’s struggling economy. Normally I have some admiration for the German Chancellor, though little sympathy towards her economic intransigence, apart from her abhorrence towards debt, where I find myself to be almost a disciple to her teachings. No one likes austerity but the hard facts of life suggest that if we all live beyond our means, debt becomes the greatest threat to democracy above most other issues.

Global equities have experienced an extraordinary recovery in the past 3 weeks. At the beginning of October it was all doom a gloom. However we have had a compendium of issues, which have contributed to this significant rally, particularly in the US and Tokyo. FED chairman Yellen told markets two weeks ago that the slack in the jobs market was being taken up, confirmed on Friday by OK Non-farm payroll numbers for October, when 214k jobs were created, as well as comment that rates would remain low for a protracted period of time. However the unemployment rate dipped to 5.8%. Then last week the Democrats lost control of Congress and the Senate by some margin. This news was perceived by some to be good for business – not sure about that. President Obama could well have another round of brinkmanship over the US borrowing requirement. Time alone will tell. We also had an aggressive stimulus package introduced in Japan and a more qualified one by the ECB’s Draghi in attempt to drive the EU out of a vortex of deflation, whilst at the same time hoping to stimulate growth. In the UK the lack of wage inflation in the UK should keep rates on hold until mid-2015 with little sign of QE being withdrawn. The Dollar became very strong, as commodity and oil prices dropped quite measurably – Cable $1.5869, E/$1.2455, $/Y114.60 – Gold $1178 (having at one time been as low as $1137) and Nymex $78.65.

The net result last week was as follows – Apart from Europe, which as we know confirmed its parlous state on more than one occasion, most senior indices finished the week in the blue – S&P 500 +0.68%, FTSE 100 +0.32%, EuroStoxx -0.53% and Japan +2.84%. Germany’s factory orders in October were very disappointing. The other big issue last week was the fall of Russia’s Rouble, the adverse effect the fall in the price of oil would have on its economy as well as the damage inflicted by US and EU sanctions. Is Russia heading for another acute financial crisis? The Rouble has fallen 43% against the Dollar since January 2014. The ramification are serious. The problem is that Putin will just exacerbate the situation by refusing all trade with the EU and US. Life in Russia is cheap and Putin cannot be perceived to be weak with his voters.

There were some violent moves on the Street of Dreams towards the end of the week – Monster Beverage +8%, Humana -7%, Abercrombie & Fitch -17%, American Eagle -6% and Zynga +3%. Walt Disney pleased their acolytes on Friday, thanks to a few blockbuster films. Bank of America Merrill Lynch announced that it was making a $400 million provision for FX rate fixing transactions.

Last week in the UK there was a slew of earnings. I suppose M&S grabbed most of the headlines – up 12% on the week for what I thought were just slightly better than awful figures, but the markets accepted the clement weather as an excuse and they were buoyed by better margins and the thought that ladies’ fashions were not quite so dowdy! We shall see. Morrison was up 6% – price rally on expectation, definitely not achievement. Astra Zeneca posted good results and tinkered with a few small acquisitions. Philippe Soirot, the CEO was dismissive about another amorous initiative from Pfizer. Mike Ashley increased his stake in Debenhams to 12.7% from 11.2%. John Malone, the US media entrepreneur having already had a decent nibble at Virgin Media and ITV has bought a piece of C&W’s action. After 4 years Netto, the Danish discount operation has opened a joint venture with Sainsbury in Leeds and if successful will open another 15 outlets. However Sainsbury’s may not have very good news for us on Wednesday, when CEO Mike Coupe is expected to announce a 12% cut in profits, falling sales, a cut in dividend, as well as pulling away from opening more stores.

Fever Tree made a hugely encouraging debut on Friday. Its IPO was priced at 134p per share but ended the session close to 167p – a 25% rally on the day. It looks as though there is could well be plenty of investment interest in the IPO sale of 25% of Virgin Money, which could make its two major shareholders Sir Richard Branson and Wilbur Ross even more filthy rich than they already are since they own 45% of this operation which could be valued at between £.2 billion and £1.5 billion.

The Competition and Markets Authority on Banking announced its inquiry in to competition limitations and restrictions. It’s highly regarded and softly spoken CEO Alex Chisholm started to lay out his stall last week. The CMA will investigate the difficulties customers face in switching banks, the lack of smaller competitors to the “big four” banks, and lending to businesses. This is all too little too late. We have had so many august bodies look at this – The Government, Treasury Select Committee, the House of Lords Committee on Banking, Vickers, Independent Banking Commission, the BOE and the FCA! How many more do we want? Mr Chisholm says it will take 18 months to reach any conclusions.

It is now far easier to move an account than it was three years ago. Santander UK is testament to that having landed, as we understand, about 1 million accounts. The fact remains, as a result of the banking crisis, the capital requirements and cost of regulation is punitive – understandably so. So one cannot expect challenger banks to grow like mushrooms. Apart from Santander, there is TSB Bank, Metro Bank, Tesco Bank, Williams & Glyn Bank, Virgin Money and Aldermore to provide competition. There is also news that John Van Kuffeler, the pioneer of Provident Financial is trying to put together a £250 million consortium called Non-Standard Finance PLC to take the high street on!

So long as night follows day the power will remain with the Big 4/5. Take that away from them and not only will free banking go, but bank charges could become prohibitive. Why is it necessary to split Barclays, Lloyd/HBOS or RBS and NatWest? People do not want to be told where they are going to bank. In my humble opinion what needs to be changed is the culture of banking. It should not be all internet banking. Every person with a bank account should have a health or wealth cheque once a year with a senior manager minimum. Then there might be more synergy and sympathy between banks and their customers.

We are all clearly waiting with trepidation on plans by the Governor of the BOE to stop bank-bailouts to be announced in Australia towards the end of next week. There should be plenty of support for these plans.



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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