TODAY’S FAYRE – Thursday, 11th December 2014


“Oh there is blessing in this gentle breeze,

A visitant that while it fans my cheek

Doth seem half-conscious of the joy it brings

From the green fields, and from yon azure sky.

Whate’er its mission, the soft breeze can comeT

o none more grateful than to me; escaped

From the vast city, where I long had pined

A discontented sojourner: now free,Free as a bird to settle where I will.

What dwelling shall receive me? in what vale

Shall be my harbour? underneath what groveShall

I take up my home? and what clear stream

Shall with its murmur lull me into rest?

The earth is all before me.

With a heartJoyous, nor scared at its own liberty,

I look about; and should the chosen guide

Be nothing better than a wandering cloud,

I cannot miss my way.

I breathe again!Trances of thought and mountings of the mind

Come fast upon me: it is shaken off,

That burthen of my own unnatural self,

The heavy weight of many a weary day

Not mine, and such as were not made for me.

Long months of peace (if such bold word accord

With any promises of human life),Long months of ease and undisturbed delight

Are mine in prospect; whither shall I turn,

By road or pathway, or through trackless field,

Up hill or down, or shall some floating thing

Upon the river point me out my course?” 


William Wordsworth – poet – 1770-1850    


Christmas Carols give joy to most people. Last night the Spectator hosted a Carol service at that beautiful Wren church St Bride’s, Fleet Street – the church for journalists and printers – was as good as any I have ever attended. The choir was sensational and the readings of the highest quality. The best news of all was the service was traditional! No strumming of guitars or banging on bongo drums! – Full of joy and happiness!  


Not unreasonably there are a large number of quizzical individuals scratching the back of their heads, wondering why stock markets have taken such a major turn for the worst. Yes we get the 40% drop in oil and discouraging comments by OPEC – methinks with political connotations – that oil demand has fallen to a 12 year low. I also get the damage done to BP, Shell, BG and other energy groups and that mining companies have stumbled courtesy of falling demand in China, but overall the global economy should benefit by this sharp reversal. It could add between 0.5% and 1% to GDP – so many economic geeks tell me. I am told that every US family could be better off by $750 per annum, which means there is more spend down at the shopping malls! This OPEC announcement yesterday has all the hallmarks of a Salomon Bros’s Henry Kauffman regular prognosis on the US economy or on ‘money supply’ 25 years ago, with the great US investment bank already having taken its position in the futures market! Funny old world! Anyway here we are today; the FTSE 100 is down 4.2% since 21st November and more or less the same amount on the year!    


Yesterday New York did not take kindly to the OPEC news and investors ran to the hills with bundles of profit tucked in their satchels. The DOW fell by 1.5%, the S&P by 1.6% and the NASDAQ by 1.7% – the worst daily fall since October. However you get the impression that the trees were just shaken. There remains a hard core of investors that believe that the fundamentals have not changed and that the earnings should still be out there. So if US equities bounced back, it would come as no surprise to me. Markets did not fare much better today in Asia. After yesterday’s stimulus driven rally in China, the Shanghai Composite was down 1.2%, the Hang Seng by 0.9% and the same for the NIKKEI.   


Despite some good results from Whitbread, John Wood and Ocado, the market was not in the mood to respond positively. The FTSE at 12.45pm was down 50 at 6450, with miners and oils being trashed again!  Read our Economist Simon French’s incisive comments on the ECB’s action posted this morning  


Despite the LTRO program announced this morning the ECB balance sheet remains way below its 2012 levels and without intervention will fall further. The comparators below are the FED (Green), BOE (Pink) and BoJ (Red) – with the size of their intervention indexed to late 2009.


 Just standing still on policy will see the ECB balance sheet shrink by a further 300bn by the end of February – as this quantity of LTRO from 2011 and 2012 mature early next year. While the markets may be pricing in QE in Q1 there are two major stumbling blocks even before you get to the well-understood intransigence of the Germans. Firstly the composition of QE is essential for the effectiveness. A equal share of govt bond purchases (by ECB capitalisation) would drive German bund yields to miniscule levels and fail to target support to the parts of the EZ (France, Greece and Italy) that need it most. If it is done by debt outstanding it will be blocked by the Bundesbank who fret over moral hazard. The big game changer would be corporate bond or MBS purchases but there is are plenty of rumours that Draghi tried this at the last meeting – and lost the argument.  


For me this ends in an very ugly January meeting with either Draghi walking or a compromise where a degree of fiscal sovereignty/ oversight is handed to the Germans that stores up Syriza-espue issues down the line. Those betting on European equity rally in the New Year are betting on actions that ECB policymakers have shown very little recent evidence of being able to deliver.




ECONOMICS – Thursday – EU CPI Est 0.6% Y/O/Y, US RETAIL SALES +0.3%, Friday – US PPI Est 1.6%, US MICHIGAN CONSUMER CONFIDENCE from 88.8 to 89.1.


David Buik

Market Commentator


+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom


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