TODAY’S FAYRE – ECB’S DAY OF RECKONING BECKONS!

TODAY’S FAYRE – Tuesday, 20th January 2015

 

 “The spring is coming by a many signs;

The trays are up, the hedges broken down,

That fenced the haystack, and the remnant shines

Like some old antique fragment weathered brown.

And where suns peep, in every sheltered place,

The little early buttercups unfold

A glittering star or two–till many trace

The edges of the blackthorn clumps in gold.

And then a little lamb bolts up behind

The hill and wags his tail to meet the yoe,

And then another, sheltered from the wind,

Lies all his length as dead–and lets me go

Close bye and never stirs but baking lies,

With legs stretched out as though he could not rise.” 

 

John Clare – poet – 1793-1868 

 

The recently released film ‘Testament of Youth’ is based on Vera Brittain (played by Alicia Vikander)’s book written about her experiences and those of her brother Edward (Taron Egerton) and her fiancé, Roland (portrayed by Kit Harrington) during her time at Oxford and around the Somme in WW1. This harrowing production is beautifully filmed. Alicia is a sight for sore eyes facially, though a ‘stick insect’ of her build probably would not have survived the intense vagaries of 4 years nursing on the front!  Alas, that is Hollywood for you! Enjoyable but a little long!

Purely by chance I managed to catch AB de Villiers astonishing record breaking century in the ODI against West Indies in Johannesburg, which included 16 ‘sixes.’ It is one of the most swashbuckling innings ever played in any grade of cricket.  If you missed it, try and watch a replay or recording – amazing and very special.  

 

My revered colleague and Economist at Panmure Gordon & Co, Simon French, makes the following observations on the much vaunted introduction of QE by the ECB on Thursday –

 

“The QE plan looks like being a disappointment if the rumours coming out of Frankfurt are confirmed on Thursday. You are absolutely right that the turning point in this is crisis was the “whatever it takes” narrative from Draghi in July 2012. Markets have since assumed this means risk pooling and government bond yields have converged accordingly. 

 

If it turns out that the liabilities for losses sit with national central banks then there is a good chance that this progress will be reversed and damage the confidence that is the necessary part of getting inflation back up to target. 

 

I also fear that other conditions to appease the German view will be forthcoming and this will undermine even a large QE package. A Grexit remains unlikely in my opinion as Syriza’s central policy is to renegotiate terms – A muddy compromise that pleases no-one is more likely.  QE in isolation does very little to affect inflation so a big number on Thursday does not immediately translate into growth and inflation. 

 

The success hinges on the confidence that QE brings. If markets and consumers don’t believe the policy is going to work then the additional liquidity will not increase the demand for credit or boost asset prices. It will simply be saved and the multiplier will be low. This is why uniform positive messaging and unified leadership is as important as the ECB’S printing press.”

 

Markets seem to have brushed aside the travails of the SNB’s unpegging of its currency against the Euro almost with disdain though its unexpected intervention did some serious peripheral damage by threatening to put Alpari out of business unless a buyer can be found and denting the hulls of IG, FXCM, CMC and Interactive Brokers. Though one has a great deal of sympathy with these spread betters and their clients, one could be forgiven for feeling that markets have failed to learn from the fall-out in 2008/10. Conservatism with a big ‘C’ hasn’t really made its point strongly enough. Suffice to say that I was saddened and pleased for those who had been defrauded for a substantial part of $600 million lost by Hedge Fund Weavering, that Magnus Peterson had been found guilty on 8 counts. In passing, it is definitely worth mentioning that IG posted reassuring profits of £187 million for the last trading period with revenues up 8% at £108 million. UK was the star performer with revenues up 14%. £18 million of losses incurred by their clients could be recoverable.

 

Equities certainly came in their winter coats yesterday – the clippers were not needed. Expectations for an aggressive ECB QE are very high. God help European equities if Draghi does not deliver or is not allowed to by Merkel. Yesterday the FTSE 100 gained 35 points to 6585 and the DAX was up 0.7%. Dixons Carphone stood out with a good Christmas trading statement – +4.4%. Oils and mining were stronger sector performer. The Street of Dreams also put its best foot forward with the DOW adding 1.1%, the S&P 500 +1.34% and the NASDAQ +1.39%. Today’s activity would appear to be momentum trading. It is feared that dollar strength may have some impact on this quarters earning season. Asian bourses recovered some poise today thanks to Chinese data being marginally better than expected, though is some of the data posted believable? GDP came in at 7.4% and industrial production and retail sales (+11.9%) were encouraging. The ASX closed down 0.1%; the Shanghai Composite was up 1.2% just after lunch and the Hang Seng was 0.76% to the good. The NIKKEI closed +2.07%.

 

Rio’s iron ore sales were up 11% and the miner expects to dig up 18% more ore this year. Wm Hill posted decent numbers with revenues up 8% and profits 11% in the last quarter and profits and sales for the UK’s largest bookmaker seem in line for the year. Unilever’s efforts seemed slightly disappointing. Underlying sales growth was up 2.9%, with volume 1.0% and price 1.9%. Turnover declined (2.7)% to €48.4 billion including a negative currency impact of (4.6%).

 

I was disappointed to see on BBC Panorama Sir Terry Leahy, Tesco’s icon pass the buck in the direction of Phil Clarke for the supermarket’s demise. It cannot have been his fault. Many of Sir Terry’s management team were in situ. The £5.6 billion merger between Aviva or should I sat takeover could mean 1,500 job losses. Sadly goes with the territory.

 

UK companies posting results for the rest of this week – Wednesday – PEARSON, PETS-AT-HOME, DIXONS CARPHONE, JD WETHERSPOON, SAB MILLER, GENEL, FIRST GROUP, POUNDLAND, COMPUTACENTER, HALFORDS, WH SMITH, Thursday – CARD FACTORY, ST JAMES’S PLACE, CHEMRING, EMIS, COUNTRYWIDE, PARAGON, ROYAL MAIL, Friday – PREMIER FOODS, CLOSE BROTHERS

 US companies posting interim results – Tuesday – DELTA, BAKER HUGHES, HALLIBURTON, MORGAN STANLEY, JOHNSON & JOHNSON, IBM, NETFLIX, Wednesday – AMERICAN EXPRESS, US BANCORP, eBAY, UNITEDHEALTH, Thursday – TRAVELERS, STARBUCKS, Friday – BANK OF NEW YORK MELLON, HONEYWELL, MCDONALD’S, STATE STREET. Next week, APPLE, GOOGLE & MICROSOFT post their interim results 

 

 

David Buik

Market Commentator

 

+44 (0)20 7886 2775

Panmure Gordon & Co  One New Change | London | EC4M 9AF | United Kingdom  www.panmure.com

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