TODAY’S FAYRE – Sunday, 8th February 2015
“But these things also are Spring’s –
On banks by the roadside the grass
Long-dead that is greyer now
Than all the Winter it was;
The shell of a little snail bleached
In the grass; chip of flint, and mite Of chalk; and the small birds’ dung
In splashes of purest white:
All the white things a man mistakes
For earliest violets Who seeks through
Winter’s ruins Something to pay
Winter’s debts, While the North blows, and starling flocks
By chattering on and on Keep their spirits up in the mist,
And Spring’s here, Winter’s not gone.”
Edward Thomas – poet– 1878-1917
Against a background of a cold relentless and unforgiving winter in Ukraine, with thousands on the run from a war-torn Eastern part of the country, few expected anything positive to come out of Friday’s meeting at the Kremlin with President Putin, where Messrs Merkel & Hollande pooled their rather skimpy resources. The German Chancellor, born and raised in East Germany may well have had a decent relationship with Putin in the past, but little in the way of encouragement came out of Friday’s diplomatic initiative, though we were offered a tiny beacon of light and hope that talks would continue on the phone over the weekend. It is hard to fathom what the deeply unpopular French President, with scant statesmanlike qualities, brought to this party; time alone will tell!
Despite the Russian economy suffering severely through deepening sanctions imposed by the West, Putin seems ambivalent to these surmounting problems, as he cleverly manipulates the press to tell the Russian people what he wants them to know rather than what is actually happening. It was interesting to note that David Cameron was not invited to the Kremlin and was severely criticised for it by former NATO General – Sir Richard Sherriff – somewhat unfairly so.
It was no surprise that PM Cameron did not go thanks to the UK’s obvious close association with the US and the added irritation of the Litvinenko assassination saga. This crisis, and it is an escalating one, will only get worse, unless President Obama can tear himself away from US domestic politics and regular sorties to the golf course for a few days in an to attempt to offer some appeasement to a rapidly deteriorating international conflict. It probably won’t work, but at least the world will know there has been an effort made. Gorbachev is ‘spot on’ saying the world has never been in a more dangerous place than it currently is since the ‘Cold War’ of the ‘60s. These comments made a few weeks ago were endorsed by President Hollande. He went on to say; “What’s happening in Ukraine is so serious that the European Council will be obliged to react by increasing the level of sanctions if things remain as they are.” Hence my comments and those of many others; that this conflict poses a greater threat to sustained economic global growth than any other issue. We should be very concerned.
Amazingly, for such a good day’s racing, there were only about 6,000 people at Newbury on Saturday to hear the momentous, sad but sensible news that AP McCoy will be retiring towards the end of this year. Providing that this year’s championship is bagged up, it will be this extraordinary sportsman’s 20th on the bounce. The commitment, bravery and talent that was required to attain those astonishing goals would be beyond most human being’s capabilities. He’s also charming, considerate and a fully-paid-up member of the human race. Cantor and BGC Partners were privileged to have sponsored him for eleven years; what an ambassador! I am truly surprised that when one considers the ‘gongs’ that have been ladled out for lesser achievements, the authorities recommend an adequate investiture that ‘AP’ fully deserves – Arise Sir Anthony McCoy!
Last week provided more challenges to market protagonists than one would normally expect in a month. As conditions/issues oscillated almost on a daily basis, it was hardly surprising that the common headache was much in evidence in dealing rooms in the City and Canary Wharf. The Ukraine crisis aside, there was the volatility of oil prices, which exacerbated feverish foreign exchange trading, eventually sending the Dollar to the top of the tree. Bond yield in North America headed north after better than expected Non-Farm Payrolls on Friday, which many see as a signal for rate increases at the end of the year – I don’t necessarily agree, but more about that later. The Strong Dollar sent modest ripples of concern that US earnings could be adversely affected. Again that may be an exaggerations, as the demand and growth for many of the stocks is domestically driven. Chinese PMI and GDP posted last week would seem to indicate a further slowing down of the economy. Further stimulus was provided when the reserve rate was cut this week and we can expect to see further loosening of monetary and fiscal policy in China in an attempt to stimulate growth.
So much has been written on Greece; absolutely extraordinary for a country that contributes just 2% to EU GDP, but thereby hangs a tail. Greece could well be the catalyst for sustaining the EU or triggering its demise in the long term. PM Alexis Tsipras and Finance Minister Yanis Varoufakis spent much of last week behaving like ‘Butch Cassidy & the Sundance Kid’ as they were ruthlessly pursued by the ECB and the German Finance Minister Wolfgang Schauble to come in to line over servicing its debt, despite the anti-austerity mandate the Greek electorate gave to Syriza – I should say together with a few ‘right-wing’ mavericks. This saga is going to roll probably longer than the TV series ‘Peyton Place!’
Whatever else is happening in the world at large, it would appear that the ‘Good Ship USA’ is steering a fair and favourable course for future growth, if Friday’s Non-Farm Payrolls are anything to go by. 257k jobs were created in January – a great effort considering the inclement weather on the Eastern seaboard. That makes 1 million jobs created in the last 3 months – the best run since 1997 and the US has seen 11 consecutive months when over 200k jobs have been created. Wages are increasing by 2.2%. Unemployment rose to 5.7% from 5.6% but that was dismissed as an irrelevance and was down to an encouraging growth of the labour force. Market geeks tell me rates will be on the rise in a few months. All I can say is that life in the rest of the world had better improve as the US will probably regret precipitous increases, making the Dollar indecently strong.
Last week on the Street of Dreams energy stocks were measurably revitalised on the back of oil breaching through the $50 a barrel threshold. Banks were also popular thanks to the improving employment data. There was also plenty of M&A activity – Pfizer to buy Hospira for $17 billion, prior to a possible splitting of the company. Also Ball Corporation is to spend circa £4 billion buying Rexam’s canning & packaging operation in the UK. Last week the S&P 500 rallied by 3.7%. The rally in Europe was not quite so dramatic with the FTSE 100 adding 1.5% during the week and European stocks an average of 1.8%. Energy and oils stocks were back in vogue. Banks were also popular. Ocado posted a profit for the first time in 15 years – £7.2 million. BT confirmed its £12.5 billion acquisition of EE. There are still worries about the pension deficit, but the market loved the deal and wait anxiously for Vodafone to join the media party. The forthcoming forced sale of RBS branches to the Williams & Glyns embryonic empire could incur losses of £1.5 billion. The oil industry has been handed a warning by Sir Ian Wood that unless radical changes on tax reform for oil drilling, £200 billion of North Sea revenue could be abandoned due to exploration and development being cancelled. Vision Express was successfully floated on Thursday in a listing that valued the company at €5 billion. In one of the first big floats of the year in Europe, shares in GrandVision were offered at €20 and settled just above the issue price on the first day’s trading – a better effort than HSS, whose IPO did not sparkle the previous week.
Finally there is no sign of inflation in the UK with deflation staring the country in the face. Inflation could drop to 0.2% in February. The UK economy, however looks relatively buoyant according to PMI data posted last week.
UK companies posting results this week – Monday – RANDGOLD, Tuesday – BELLWAY, MILLENNIUM COPTHORNE, ICAP, BABCOCK INTERNATIONAL, HALMA, SAB MILLER, TUI TRAVEL – REDROW, THOMAS COOK, (UBS), Wednesday – ARM HOLDINGS, RECKITT BENCKISER, ZOOPLA, QINETIQ, HOME SERVE, DUNELM, TULLOW OIL, MANCHESTER UNITED, Thursday – C&W, INFORMA, IMPERIAL TOBACCO, RIO, SHIRE (Credit Suisse, Commerzbank) Friday – ANGLO AMERICAN, ROLLS ROYCE, SEVERN TRENT, VIRGIN MEDIA
US companies posting interim results – Monday – LOEW’S, Tuesday – STARWOOD HOTELS, DEANS FOOD, COCA-COLA, REYNOLDS AMERICAN, Wednesday – PEPSICO, YESLA, CISCO SYSTEMS, TIME WARNER, Thursday – KELOGG, HOSPIRA, GROUPON, KRAFT FOODS.
David Buik – market commentator
Panmure Gordon & Co
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