TODAY’S FAYRE – Sunday 3rd May 201
|“The leaves will fall again sometime and fill
‘The fleece of nature with those purposes
That are your rich and faithful strength of line.
But now there are challenges to spring
In that ripe nude with head reared
Into a realm of swords, her purple shadow
Bursting on the winter of the world From whiteness that cries defiance to the snow.
A boy runs with a dog before the sun, straddling
Spontaneities that form their independent orbits,
Their own perennials of light
In the valley where you live (called Brandywine).
I have seen the apples there that toss you secrets,
– Beloved apples of seasonable madness
That feed your inquiries with aerial wine.
Put them them beside a pitcher with a knife,
And poise them full and ready for explosion-
The apples, Bill, the apples!”
Hart Crane – poet – 1899-1932
Every now and again, one is privileged to witness part of the rich tapestry of British history and culture. Such was the case for my wife and I on Saturday when we were guests of dear friends at the 2000 Guineas meeting at Newmarket last Saturday. The visit to ‘Headquarters’ was preceded by a tour of the Jockey Club Rooms on Newmarket High Street. So much history from millions of Pounds of George Stubbs paintings and some by Sir Alfred Munnings with others of ‘Persimmon’, ‘Minora’, ‘Parthia’, ‘Eclipse’ and the jockey Fred Archer and in recent times to wonderful efforts of AP McCoy and Sir Mark Prescott. It was such a privilege. Those interested in the ‘Sport of Kings’, if you are ever offered a similar tour to the one we were escorted round, don’t turn it down!
So ‘Gleneagles’ won the 2000 Guineas rather cosily, ridden by Ryan Moore and not surprisingly, with his breeding by ‘Galileo’ out of a ‘Storm Cat’ mare, he has been installed as a very skinny 6/4 favourite for the Epsom Derby, flip-flopping with ‘John F Kennedy.’ I wonder he ‘JFK’ might head for Chantilly for the French Derby?
Millions of us had a very disturbed Sunday night ‘kip’ thanks to wild expectations about the Mayweather/Pacquiao Las Vegas rumble in the desert in Las Vegas. We were given a classic technical demolition exhibition by Mayweather. Though the fight went the twelve rounds, there was little excitement for the millions of watchers, who together with sponsors and television, generated a purported $300 million of revenue for one fight – quite staggering!
The world has enjoyed unprecedented record levels in recent months. In the past few weeks doubts are starting to creep in, as to whether growth at recent levels is sustainable. In Japan and China QE or stimulus packages have been of tsunami proportions. They have triggered gargantuan rallies in Shanghai Composite +80%+ and the Nikkei close to 60% in the past year. Heading West, there was evidence of a blip in UK and UK – +0.3% and +0.2% respectively for the first quarter of 2015. Both countries reassure us that there has been a market level of improvement in economic activity in February and March. Let’s hope there is some follow through during the summer. This coming Friday’s Payroll numbers will need to be 250+ to restore confidence in the recovery and allow FED’s Janet Yellen to serve notice for a rate increase in the autumn.
The US earnings season has been quite mixed, resulting in a school of thought gathering momentum that US shares are beginning to look fully valued, particularly NASDAQ constituent stocks. Also US ISM manufacturing last week was unexciting. Last week investors vented their spleens on Twitter and Linkedin (down 19% on the week). Conversely towards the end of the week Expedia rallied by 8% and Gilead Sciences added 8% and 4% respectively. It transpired Daniel Loeb had become a meaningful shareholder in Yum Brands! – Owners of KFC and Pizza Hut. It is conceivable that Yum’s Chinese operation may have to be split. During the week the S&P 500 eased by 0.46% with the FTSE took a step back in surrendering 1.3%. European stocks took a beating losing 3.4%. Few had much sympathy for DAX and CAC stocks, in the wake of ludicrous gains made post the introduction of ECB QE. The Nikkei also had a bad week with a 2.4% pull-back.
Here in Europe the waves of uncertainty surrounding the outcome of the General Election is being felt in the markets. Sterling has faded by close to 2% against the Dollar this week. 70% of the FTSE 100 earnings are Dollar based – hence the losses incurred were minimal. However should the country look ungovernable next weekend, don’t be surprised if the FTSE 250 records sharp reverses. Oil also rallied by 1.8%. Though private equity may be prepared to make significant withdrawals from the UK in the event of a Labour government, the gilt market to date has seen an inflow of funds.
Last week most of the main banks posted uninspiring numbers, resulting in their respective share prices not responding to improved trading profits. Unfortunately the provisions for litigation, FX, LIBOR and PPI are still far too material. Also Lloyds seemed to incur a £2.5 billion loss in disposing of its balance in TSB to Banco Sabadell. The drug sector had a reasonable week with Smith & Nephew and Shire pleasing their acolytes. Astra Zeneca seemed to fall short and few people are expecting fireworks from GSK on Wednesday.
The fact that Euclid Tsakalotos has replaced Yannis Varoufakis as negotiating finance minister to the EU makes little difference to me. It’s still an accident waiting to happen. However the PR seems very positive with the ECB and IMF willing to lap it up. Greece is still insolvent with no possibility of this beautiful country being able to service debt of this magnitude in the foreseeable future. What do I know? Greece is due to repay the IMF E200 million this week – a mere bagatelle from a total of E240 billion, but who will it beg borrow and steal from? It is the private sector that looks so vulnerable to a visceral haircut, which it may not be prepared to digest.
We expect J Sainsbury to post a 17% slide in pre-tax profits accompanied by a 1.9% drop in like for like sales and a £665 write-down for pension provisions and store closures and a £25 million bank handover charge. Sainsbury may post a loss for the first time in a decade. Tesco has apparently rejected a £4 billion for its Korean operation. Wm Morrison’s new CEO, David Potts, looks as though he will implement further losses, shaking more skeletons from the cupboard and another wave of price cuts. HSBC on Tuesday will announce a 17% drop in quarterly profits to $5.7 billion and possibly a further $405m provision for fines on FX making a total of $1 billion. Further clarification over repatriation will be eagerly awaited. I doubt it will be forthcoming.
UK companies posting results this week – Tuesday – ABERDEEN ASSET MANAGEMENT, JUST EAT, HSBC, RANDGOLD, Wednesday – BOOHOO, GKN, CARILLION, L&G, DIRECT LINE, DAS SMITH, J SAINSBURY, NATIONAL EXPRESS, PRUDENTIAL ASSURANCE, GLAXO SMITHKLINE, Thursday – PROVIDENT FINANCIAL, TELECITY, eSURE GROUP, RSA, TRINITY MIRROR, IMI, BT GROUP, IMPS, WM MORRISON SUPERMARKETS, SAB MILLER Friday – BG GROUP, INTERCONTINENTAL HOTELS GROUP, MAN GROUP, NUMIS, PENDRAGON, ROLLS ROYCE.
US companies posting interim results this week – Monday – POEWS, COMCAST, MGM RESORTS, TENET HEALTH, FIDELITY, DENNYS, Tuesday – SPRINT, KELLOGG, WALT DISNEY, Wednesday – WENDY’S, COSTCO, TESLA, METLIFE, Thursday – FRED’S, REVLON, LIBERTY GLOBAL, ZYNGA, Friday – MCDONALD’S, AOL GROUP.
Economic data – Friday – US NON-FARM PAYROLLS
David Buik – market commentator
Panmure Gordon & Co
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