TODAY’S FAYRE

TODAY’S FAYRE – Tuesday 19th May 2015

 

“THE brawling of a sparrow in the eaves,

The brilliant moon and all the milky sky, A

nd all that famous harmony of leaves,

Had blotted out man’s image and his cry.

A girl arose that had red mournful lips

And seemed the greatness of the world in tears,

Doomed like Odysseus and the labouring ships

And proud as Priam murdered with his peers;

Arose, and on the instant clamorous eaves,

A climbing moon upon an empty sky,

And all that lamentation of the leaves,

Could but compose man’s image and his cry.”

 

William Butler Yeats – poet – 1865-1939

 

The front page of yesterday’s FT looked as if it had a very provocative headline – “Whitehall braced for 100,000 job cuts as Osborne tightens grip – £10 billion cuts sought by 2017/8.” The appointment of Matt Hancock as Cabinet office Minister reflects the government determination to work closely with the Treasury to achieve this goal. It sounds like a huge number, but I am reliably told by my colleague and friend, Simon French, that if handled sensitively it is easily achievable.

 

Panmure’s chief economist makes the following salient points – “There are 400,000 “Civil Servants” – these include tax officers, job centre workers and prison officers. This is down by around 100,000 since 2010 and follows a downward trend since the 2nd world war – the uptick in 1997-2005 was Brown’s spending splurge. 

 

This is only 10% of the story however as the wider public sector (council workers, nurses, police, teachers) make up a further 5m people – making the total public sector workforce 5.5m or 17.4% of all workers which is the lowest since 1999.

 

Productivity does not have to be poor in the public sector (sometimes you say it cannot be as productive as the Private Sector – this is not technically true) but the truth is that it has been poor since the mid-90s by comparison with most other UK sectors. If you bring this into line and boost productivity by 40% to get it into line with finance and insurance then you get a big chunk of the £170bn that amounts to the public sector pay bill.”

 

It was good to see the whites of BIS Secretary Sajid Javid’s eyes when hearing that he has plans to make £10 billion worth of bureaucratic and red tape cuts in the next 5 years for the benefit of business particularly SMES. The market requires more meat on the bone.

 

Steve Hilton, David Cameron’s former controversial chief Downing Street advisor is back in town with a vengeance.  In an interview with BBC’S Kamal Ahmed, he said “Any companies that would require a state bailout should they “go wrong” should be considered part of the public sector.” Mr Hilton said such a move would be a “powerful incentive” for reform. It goes without saying that top civil servants receive £100,000 to £200,000 a year compared to multi-million pound salaries for bank bosses.

 

 

Yesterday equity markets experienced quite an insipid session, apart from Germany and France, which saw the Euro weaken on the back of a perceived unsatisfactory outcome to the Greek/IMF/EU/ECB crisis, regardless of Varoufakis’s reassuring ‘sweet nothings’ blown in our ears! The Street of Dreams, despite weakening housing data, achieved record levels again, thanks to FED comments that a rate hike may not happen until 2016 plus some positive trading in bank shares and Apple, courtesy of Carl Icahn.  He suggested Apple shares might be worth $240 each, based on input into TV and cars in the next decade (circa +80%). The DOW rallied a smidgen +0.14%, with the S&P 500 and the NASDAQ adding 0.30% and 0.60% respectively. The FTSE was up only 8 points yesterday to 6968. There was some appetite for M&S ahead of tomorrow’s numbers – up 2.3% at 581.5p.

 

Thos Cook’s shares fell 3% in value yesterday – no surprises for guessing why? As a PR exercise this was an unmitigated disaster. Regardless of the fact that Thos Cook was exonerated from blame for this human tragedy – the death in a Greek hotel of Bobby and Christi Shepherd in 2006 – the public was underwhelmed that Thos Cook had pouched £3.5 million from the hotel in compensation – far more than the Shepherd family received.  The apology to the family took a long time coming and the payment to charity of £1.5 million was some recompense but the horse had already bolted. The CEO Peter Frankheimer, the board and the PR company have incurred serious reputational value. One wonders how much Harriet Green, the deposed CEO knew of this appallingly callous act. The damage to the business may only be temporary, but it will take time to heal reputational wounds. Thos Cook post numbers tomorrow.  A small narrowing of losses is expected. Johnson & Johnson experienced a major problem a few years ago from a death from pain killing capsules – Tylenol.  It cost J&J $100 million in damages, but the company quest to resolve the crisis is now considered a text book example for dealing with a crisis.

 

Banks grabbed so many headlines yesterday. Barclays may well have to swallow a £2 billion fine for FX manipulation. New Chairman John McFarlane said standards will improve! He means it!  Deutsche Bank’s joint CEOS Anshu Jain and Jurgen Fitschen are digging in for the long haul, refusing to go, despite the $2.5 billion fine the bank received for FX manipulation. However a statement was made that Deutsche Bank would consider repatriating 8000 employees to Frankfurt if the UK left the EU. It is not going to happen. NY, London and the Far-East (HK & Singapore) are the major financial centres.  English is the international banking and financial language. Of course Deutsche Bank should have contingency plans – Auf Wiedersehen, Pet! These comments follow JCB’s management’s provocative comment that the UK should not be frightened of divorce from the EU. There is a great big wide world out there offering huge lucrative challenges.

 

You have to admire the audacious bid by 888 Holdings to acquire Bwin, despite 888 being the smaller company. It will be interesting to see if it is successful or whether the joint clout of CVC and Amaya beats it to the punch. This move by 888 looks very much like the final roll of the dice to enter gaming’s big league.

 

There have been a slew of earnings today set out below. Though Vodafone’s 10% increase in revenues was more than acceptable there is still little evidence that Vodafone have a business plan to encompass media and entertainment.  They may well have paid a huge dividend last year on the sale of its stake in Verizon, but investors want to see more innovation and imaginative deals being implemented- down 1.5%.  ICAP saw a 15% drop in profits for the last year. Many believe that ICAP needs more presence in equities – the one stop shop! Shares in ICAP were down 2.5%. Moneysupermarket’s Simon Nixon sold a 3.7% stake in the company at 280p, after an abortive attempt a few months ago.  The shares initially fell 6%. The company have changed broker from Citi to Credit Suisse. At 9.15am the FTSE 100 was up 31 at 7002.

 

At 9.30am the market is expecting confirmation that inflation fell below the Plimsoll line to -0.1% for the month of April.  This expected to be only a temporary blip.

 

UK companies posting results –  Tuesday – VODAFONE, TOPPS TILES, LAND SECURITIES, BLOOMSBURY, INNOVATION GROUP, HOMESERVE, BIG YELLOW, AVEVA, ICAP, Wednesday – M&S, THOS COOK, BURBERRY, C&W, SSE, BRITVIC, ZOOPLA, HARGREAVES LANSDOWN, Thursday – RANK, ROYAL MAIL, BOOKER, INVESTEC, DARTY, DAIRY CREST, MOTHERCARE, QINETIQ, Friday – SEVERN TRENT,  CLOSE BROS.

ECONOMICS – Thursday BOE MPC minutes & FOMC minutes.

US companies posting interim results – Tuesday –APOLLO, DYCOM, TJX, WALMART, HOME DEPOT, Wednesday – AMERICAN EAGLE OUTFITTER, STAPLES, TARGET, Thursday – BEST BUY, DOLLAR TREE, AEROPOSTALE, GAP, ROSS STORES, Friday – FOOT LOCKER, ANN INC.

 

 

David Buik – market commentator

 

Panmure Gordon & Co

 

 

David Buik

Market Commentator

 

D +44 (0)20 7886 2775

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

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