TODAY’S FAYRE

TODAY’S FAYRE – Sunday 24th May 2015

 “All the loud winds were in the garden wood,

All shadows joyfuller than lissom hounds

Doubled in chasing, all exultant clouds

That ever flung fierce mist and eddying fire

Across heavens deeper than blue polar seas

Fled over the sceptre-spikes of the chestnuts,

Over the speckle of the wych-elms’ green.

She shouted; then stood still, hushed and abashed

To hear her voice so shrill in that gay roar,

And suddenly her eyelashes were dimmed,

Caught in tense tears of spiritual joy;

For there were daffodils which sprightly shook

Ten thousand ruffling heads throughout the wood,

And every flower of those delighting flowers

Laughed, nodding to her, till she clapped her hands

Crying ‘O daffies, could you only speak!”

Suddenly with a shy, sad grace

 

Robert Nichols – poet – 1893-1944

 

I am delighted but surprised that the EU referendum and the UK’s insistence on renegotiated terms with its European partners is so high on the government’s agenda. Now, of course, that there is no coalition to answer to, these way overdue negotiations with the PM, George Osborne, Sajid Javid, Lord Maude and Michael Gove in the vanguard, we can at least expect some initial fireworks, as demands on many fronts including immigration and excessive bureaucracy are chucked in to the ring for hopefully more than discussion and consideration.

 

If a push comes to a shove, I am sure the UK will remain in the EU. Whether better terms for our membership will transpire from meaningful talks remains in doubt. Big business and senior politicians will drive the ‘YES’ vote, but I have my concerns as to whether SMES and the public at large will have been given enough information as to the cost of staying in or coming out. There needs to be a royal commission informing all the public of the ramifications – warts and all. Also apart from UKIP, there are no obvious luminaries to go in batting for the ‘NO!” campaigners. It is fundamental that there must be a full-on debate. The public must not be “rail-roaded!” Finally should those 1 million or so British passport holders who live abroad have a vote? That could be a vital, if possibly unfair ingredient. Also those living in the UK who do not hold UK citizenship; should they be given a vote? I doubt there will be much appetite for their participation.

 

Lord’s has been a sight for sore eyes for the past three days – Mecca in NW8. New Zealand have been every much in the driving seat and it is easy to understand why this wonderful country with a population of 4 million is ranked number three in the world cricket ratings. The sooner Jason Gillespie is appointed coach the sooner England’s confidence will be restored.

 

Looking at the performance of some of indices last week in isolation, one could be forgiven for thinking that it was quite a mundane period, apart from Japan and China, whose respective governments cannot throw enough stimulus packages at their economies, come hell or high water – hence the absurdly violent illogical rallies the NIKKEI (+2.69%) and Shanghai Composite have been subjected to. The S&P 500 inched forward by 0.16% – the 32nd record point in the last year. The FTSE 100 bobbed along, singing a song – +1.02%.  European indices rallied by 2.8%, intoxicated by the fumes of QE, despite the fact that the Greek saga bumbles along, without agreement on a bail-out which we are told won’t be forthcoming until the IMF is ‘on-side.’ People have really stopped caring.  They know a fudged deal is in the offing – So, with respect EU/ECB/IMF, please get on with it, before all credibility is lost.


No doubt about it, it has been a full-on week for news, especially here in Old Blighty. I suppose it was a close run race as to whether the FX manipulation bank fines or the Bank of England’s leaked contingency plans on BREXIT, as to who should grab the yellow jersey for the week. I think the BOE won it on the nod with its unfortunate exposure to the Guardian that it was working on contingency plans for a BREXIT under the guidance of Sir Jon Cunliffe – deputy governor.  Sir Jon is masterminding ‘Project Bookend’ – a feasibility study of contingency plans in the event of an unlikely withdrawal from the EU. Frankly there are only two embarrassments – The leak to the Guardian and the comment about an accidental email? I find that hard to fathom the accidental explanation. Apart from that, the country should be delighted that contingency plans to deal with all eventualities are in place. A BREXIT would take probably 5 years to expedite without a complete financial rout. The implications are huge – tax, foreign exchange, bank deposits, bank capital and their regulation, tariffs and trade agreements to name but a few. If the BOE was on the case over an ‘out’ vote on the Scottish Referendum, surely it would be nothing short of irresponsible if there were no plans for BREXIT. I have it on fairly reliable authority that under the coalition government, there were no Treasury plans for any eventuality over EU membership withdrawal, as of course the government had no mandate, with the Lib-Dems remaining truculent, difficult and unsupportive of a referendum.


On Wednesday it was revealed that UK banks were amongst 6 who were collectively fined about $5.7 billion for FX manipulation, with Barclays’ reputation probably the most tarnished with total fines of $2.4 billion. It was also revealed in the Sunday Times that Jonathan Hoffman, a debt trader employed from Lehman with a signing on fee of £53 million bagged bonuses totalling £170 million over 5 years – that is uninspiring PR in the wake of Barclays spending the last few years trying to rebuild trust with its customers.


Of course Pandora’s Box has yet to open for these banks’ manipulation misdemeanours. Litigation on a civil basis is inevitable. FX is largest market in the world – about $5.3 billion; therefore the domino effect to include brokers, traders, property companies, share dealing and the finance of foreign trade is gargantuan.  If people feel they have been ‘skin-flinted’ they will inevitably vent their spleens.

Economic and financial news – both fundamental and tit-bits was there in abundance. The FED’s chairman Janet Yellen seems convinced that the US was recovering from a bad 1st quarter, thanks to inclement weather and should growth and labour market progress continue to be made a rate increase this year was on the cards, with the heat being turned up in 2016.  Certainly retail, manufacturing and housing data have not really ‘floated’ the Street of Dreams’ boat! We wait in awe and trepidation. Wall Street experienced a fairly exciting week, though the Dollar firmed on Yellen’s comments and Treasury yields headed north. At the end of the week retail results were mixed with Aeropostale falling 15% and Ross Stores by 4%. Conversely Deere rallied by 4% and Campbell Soups by 2%.


The market’s reaction to M&S results were very mixed though fashions are VERY slowly improving, margins are better and cash flow generation was excellent. Gains were made in the previous 5 months with the shares rallying by about 50%! However it was Vodafone that captured investors’ imagination with the real prospect of Liberty Media and Europe’s largest mobile operator coming together in a £120 billion deal. Shares in Vodafone rose from 185p in early May to 253p on Friday.  Royal Mail benefitted from Whistl’s problems, though one cannot help feeling that it will be eventually merged or taken over by one of the big three – UPS, FedEX or Deutsche Post. Thos Cook went some way towards mending in its trashed reputation by saying sorry to the Shepherd Family and donating £1.5 million to charity. IPO business seems to be gathering some momentum now that Labour had been cleared away for 5 years as a threat to business. Goldman could bring Equiniti, the UK’S largest private outsourcing operation to the market in a £1 billion deal and Peter Cruddas’s CMC could also seek a listing for a similar amount. CMC has threatened to go public on numerous occasions, but has pulled out on valuation and negative market sentiment? Though perhaps not in IG’s league, nonetheless a good operation that made $32 million last year.


BWIN should announce soon who it will bed down with – CVC/Amaya or 888 Holdings. Graham Beale served notice to leave Nationwide after a 32% increase in profits to £1.2 billion. Lloyds Banking Group was very sad to lose Alison Brittain as CEO to Whitbread.


PM Cameron has been strutting his stuff on the EU stage about renegotiation this week.  It had been a good week for the government with retail sales bouncing by 1.2% last month – up 4.7% on an annualised basis. Also post the election manufacturing output has girded up its loins from a 22 month low.

 

UK companies posting results – Tuesday – MICRO FOCUS, Wednesday – CARD FACTORY, CALEDONIA INVESTMENTS, Thursday – PAYPOINT, IG GROUP, TATE & LYLE

ECONOMICS – Tuesday – CPI I & PPI, Thursday BOE MPC minutes & FOMC minutes.

 

US companies posting results – Tuesday – AUTOZONE, Wednesday – CHICO’S FAS, TOLL BROTHERS, TIFFANY & CO, BROWN SHOE COMPANY, COSTCO, Thursday – ABERCROMBIE & FITCH, FRED’S, Friday – BIG LOTS.

 

 

David Buik – market commentator

 

Panmure Gordon & Co

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