Monthly Archives: June 2015

GREECE – THE PARTY’S OVER! IT’S TIME TO CALL IT A DAY!

Well the latest from the Acropolis is that the Greek Government has asked the ESM for a 2-year financing deal to carry the Hellenic empire through the next €7.2 billion bail-out facility. The terms for that are likely to be very draconian, if there is anything to talk about; so you can imagine what the terms will be in 2 years’ time when Greece owes REAL money. My friend and colleague Simon French is of the opinion that Greece should “Wake up and smell the coffee! Greece! Dear tragically glorious friends with such enviable culture – you are BROKE!  Hands up! Put the WHITE FLAG UP!”  “The party is over! It’s time to call it a day!  You burst your pretty balloon and taken the moon away!”

 

Be brave! Pick up the cudgel! Take a walk on the wild side! It cannot be any worse than it currently is.  With a devalued drachma and some low-profile financial help from China – nothing vulgar or too much in your face and in 5 years with a bit of hard endeavour, Greece could be smiling like Cheshire cats.  The longer Greece leaves it the worse it will get!

 

At 3.15pm the FTSE 100 was down 54 points at 6567. Trading conditions were dire. The market was dead as a witch’s nipple!  Mining stocks were down 2%, oil by 1%, banks by 0.5%.  Good luck Andy Murray!

MARKET UPDATE AT NOON

So the Fred Karno Circus – alias the EU/IMF/GREECE slapstick comedy troop – is back in town! More rumours and counter rumours that one could shake a stick at, the most preposterous being that Greece was considering suing the EU for driving them out of the union and the most viable one suggesting that the EU will be offering fresh bail-out terms. That has a certain resonance to it. At the 11.9th hour Greece finally agrees terms pro-tem; Tsipras goes! Then we face the same problem in 6 weeks’ time, 6 months’ time, 1 years’ time and maybe 3 years’ time, when eventually Greece departs!

 

So uncertainty prevails! – The FTSE at 11.44am is down 25 points at 6595 – pharmas are flat, energy is down 1%, mining down 0.5% and banks down 0.5%. Conditions are decidedly sepulchral. Mary Magdalene would have been very comfortable.

Those companies that reported today – Imagination Group +2%, Ocado -1%, Northgate-8%, Ladbrokes – on talks still goin on – flat.

TODAY’S FAYRE – GREECE & ALL THAT JAZZ!

TODAY’S FAYRE – Tuesday 30th June 2015

 

“WHEN we two parted

In silence and tears,

Half broken-hearted

To sever for years,

Pale grew thy cheek and cold,

Colder thy kiss;

Truly that hour foretold Sorrow to this.

 

The dew of the morning

Sunk chill on my brow–

It felt like the warning

Of what I feel now.

Thy vows are all broken,

And light is thy fame:

I hear thy name spoken,

And share in its shame.

 

They name thee before me,

A knell to mine ear;

A shudder comes o’er me–

Why wert thou so dear?

They know not I knew thee,

Who knew thee too well:

Lond, long shall I rue thee,

Too deeply to tell.

 

I secret we met–

I silence I grieve,

That thy heart could forget,

Thy spirit deceive.

If I should meet thee

After long years, How should I greet thee?

With silence and tears.”

 

George Gordon, Lord Byron – poet – 1788-1824

As an international sporting show piece, Wimbledon seems to get more high-profile and grander as the years roll by. And how the behavioural patterns have changed as well – very much for the good!  It was great seeing so many fanatical Australians cheering on their former talisman Lleyton Hewitt in a five set thriller on Court 2 – sadly to no avail – in his first round defeat against the Finn, Neimenen! Seventeen years Hewitt has played at Wimbledon and it was thirteen years ago that he was champion – a record to be immensely proud of!

 

Investors’ reaction to equity markets was utterly predictable. Compile indecision, uncertainty and political incompetence together and it makes a lethal cocktail – tailor made for a measurable market correction. Observers and bystanders were not disappointed. The FTSE, least affected by gross EU/IMF ineptitude, eased by 1.97%. An hour before the close it was less than 1% down, but the power and influence from the Street of Dreams was too much – down it came! The DAX fell out of bed by 3.5% and the CAC by 3.7%. Greek Exchange remained closed and will probably remain so until after the referendum next Monday. The Street of Dreams also vented its spleen at the Greek crisis, as well as concerning itself with Shanghai Composite’s 6% drop yesterday, frothy valuations of US stocks and the threat of higher interest rates. The DOW closed down 1.95%, the S&P 500 by 2.09% and the NASDAQ by 2.40%. It is a worrying factor that the Shanghai Composite has lost over 20% in two weeks, which ventured to suggest that the authorities do not have a proper handle on monetary and fiscal policy. However this morning it has had a massive turnaround from -3% in the morning to +4.95% at lunch! The Nikkei closed up 0.63% this morning.

 

Who know what will happen at the referendum next Monday? Even if Greece votes to stay in and Tsipras is forced to resign, austerity will return to the agenda; so nothing changes. Greece with only 11 million and little industry or commerce can never service or repay €240 billion of debt – so long as night follows day! The problem is never going to go away. So we continue to reel from one crisis to another. The EU’s credibility has never been lower and it is fair to say that Tsipras has been duplicitous in the extreme. I may be dribbling from the corner of my mouth and walking on a Zimmer frame by the time Greece exits the EU, but it will happen!

 

Much as I admire George Osborne as Chancellor – I think he has done really well, he gave me a dose of the ‘pip’ yesterday by putting the fear of God into investors in warning of serious ramifications from a Greek GREXIT. Yes, I understand contagion, but if UK banks off their own bat or with the help of the BOE have not made contingency plans as to their holding of Greek assets and loans in the past couple of years, then I have scant sympathy for them. Yes, George Osborne has a Budget to present next Wednesday with £12 billion of welfare cuts for the electorate to swallow. However, if Greece is as serious a threat to the UK economy, as the Chancellor suggests it might be, then we have a real problem. The UK thrashed the EU, when it came to growth in recent years; no reason why we cannot keep trucking. I think I understand being political savvy and prudence, but being unnecessarily negative about prospects of economic situations can be very dangerous.

 

Yesterday Consumer Confidence was confirmed to be at its highest level in the UK since the 1990s. Carolyn Fairbairn will succeed John Cridland as CBI director General. M/S Fairbairn started life off as an economist at the World Bank and has since enjoyed successful sojourns as director of strategy at the BBC and ITV. We wish her well. Ladbrokes’ CEO Jim Mullen confirmed that merger talks with Coral Gala were still on-going. The joint company will have 4,000 betting shops out of 9,000. This will be a competition issue, which will require some thought as to what shops are sold or closed down.

 

This morning there were encouraging results from Ocado, Carpetwright, Northgate and Imagination Technology. After hours in Tokyo, Sony’s shares fell 8% after an announcement that $3.65 billion of fresh capital was required. With the advent of the ipad, iphone, lap-top, Sony has been caught napping, despite producing the finest televisions over the past 30 years.

 

UK companies posting results – Tuesday – LADBROKES (business plan), IMAGINATION TECHNOLOGY, CARPETWRIGHT, OCADO, NORTHGATE, Wednesday – ANITE, SERCO GROUP, GREENE KING, Thursday – PERSIMMON, TOPPS TILES (TS), TULLOW (TS),Friday – MARSHALLS, FERREXPO

US Company results – Wednesday – CONSTELLATION BRANDS, FORD MOTOR (sales) – Thursday. – RITE AID CORPORATION.

Global economic diary – Monday – UK Consumer confidence, Wednesday – BOE Financial Stability report – Thursday -US NON-FARM PAYROLLS (+2015k) rate 5.5%, Friday -US INDEPENDENCE DAY NEW YORK markets closed.

David Buik – market commentator

Panmure Gordon & Co

MARKET UPDATE

We have seen a bit of a bear squeeze rally, possibly driven by the Street of Dreams reluctance to fall like a stone – DOW Down 0.7% – 120 points at 3.15pm. Consequently the DAX is only down 2.6% and the CAC 2.3%.  The FTSE 100 half an hour ago was only 60 points down, but as I write it is in negative territory to the tune of 81 points at 6673 – down 1.2%.

 

Oils are down 1%, pharmas are easier by only 1.5% and mining stock are volatile but they are currently as a sector flat on the day. Barclays is down 2%, HSBC easier by 1.25% and RBS by 1.75%.  Easyjet has rallied from its ‘lows’ – only down 2%, and Tui Travel and Thos Cook are some way off  their worst levels – down 6.5% and 3% respectively.

 

I would not be bold enough to say the storm has blown over, but the EU/ECB/Greece will need to pull something very deftly out of the hat to prevent further carnage.  It is this indecision and political incompetence and ineptness that is killing sentiment.  

MARKET UPDATE – THE EU FEELS LIKE A TOTALITARIAN ‘BULLY-BOY’ STATE, even though Greece has not played the game

I know I am a bit of a simpleton and perhaps rather naïve when it comes to democracy.  I am such a huge believer in Democracy I tend to be blind to even subtle alternatives. Yannis Varoufakis, the Greek Finance Minister,  who must clearly be looking to play Malvolio in the next production of the RSC’s “Twelfth Night” revealed the quite shocking and anti-Democratic skulduggery that took place during the last EU meeting. Firstly, they seem to despise Yannis’ intellect as he clearly grasps fundamental economics rather better than any other academic geek in Brussels – hence the rumoured demand that Mr Varoufakis be excluded from any further negotiations . It appears that the EU does not want any member state to ever allow their respective electorate to vote on the Euro. Brussels, as many of us have suspected or confirmed that the governing capital city of the EU is intoxicated by the fumes generated from Federalism and Dictatorship.  The level of arrogance is breath-taking to behold.

Democracy in Europe is collapsing before our eyes and we are witnessing the birth of a new era – Economic Totalitarianism from political tyrants who are totally clueless beyond their own greed for power and money.

 

Hence we are in the midst of a temporary and totally unnecessary melt down of European markets. I suspect that we have not seen the end just the start of the beginning of what may be a very uncomfortable year.  New York has yet to vent its spleen, though quite a strong message was sent out an hour ago that Global X FTSE GREECE ETF market in New York was scheduled to open – DOWN 15% – National Bank of Greece down 30%! We shall know our fate in an hour. The Greek stock exchange remains closed and is likely to remain so for the week. The Euro hit $1.10 and the 10-year Greek bond yield flirted with 14%. I suspect that when the bond market is fully functioning, barring a miracle, the yield on 10-year Greek paper may well be nearer 20% than where it is now.

 

At 12.34pm the FTSE 100 was down 121 at 6631 – -1.8%. Volumes were average considering the downbeat sentiment. Market makers were quoting ‘coach and four’ prices to avoid getting hit! Tui was damaged despite only average exposure to Tunisia and Greece. The market is concerned overall about holidays – down 8%, Thos Cook down by -3.5% and easyJet -1.5%.

 

Banks were not the flavour of the month – Barclays -2.5%, HSBC -1.5%, RBS -2%. Oils were easier by 2%, pharmas were down 1.5%, mining by 1.25%. Even defensive stocks such as BATS, IMPS, Severn Trent and United Utilities were in the red. The Pru was down 1.5% and Aviva lost 2%. The DAX and CAC were in far worse shape – down 3.3% and 3.5% respectively. However there was far greater concern over the SHANGHAI COMPOSITE which has lost 18% in the previous 10 trading days, lost a further 6% TODAY!

MUCH ADO ABOUT NOTHING – GREECE & MARKET UPDATE

The Greek Stock Exchange is closed today and will probably remain so for the rest of the week.  The Greek 10-year bond yield has leapt like the proverbial grilse to 13.94%.  I suspect If I tried to sell some in size, I might fall at the first fence!

 

FTSE – down 110 at 6640 at 9.15am

 

Banks are off their lows – Barclays -2.6%, HSBC -2.3%, RBS -2% – clearly the exposure to Greece is limited.

 

Prudential and Aviva both down 1.9% – the same sentiment applies to them as the banks.

 

Pharmas are easier by 2%, oils by the same amount and mining is somnolent – down just an average of -0.5%. Tesco is in line with market down 2% and M&S is easier by 1.6%. Travel has not fared well – Tui Travel and Thos Cook both down 6% – not so much Greece and Tunisia more about concern for holidays overall. EasyJet is only down 2.6%.

 

No sign of ECB help for Greece – I think Dragi meant it.  That’s it folks.  Look to the EU and IMF for guidance.  I think it could well be GREXIT, here we come. When?  Who knows!

 

THIS MORNING’S FAYRE – Monday 29th June 2015

 

Half a league, half a league,

Half a league onward,

All in the valley of Death

Rode the six hundred.

 

“Forward, the Light Brigade!

“Charge for the guns!” he said:

Into the valley of Death

Rode the six hundred.

 

“Forward, the Light Brigade!”

Was there a man dismay’d?

Not tho’ the soldier knew

Someone had blunder’d:

Theirs not to make reply,

 

Theirs not to reason why,

Theirs but to do and die:

Into the valley of Death

Rode the six hundred.

 

Cannon to right of them,

Cannon to left of them,

Cannon in front of them

Volley’d and thunder’d;

 

Storm’d at with shot and shell,

Boldly they rode and well,

Into the jaws of Death,

Into the mouth of Hell

Rode the six hundred.

 

 

Flash’d all their sabres bare,

Flash’d as they turn’d in air,

Sabring the gunners there,

Charging an army, while

All the world wonder’d:

 

Plunged in the battery-smoke

Right thro’ the line they broke;

Cossack and Russian Reel’d from the sabre stroke

Shatter’d and sunder’d.

Then they rode back, but not

Not the six hundred.

 

Cannon to right of them,

Cannon to left of them,

Cannon behind them

Volley’d and thunder’d;

 

Storm’d at with shot and shell,

While horse and hero fell,

They that had fought so well

Came thro’ the jaws of Death

Back from the mouth of Hell,

All that was left of them,

Left of six hundred.

 

When can their glory fade?

O the wild charge they made!

All the world wondered.

Honor the charge they made,

Honor the Light Brigade,

Noble six hundred.”

 

 Alfred, Lord Tennyson – poet – 1809-1892

 

So as predicted we have apolitical and financial mess, which was totally unnecessary. Markets will now be in turmoil. The EU and the IMF have been on notice for years that Greece was falling further and further in to the economic abyss and have done very little to head off this inevitable crisis.

Politicians just never seem learn that their ignorance, lack of economic savvy and naïve mishandling of an issue of this magnitude has a huge price to pay. Chancellor Merkel! Hang your head in shame on behalf of Germany, who initially bullied Greece into the EU, when the financial criteria was never in place. PM Tsipras was a naïve schoolboy who led Greece into his own ‘Charge of the light brigade, without a cat in hells’ chance of delivering the fatted calf. Varoufakis was ‘Machiavellian’ in the extreme. He knew the sums did not add up.

The reactions of the ECB will be key today. Without a firm grip, markets really could fall out of bed. They cannot deal with uncertainty or indecision, which it is being confronted with in spades.

 

I suspect that at the end of the day GREXIT is inevitable. The so called Greek referendum is not a referendum, it is a plebiscite, as it has been called by politicians, who are not united and not by the people. I have little doubt that in 5 years-time, Greece will be pleased to be out of the EU with a devalued Drachma. Italy, in particular and Portugal will be watching eagerly at these machinations. If Greece’s departure is a success, they will ask to have their keys to their kingdom. What an unholy mess!

 

The FTSE is expected to be down nearly 200 points, the DAX by 482 points and the CAC by 180 points. Sentiment is negative and until the uncertainty disappears the outlook is quite grim, which is annoying for the UK, which frankly is in quite good shape.

 

 

 

 

David Buik – market commentator

 

Panmure Gordon & Co

TODAY’S FAYRE – GREECE

TODAY’S FAYRE – Sunday 28th June 2015

 

“The piers are pummelled by the waves;

In a lonely field the rain

Lashes an abandoned train;

Outlaws fill the mountain caves. 

 

Fantastic grow the evening gowns;

Agents of the Fisc pursue

Absconding tax-defaulters through

The sewers of provincial towns. 

 

Private rites of magic send

The temple prostitutes to sleep;

All the literati keep

An imaginary friend. 

 

Cerebrotonic Cato may

Extol the Ancient Disciplines,

But the muscle-bound Marines

Mutiny for food and pay. 

 

Caesar’s double-bed is warm

As an unimportant clerk

Writes I DO NOT LIKE MY WORK

On a pink official form. 

 

Unendowed with wealth or pity,

Little birds with scarlet legs,

Sitting on their speckled eggs,

Eye each flu-infected city.

 

 Altogether elsewhere, vast

Herds of reindeer move across

Miles and miles of golden moss,

Silently and very fast. 

 

WH Auden – poet – 1907-1973

 

The latter part of last week was an unmitigated disaster from a human perspective with so many innocent holiday makers, religious worshipers and office workers butchered by the barbaric IS, who care not a jot for human life. Without being hysterical and hopefully never succumbing to the threat of terrorism, the number of safe places to live or visit on holiday diminish by the day. The immigrant crisis in the Mediterranean and in Calais as well as on the shores of our beloved ‘Sceptred-Isle’ get worse by the day and no one has offered anything looking remotely like a solution. It is truly an insufferable state of disrepair.

 

Though I have every sympathy for the Greek people, their suffering pales into relative insignificance in comparison to those under ferociously cruel attack from religious fanaticism.

 

As expected the Greek crisis produced not even the semblance of a resolution. In fact the temperature of the coterie of delegates hit fever pitch by Saturday with Greece, the EU and the IMF exchanging bitter accusations of mistrust and contempt. Chancellor Merkel goaded Tsipras into accepting the very generous terms offered by the creditors, which was rebuffed by the affronted Greek PM with counter charges that Greece was being blackmailed and threatened with ultimatums. It looks as though next Tuesday’s deadline to repay €1.5billion to IMF (30th June) will come and go without agreement, despite the urgent need to unlock €15.3billion bail-out fun, including €7.2 billion withheld since lady year. This atmosphere does not bode well for Sunday’s Eurozone Finance Ministers’ meeting.

 

PM Tsipras apparently refused a 5 month extension of the bailout. Barring a miracle Greece may see a run on its banks as early as next week, though they will remain closed on Monday. Unless the ECB offers reassurance about temporary liquidity help, there could be carnage on Monday morning in European bond and equity markets. Assuming no agreement, the EU will also discuss plan B with involves protecting the rest of the Union from any fall -out from Greece’s refusal to accept terms. Tsipras insists that the EU’s draconian proposals will stifle growth and recovery. Messrs Tsipras and Varoufakis are going to find it increasing difficult to get Parliament and or the Greek electorate to agree to this plan. The EU/IMF have rejected an extension of the loan facility until after the proposed referendum. Default threatens, but the ramifications are gargantuan.

 

This is much more of a political crisis than a financial and economic one. With GREXIT now a distinct possibility, there is no doubt that Portugal, Spain and Italy will be keeping tabs on the ramifications. Why should they be discriminated against? Could this be the end of the European dream? Greece being expelled could have serious repercussions. As discussed earlier a run on Greek banks is highly likely.  Will European bourses fall like a stone? Much of the problem may be priced in, but sentiment plays a far greater role than logic. The DAX and CAC could get larruped. The FTSE is much more of an international index reliant very much on Dollar earnings. The idea of Merkel playing hardball sticks in the crawl a tad.  It was Germany that ‘rail-roaded’ Greece in to joining the EU, when there was no chance of the financial criteria being met. She has a moral obligation to help the Greek people. The IMF and Mme Lagarde has not come out of these negotiations with very much credit according to many. It was felt that she should have given more scope to the EU to solve these issues. The IMF has conspired according to certain aficionados to turn a containable crisis in to a total disaster. However the IMF advises 188 countries and cannot be seen to unfairly accommodate Greece.

 

There are too many prophets of doom out there! GREXIT, expulsion from the Euro need not necessarily be Armageddon. The reintroduction of the Drachma, which would be devalued by as much as 40% would be the greatest possible ‘fix’ for Greece’s tourism. People would flock in.  Also attractive rates of taxation would encourage international corporations to open factories and business which would help unemployment.  The likes of Google, Apple, GM, Ford, Toyota etc would surely give great consideration to opening up operations. This would only be viable if there was an orderly GREXIT facilitated by every EU member.

 

Despite the weeping sore that is the Greek Crisis – exasperation for the rest of the world is hardly an adequate description – there was much to keep the investing public occupied, interested and concerned. Last week the S&P closed down -0.39%, the FTSE was up 0.64%, European stocks rallied by an illogical 2.9%, in the hope that Greece would be put to bed once and for all, with the DAX adding 4% and the Greek exchange 2%. The NIKKEI closed up 2.64%, hitting its highest level since 1996, thanks to one stimulus package after another being introduced.  China’s Shanghai Composite certainly saw the cracks of doubt appearing in terms of its equity bubble bursting. This Index has lost 18.8% in value since 12th of June and eased by 7.4% on Friday. China, on Friday cut its one year deposit and lending rates by 0.25%. The minutes of the FOMC, despite suggesting a symbolic rise in the not too distant future, had quite a dovish tone to it – hardly surprising considering the US economy has a slightly soft belly attached to it plus problems in China and Europe, which will concern Chairman Yellen and her troops.

 

June has been the best month for US IPOS so far this year, with $4.79 billion worth of trades. Nike added 4% after good numbers. Tesco added 2.7% last week after producing slightly less than awful sales numbers for the last 13 weeks – like for like sales down just 1.3% with Asia down 2.9%. This is the end of year one of a 5 year plan for a rejuvenated Tesco; so Dave Lewis has been given the benefit of the doubt. A rights issue may be required later and many expect Tesco to sell its Korean unit for $6 billion – maybe to private equity. On news of a possible merger with Coral Gala, LADBROKES shares rallied by 16% on the week. Few will be happy if Andy Hornsby walks out of the deal with a pot of gold post the HBOS debacle.

 

John Browett, former CEO OF Dixons and post an unsatisfactory sortie with Apple has been appointed CEO of DUNELM. Shell hope to complete its takeover of BG Group in a July. There looks as though there will be no deal between 3G Capital an Diageo. Miami Dolphin’s Stephen Ross in conjunction with Qatar were rumoured to be making a circa $8 billion bid for 35.5% of F1 owned by CVC Capital. However it is also believed that Sky and Liberty Global are weighing up the possibility of competitive offers. This private equity mogul’s stake is currently nursed by Bernie Ecclestone.  Sophos, the cyber security titan in competition with McAfee and Symantec is close to its £1. Billion IPO. About £125 million worth of stock will be offered for sale. Apax Partners currently own 65%. Former Labour minister Hazel Blears and Ruth Spellman have been nominated as directors for the Coop.

 

 

UK companies posting results – Tuesday – LADBROKES (business plan), IMAGINATION TECHNOLOGY, CARPETWRIGHT, OCADO, NORTHGATE, Wednesday – ANITE, SERCO GROUP, GREENE KING, Thursday – PERSIMMON, TOPPS TILES (TS), TULLOW (TS),Friday – MARSHALLS, FERREXPO

US Company results – Wednesday -CONSTELLATION BRANDS, FORD MOTOR (sales), Thursday. – RITE AID CORPORATIONS.

Global economic diary – Monday – UK Consumer confidence, Wednesday – BOE Financial Stability report – Thursday -US NON-FARM PAYROLLS (+2015k) rate 5.5%, Friday -US INDEPENDENCE DAY NEW YORK markets closed.

 

 

David Buik – market commentator

 

Panmure Gordon & Co

 

TODAY’S FAYRE – Thursday 24th June 2015

 

 

“She looked over his shoulder

For vines and olive trees,

Marble well-governed cities

And ships upon untamed seas,

But there on the shining metal

His hands had put instead

An artificial wilderness

And a sky like lead. 

 

A plain without a feature, bare and brown,

No blade of grass, no sign of neighborhood,

Nothing to eat and nowhere to sit down,

Yet, congregated on its blankness, stood

An unintelligible multitude,

A million eyes, a million boots in line,

Without expression, waiting for a sign. 

 

Out of the air a voice without a face

Proved by statistics that some cause was just

In tones as dry and level as the place:

No one was cheered and nothing was discussed;

Column by column in a cloud of dust

They marched away enduring a belief

Whose logic brought them, somewhere else, to grief?”

 

WH Auden – poet – 1907-1973

 

As the days start to draw in after not much evidence of a summer, so equity acolytes start to reflect on their plight for the rest of the year. We hear nothing but, Greece, Greece and more Greece. Yet there is not the slightest possibility of a satisfactory accord being agreed in the long-term from these protracted and painful negotiations between Greece and its creditors.

 

Last night they came to a halt for the umpteenth time over disagreement in regards to cuts in public expenditure and wages – in other words more austerity. We are heading towards Greece’s “D-Day” – 30th June when E1.6 billion is due to go back to the IMF or as the case may be – default! A few days may not make that much difference and maybe there will be a fudged deal. My colleague Simon French has an interesting take on this on-going saga!

 

“Greece: There is a slightly overdone reaction to today’s rejection by the Brussels Group (troika) of the latest Greek proposal – and the Greek rejection of the counterproposal. It boils down to disagreement over increasing VAT on restaurants, earlier implementation (by 3 years) of the state pension age increase to 67 and larger cuts in defence spending. None insurmountable and given the precipice I still think we will get a deal for the E1.6bn by the weekend. HOWEVER this is but the end of the beginning as then looms the 3rd bailout which will be required when these new funds run out at the end of August (ECB payments of 3bn in both July and August are required). The terms of “Bailout 3” will be much more draconian than the ones being negotiated today and I think will necessitate a Greek referendum/fresh national elections. Invariably these things always happen when all the European politicians are on holiday so best guess would be the third week in August when Draghi is harvesting his olives….”

 

Not surprisingly these disheartening negotiations have damaged sentiment. How ironic that having sold his Netflix investment for a gargantuan profit of $1.9 billion made in 3 years – in at $58 and out at circa $678 a share – that the mega-entrepreneur Carl Icahn should suggest that a negative outcome to the Greek negotiations could put pressure on earnings, valuations and bond liquidity, inviting a 5-10% correction in the S&P 500! Certainly yesterday, in the wake of Monday’s euphoria, investors took some risk off the table in Europe and the US. The DAX eased by 0.62%, the CAC by 0.24%, whilst the FTSE remained just above the Plimsoll line at 6844 – up 9 points.   However punters on the Street of Dreams were in no mood to be trifled with. The DOW closed down 0.98%, with the S&P 500 easing by 0.74% and the NASDAQ by 0.73%.

 

There was some slightly better news on the economic front in the US. 1st quarter GDP was adjusted upwards from -0.7% to -0.2%. Monsanto was a significant faller – down 5.7% as its bid for Syngenta was rejected on valuation. Most of the major S&P sectors were lower with materials more adversely affected than most. Lennar the house builder shone through the gloom adding 4.2%. Yahoo’s Marissa Mayer was due to update the market with plans for its stake in Alibaba, valued at $40 billion. Many expect this division to be spun off. In London, it was oils and mining that kept the FTSE from going in to negative territory. The market seemed convinced that Shell would complete the acquisition of BG Group. Also there was some interest in Sainsbury and Morrison on broker upgrades. Volumes were derisory with investors expressing little appetite to get involved. Stagecoach posted decent numbers with revenues increasing on the year by 9.2% to £3.2 billion with profits up 10% to £26.3 million. It is interesting to note that IKEA may be prepared to open up smaller warehouses to attract more business rather than the 18 huge establishments they have dotted around the country – often further than people are prepared to travel. Ikea have started this initiative in Norwich.

 

One of the more hawkish members of the MPC, Martin Weale reminded the market that UK shoppers were hitting the plastic with indecent enthusiasm – consumer credit up 5% last month – a further proof of confidence. Add these issues to a very strong Pound and the possibility of today’s CBI Distributive Trades Survey (DTS) being very positive and then there is more than a case for a rate rise perhaps as early as August if Mr Weale has anything to do with it. Ian McCafferty would probably vote for an increase as well, as might Ben Broadbent, a deputy governor!

 

This morning that retail juggernaut H&M posted a 23% increase in sales in the past 6 months and have plans to open up another 400 shops in emerging countries. Conversely Debenhams’ sales have been flat over the last 15 weeks but are up 0.9% in the last 41 weeks.

UK companies posting results – Thursday – PHOTO-ME, DS SMITH, COSTAIN (TS), DEBENHAMS, Friday – TESCO (TS), TRINITY MIRROR (TS)

 

US companies posting results –Thursday – BARNES & NOBLE, NIKE, ACCENTURE

 

 

Economic data – Thursday – US JOBLESS CLAIMS

 

 

David Buik – market commentator

 

Panmure Gordon & Co

 

TAKE A LOOK AT EUROPEAN BANKS & MARKET UPDATE

Name March 2009 share price June 2014 share price June 2015 share price % loss/profit in last year
LLOYDS 18p 80p 87p +8.7%
RBS 197p 320p 362p +13%
HSBC 350p 590p 600p +1.6%
STAN CHART 627p 1192p 1067p -2.1%
BARCLAYS 54p 225p 274.60 +22.2%
BNP €20.40 €49.40 €56.67 +14.7%
SOCIETE GEN €17.40 €39.00 €43.70 +12.1%
DEUTSCHE €16.50 €26.10 €27.82 +6.6%
SKANDINAVISKA SKR30.00 SKR80.00 SKR109.30 +36.6%
COMMERZBANK €12.72 €11.62 €11.95 +2.8%
ING €2.35 €10.40 €15.29 +50.1%
INTESA €1.47 €2.27 €3.37 +48.4%
UNICREDIT €3.84 €6.30 €6.36 +0.9%
CREDIT AGRICOLE €6.00 €10.61 €13.98 +31.8%
SABADELL €2.17 €2.30 €2.28 -0.9%
BBVA €8.80 €9.39 €9.28 -1.1%
SANTANDER €4.60 €7.75 €6.70 -13.5%
DEN DANSKE DK40.71 DK153.60 DK200.30 +30.4%
         

 

 

When QE was introduced in March 2009 bank shares rose like the proverbial grilse until about 2012 – see above. Since then, with the exception of Italian, Scandinavian and to a lesser degree, French banks, the sector has not been a particularly attractive hunting ground – certainly in comparison to the US, where gains have varied from the sector by between 60% and 100% in the last 5 years, thanks to liberal help from the FED. In the UK with the exception of Barclays, the other main banks have been disappointing, though in fairness Lloyds and RBS have made some measurable gains, BUT from a seriously trashed base point. The fines and repayments imposed on HSBC, LLOYDS, RBS and BARCLAYS and a lesser degree STANDARD CHARTERED for LIBOR, PPI, FX and MONEY LAUNDERING total way in excess of £35 billion, have curtailed profits. Who would bet against this figure going up, particularly PPI, when calculations have finished on ‘interest on interest and credit cards – the mind boggles?

 

There is no doubt that the Chancellor is right to sell shares in Lloyds, RBS and W&G back to the public asap, even if the first tranches of RBS go at a loss. Time will hopefully be a big healer, but I will not be holding my breath waiting for egregious profits. It could to be an uphill struggle. Regulation is going to be very painful and expensive. Today’s news that bonuses could be called back from as far back as 10 years ago could discourage overseas operators from expanding their business in London. Messrs Carney and Bailey seem hell-bent on having their pound of flesh. I invite them not to throw the baby out with the bath water.

 

Let’s hope in the Budget on 8th July the Chancellor trims the bank levy due annually from HSBC and Standard Chartered to the business they do in London. In the case of HSBC, it only conducts 20% of its business here in London. It would send out a very bad message to the world if HSBC were seen to pack its bags and head east, however unattractive the idea of returning to HK or Singapore might be. I think HSBC is bluffing, but if the Chancellor plays fair on the levy it will not be a problem. Morgan Stanley has done well easing Lloyds stock out with the taxpayer now only owning 16.87%. RBS may prove quite a challenge to Goldman and Rothschild. £45 billion is a gargantuan amount and there could be some indigestion from the sale of too many bank shares.

 

Despite the prospect of a Greek settlement, trading conditions in London have been sepulchral. The FTSE 100 at 3.30pm is up 24 points at 6860. Mining stocks are up between 1.5% and 2%, oils by between 1 and 2%. Ladbrokes gave back 1% and punters acknowledged that Carnival’s figures were good – up 3%.