TODAY’S FAYRE – Sunday, 26th July 2015
“When fishes flew and forests walked
And figs grew upon thorn,
Some moment when the moon was blood
Then surely I was born;
With monstrous head and sickening cry
And ears like errant wings,
The devil’s walking parody
On all four-footed things.
The tattered outlaw of the earth,
Of ancient crooked will;
Starve, scourge, deride me: I am dumb,
I keep my secret still.
Fools! For I also had my hour;
One far fierce hour and sweet:
There was a shout about my ears,
And palms before my feet.”
George K Chesterton – poet – 1874-1936
Robert Sean Leonard is not an actor that immediately rolls off the tongue as a leading Thespian of the British theatre. You will recall him if you are a devotee of ‘House’ the series dominated for so many years by Hugh Laurie, where RSL played the part of ‘Wilson’, House’s long-suffering medical colleague. Anyway I have to tell you that Leonard’s portrayal of ‘Atticus Finch’ a lawyer from the ‘Deep South’, who defended Tom Johnston, a black labourer, on trial for a rape, in Harper Lee’s ‘ To Kill a Mocking Bird’ is totally brilliant!
This Timothy Sheader production at the Barbican is quite one of the best plays I have seen in many a day. RSL appeared in the lead role in Regents Park in recent years, but I missed it much to my chagrin. His performance is individualistic, though RSL plays it in a similar under-cooked manner that Gregory Peck did in the ’62 film directed by Robert Mulligan. I am not a devotee of child actors, but the three that played Finch’s children and their friend were sensational. This very moving drama must not be missed!
The start of last week saw the Greek financial crisis come to its natural temporary conclusion with Tsipras brow-beating the Greek Parliament to accept the EU/IMF’s draconian terms for its third bail-out. Technically there could be issues when the Troikas visits Athens this coming week, but they are unlikely to be insurmountable. Markets were rather more concerned with growth in China, the threat of higher rates from ‘Tweedledum & Tweedledee’ better known as Yellen and Carney, the collapse of commodity prices, a 4% fall in Brent crude oil and a mixed reception for the start of the 2nd quarter earnings season in the US.
Reuters reported that of the of US companies that have so far reported earnings, 74% have beaten earnings estimates, but just 52% have exceeded revenue estimates. In Europe out of 58 companies from Stoxx 600 only 45% had beaten profits forecast against an average of 48% in recent years. A fall in Chinese demand, a strong dollar and little inflation have contributed to commodity prices falling off the cliff. The FTSE 350 has been every adversely affected with the likes of Anglo American, Lonmin, Glencore, Antofagasta and Vedanta Resources being clobbered vituperatively.
A rally of expectation tied to earnings disappeared as blue-chip companies disappointed causing the Dow Jones to fall the most since January. Stocks worldwide tumbled 2.1 percent, with the MSCI All-Country World Index posting its worst week of the year. The Dow fell 517.92 points, or 2.9%, to 17,568.53. The S&P 500 Index slid 2.2 percent and the NASDAQ fell 2.3%, the biggest declines for both gauges since March. The FTSE eased by 2.88%, European stocks by 2.77% and the NIKKEI by 0.52%. The Shanghai Composite rallied early in the week but Friday’s Chinese PMI reading suggested momentum had been temporarily derailed.
Mature equity markets have been underpinned for 6 years with quantitative easing. Also interest rates have not moved for the same period of time and with inflation almost non-existent, profit margins have been eroding and narrowing. Mega mergers have helped deliver profits as have substantial buybacks. P/E ratios for the S&P and FTSE and for that matter the NIKKEI are beginning to look quite rich – FTSE 100 16.3 x, S+P 500 17.8x, Eurostoxx 600 16.9x and Nikkei 19.5x.
UK Public Finances – Numbers released on Tuesday looked somewhat disappointing, with a £9.4bn deficit in June (our Chief Economist, Simon French had been expecting £8bn). Evidently central government spending is continuing to grow despite all efforts to constrain it. As for UK Interest Rates, minutes from the Bank of England show that whilst all 9 voted to hold interest rates at 0.5%, ‘a number’ saw an increased risk of UK inflation rising above the 2% target rate in the medium term. Without concerns over Greece, the decision to keep rates the same apparently would have been less clean cut. UK Retail posted figures confirming a 4% increase yesterday, a miss on market expectations of 5%. Following the UK employment data, this is another point that suggests a possible softening in UK data at the end of Q2. Still, the 3 month average picture for growth in the UK does remain strong (+0.7% MoM), which should be endorsed on Tuesday, when 2nd quarter GDP should increase from +0.4% in the 1st quarter to +0.7%; much of the improvement coming from the service sector.
This coming week is a massive one for earnings in the UK. It will be dominated by oil companies, miners, banks and defence operations. In the case of BP and Royal Dutch Shell profits are expected to fall as follows – BP down 55% on the 2nd quarter last year and 38% on the last quarter. As for Shell down 69% on 2nd quarter in 2014 and 42% on the last quarter. Centrica’s Ian Conn may have a problem justifying a 50% increase in British Gas Profits against a 5% cut in prices implemented last February, when he posts numbers on Thursday. As for the banks, Barclays posts numbers on Wednesday and Chairman John McFarlane will talk about massive cuts and redundancies; building up the investment bank and dispensing with operations in Italy and Portugal. On Thursday Ross McEwan should post some improvement on RBS’s bottom line, further disposal of assets and plans to see the taxpayer’s 79%. Lloyds on Friday will have done well and there should be news about the disposal of the taxpayers’ final 14.98%. Numbers from Rolls Royce and BAE Systems on Thursday may not make pretty reading with profits falling between 5-10%.
Last week saw considerable activity within the gaming sector. Ladbrokes and Coral Gala confirmed their merger in a £2.3 billion deal, with Jim Mullen as CEO and Andy Hornby, the former HBOS CEO installed as COO. CVC in conjunction with Cerberus of the US, may spoil 888 Holding party to buy Bwin for £890m. We may also not have heard the last of William Hill’s aspirations to buy 888 Holdings.
UK companies posting results this week – Monday – RECKITT BENCKISER, FEVERTREE DRINKS, Tuesday – PACE, DRAX, BP, GLENCORE, ITV, INFORMA, SEGRO, WILLIS, NEXT (TS), MONDI (TS), Wednesday – BARCLAYS, MAN GROUP, GLAXO SMITHKLINE, TULLOW, SKY, M&B, 3iii GROUP, TATE & LYLE, ANTOFAGASTA, Thursday – ASTRA ZENECA, BAE SYSTEMS, BT GROUP, REXAM, SMITH & NEPHEW, INTERCONTINENTAL HOTEL GROUP, CENTRICA, THOS COOK, RBS, MERLIN ENTERTAINMENT, WEIR GROUP, MERLIN, ROLLS ROYCE, ROYAL DUTCH SHELL, Friday – BG GROUP, IAG, B&M, LLOYDS BANKING GROUP.
US Companies posting interim results this week – Tuesday – FORD, DR HORTON, PFIZER, REYNOLDS AMERICAN, JETBLUE, Wednesday – HOSPIRA, CARLYLE GROUP, NORTHROP GRUMMAN, ALTRIA, GOODYEAR, WYNN RESORTS, WHOLE FOODS, REVLON – Thursday – STARWOOD HOTELS, TIME WARNER CABLE, PITNEY-BOWES, PROCTOR & GAMBLE, LIKEDIN, AMGEN, Friday – CHEVRON, EXXON MOBIL
Economic data – Tuesday – UK 2nd quarter GDP, Wednesday – Consumer Credit, Friday – Consumer Confidence
David Buik – market commentator
Panmure Gordon & Co