TODAY’S FAYRE – GREECE – TIME IS NOT ON YOUR SIDE!

 

TODAY’S FAYRE – Tuesday 7th July 2015

 

Love is universal migraine,

A bright stain on the vision

Blotting out reason.

 

Symptoms of true love

Are leanness, jealousy,

Laggard dawns;

 

Are omens and nightmares –

Listening for a knock,

Waiting for a sign:

 

For a touch of her fingers

In a darkened room,

For a searching look.

 

 

Take courage, lover!

Could you endure such pain

At any hand but hers?”

 

Robert Graves – poet – 1895-1985

 

Though the public is currently engrossed with Wimbledon magic provided by Murray, Federer, Djokovic et all, as far as I am concerned the summer magic starts tomorrow in Cardiff – the start of the Ashes series – Cannot wait – Bring it on!

 

HOWEVER MUCH OF A HERO TSIPRAS THINKS HE IS, TIME IS NOT ON HIS SIDE.  IF HE WANTS AN ACCORD, HE NEEDS TO GET THE LEAD OUT. CONCESSIONS WILL BE VERY LIMITED. HOLLANDE MAY BE SYMPATHETIC, BUT MERKEL SEEMS UNMOVED!

 

 

Had Yanis Varoufakis not resigned as the Greek Finance Minister post the controversial Greek referendum, after Syriza felt it struck of blow for Greek democracy in acrimonious circumstances, then there was never going to be a cat in hell’s chance of any workable resolution being struck between the two financially warring parties. Now there is the slimmest strand of hope, but there seems insufficient time available to agree anything meaningful before the banks run out of money. It might be unrealistic to think that Euclid Tsakalotos, the new finance minister will make a measurable difference. Also the fact that banks will remain closed until Wednesday is sensible but not earth shattering.  ECB President Mario Draghi is certainly towing the EU line in saying unless Greece submits a more realistic programme he feels no obligation to help Greece with ist liquidity issues, which includes easing up on capital controls or on the level of securitisation.  Why should the ECB, with Greek 10-year bonds yielding over 17%. There is a venomous message in that yield!

 

 

Also hedge fund managers are standing nervously over the panic button, as civil unrest in Greece threatens to be a reality in the next week or so.  People are starving, medical supplies are running out and oil stocks are running low. Whatever political water ran under the bridge in recent months, it is hard for Europe’s leaders to succumb to the beck and call of Greece, whatever their voters want, with Italy, Spain and Portugal eye-balling the EU’s every move. Greece may well say democracy has spoken for them, but the EU to a man believes there was no case for a referendum. Greece owes €240 million and the creditors want this money back.

Nonetheless the EU knows only too well Greece cannot pay. So the are two options, either restructure Greece’s debt with zero coupon bond over 25 years or release the Hellenic Republic from its EU obligations and the Euro. Let the Drachma be reintroduced with 40% devaluation and let the party begin.

Greece may well have been bullied by Germany to join the EU club in a tidal wave of infectious enthusiasm, despite the fact there was never the slightest sign of Greece mustering the necessary financial criteria. However, when you join a club, you have to abide by the rules. Why should Greece ‘blackmail’ the EU because their plight has deteriorated? After all Greece is only responsible for 2-3% of the EU’S total GDP. I suspect a deal will be cobbled together, papering over the cracks, but the party’s over – GREXIT! – The sooner the better! Greece’s economy is falling out of bed and is in far worse shape today than it was 6 months ago.

 

 

Monday’s reaction to the Greek crisis was much more muted than expected in terms of equities. In Europe France was hardest hit with the CAC losing 2%, followed by the DAX – down 1.5%.  The FTSE closed down 0.76% at 6535.  It was the bond market that caused the biggest rattle with yields on 10-year bonds for Spain, Italy and Portugal moving sharply higher, though nothing in comparison to Greece – from 14% and change to 17.28%. The Chancellor and the BOE Governor were surprisingly down beat as to the damage Greece could do to the UK. They know better than me. The UK is only exposed to Greece for €8 billion with Germany’s number of €40 billion looking quite uncomfortable. As so many market observers have said it is absolute folly to rely so much on the EU to transact our business.

 

 

 

However it was Rolls Royce that attracted most of the headlines with another profits warning. Civil aviation contracts were down perhaps costing £300 million, thanks partly to a drop in orders from Airbus.  The £1 billion share buyback has been put on hold. The new CEO Warren East, after an exemplary performance for ARM holdings, probably decided to shake the trees and throw the kitchen sink at the market. The shares fell 6.3% and have fallen 20% in the last year. There were 2 more downgrades this morning, causing another 1.5% fall. Bovis proved a decent standard bearer for house builders.  The SMMT posted really encouraging car sale numbers for the past 6 months – 1.376 million.  What encouraged me more than anything else was the fact that 799k people are employed in car manufacturing and allied services. The UK is the second largest car assembler in Europe to Germany.

 

 

This morning M&S pleased its acolytes more than me with a trading update which saw food sales for 13 weeks up on alike for like basis by 0.3%.  General merchandising sales were down over a similar period by 0.4%.  The market thought that was good.  I didn’t. I did like the £150 million share buy-back. Shares were up 1% at 552p – they are up 43% in the last 9 months – amazing!  Marc Bolland’s PR is second to none.  M&S has only made £1 billion profits twice in 1997 and 2007.  I doubt £700m will be achieved this financial year.  There were some good numbers from ASOS, Robert Walters and Eagle Eye.

 

 

Yesterday the Street of Dreams shrugged off Greek blues as ISM Non-manufacturing data was quite good, with 15 of the 18 sectors posting growth. The DOW ended the session down 0.26%, the S&P 500 by 0.39% and the NASDAQ by 0.34%. Some investors, though, are very concerned that US equities are beginning to look too frothy.  The S&P 500 has gained 182% in 6 years. Asia proved rather more volatile.  After stimulus packages were implemented by Chinese authorities the Shanghai Composite rallied by 8% early-doors yesterday, but closed only 2.4% above the Plimsoll line. This morning it surrendered over 3% at lunchtime. The NIKKEI closed up 1.36%.

 

 

 

 

UK companies posting results – Tuesday – ASOS (TS), MARKS & SPENCER, ROBERT WALTERS (TS), Wednesday – BOOKER, UNITE, GREAT PORTLAND ESTATES, MICRO FOCUS INTERNATIONAL, TAYLOR WIMPEY (TS), Thursday – AB FOODS (TS), BARRATT DEVELOPMENT, PREMIER OIL, ASHMORE, NCC GROUP, SUPERGROUP (TS).

US companies posting results – Wednesday – COSTCO, Thursday – GAP, FRED’S, WALGREEN BOOTS ALLIANCE, PEPSICO and PRICESMART.

 

 

Economics – Tuesday UK INDUSTRIAL PRODUCTION & MANUFACTURING OUTPUT, Wednesday – UK BUDGET, FOMC MINUTES, Thursday – MPC MEETING

 

 

 

David Buik – market commentator

 

Panmure Gordon & Co​

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