Monthly Archives: October 2015

TODAY’S FAYRE – FOMC, MARKETS, BARCLAYS & UK RATES

 

 

TODAY’S FAYRE – Thursday, 20th October 2015

 

“The eye can hardly pick them out

From the cold shade they shelter in,

Till wind distresses tail and main;

Then one crops grass, and moves about –

The other seeming to look on – And stands anonymous again

 

Yet fifteen years ago, perhaps

Two dozen distances surficed

To fable them : faint afternoons

Of Cups and Stakes and Handicaps,

Whereby their names were artificed

To inlay faded, classic Junes –

 

Silks at the start : against the sky

Numbers and parasols : outside,

Squadrons of empty cars, and heat,

And littered grass : then the long cry

Hanging unhushed till it subside

To stop-press columns on the street.

 

Do memories plague their ears like flies?

They shake their heads.

Dusk brims the shadows.

Summer by summer all stole away,

The starting-gates, the crowd and cries –

All but the unmolesting meadows.

 

Almanacked, their names live; they

Have slipped their names, and stand at ease,

Or gallop for what must be joy,

And not a fieldglass sees them home,

Or curious stop-watch prophesies :

Only the grooms, and the grooms boy,

With bridles in the evening come.”

 

Philip Larkin – poet – 1922-1985

 

I embarrassingly omitted to mention that the most celebrated mourner/reveller at Sir Peter O’Sullevan’s Memorial Service was one LK Piggott. Lester, who will be 80 years old next week, looked as fit as a butcher’s dog. Hugh McIlvanney revealed that the two friends had a frustrating final meeting this year. When asked how the meeting had gone, Sir Peter said – ‘Bloody awful!’ We’re both as deaf as posts and had no idea what we were saying to each other! This comment was no doubt followed by a chortle or two!

 

So much for James Bond and “Spector!” A massive disappointment, with huge sense of deja-vous! Aficionados of Bond movies will feel there is nothing new. Even the car chases were slightly disappointing and the story line was very weak. However Ben Wishaw as “Q” put in a masterful cameo performance! It is time Daniel Craig moved on! He’ll forget that he is a very good actor!

 

So the same old level of platitudes and drivel were trotted out in the FOMC minutes last night. Maybe in will be December as the barometer moved from 34% hike to 43% hike. The investment world and the teenaged scribblers are still none the wiser. Chairman Yellen says the US economy is enjoying a moderate level of expansion and that a rate hike is back on the agenda for December, though inflation remains well short of the 2% guideline. I suspect that Labour data is the key to any decision. Many believe that there are sufficient weak fissures in the economic cycle to warrant consideration before March 2016. However Panmure’s Chief Economist Simon French believes that the FED must make a statement implement a symbolic hike of 25 basis points and then ‘sit on their hands’ for a year!

 

The Street of Dreams purred yesterday with contentment, not so much on the FED statement, but more the fact that the FED was confident about the outlook for the economy. Energy stocks were in demand on the back of oil inventories. Apple shares were up 4.1% on the back of Tuesday’s numbers. The gains though seemed to be a general sentiment rally, but conviction has yet to return unequivocally. The DOW added 1.13%, the S&P 500 1.18% and the NASDAQ by 1.30%. This followed a positive and workmanlike session in London, where the FTSE added 1.1% to 6437. Oil stocks shone in the watery sunshine and BT on news of the EE acquisition added nearly 3%. Investors vented their spleens in disappointment in Lloyds Banking Group’s very average results and the fact that the PPI provision claim was increased by £500m to £13.9m BATS was popular adding 2.6% on good sales numbers – down 4.6%.

 

Though the quality of the earnings on both sides of the pond remains mixed, though on the whole the US has passed muster, there is still plenty of M&A activity as well as gossip. Yesterday the market’s enthusiasm for BWIN Party ventures to suggest that GVC will eventually win the day. There was also interest in Intercontinental Hotels on the back of merger chat between Hyatt and Starwood. Overnight the rumour mongers massed their troops about the possibility of Pfizer and Allergan pooling their resources in a $300 billion + mega merger, which would side-line GSK from Pfizer’s affections. Shire, after a decent ‘run on the rails’, eased by 2% this morning. I suspect that Smith & Nephew’s poor results, which saw its shares initially down by 7% before settling down 5% did not help the cause of the drug sector in the UK today.

 

Aviva and BT pleased their acolytes though this anorak was slightly disappointed by the fact that BT sports had only attracted 200,000 new subscribers – shares were flat at 10.30am. I suspect most were concentrating of the £12.5 billion acquisition of EE. Royal Dutch Shell’s results were to the layman almost incomprehensible. I think the Bletchley Park Code Book was probably required. Shell shares yield almost 7%. Surely that cannot be maintained with current performances. A loss of $6.1 billion was incurred due to certain one off charges with a trading profit of $1.8 billion down from $5.8 billion last time. Deutsche CEO John Cryan posted a loss of €6 billion after specific right-offs. Reorganisation programmes are being implemented. Tier One capital came in at 11.5%.

 

And so to Barclays! The market was underwhelmed with their quarterly numbers. Even the prospect of a new CEO – Jas Staley – did not placate the market. The shares were down 5% at 10.30am. I think he is an inspired appointment but this is a task of Herculean proportions including making thousands of redundancies (30k rumoured). It was the small print in Barclays’ statement that gave cause for concern! – Provisions of £270m for mortgage claims, £500m to a total of £1.07bn for foreign exchange litigation and £290m for customer FX claims. 4% growth with a pre-tax profit of £5.156 billion in isolation looks OK. However it is time John McFarlane stopped assuming the mantle of Charles Atlas and implemented responsibility of running the ‘Bald Eagle’ on a day to day basis to Mr Staley PDQ. The focus in investment banking will probably centre on New York, but there is massive room for improvement in their high street and SME activities.

 

Panmure’s chief economist, Simon French makes the following salient comments on UK interest rates – Another signal that the BoE may need to gently push the brake pedal early next year: BoE Bank Stats have net mortgage lending at their highest since April 2008 and unsecured lending up 8.0% YoY. Added to ONS data this AM that has real rents growing at 2.7% – highest real rate of growth since the data series began. The interesting thing over the next 6 weeks will be whether the Bank uses the Nov 5 Inflation Report to signal interest rates are going up next year or whether they use macro-prudential intervention at the 1 December Financial Stability Report to defuse the flow of funds into what is now a clear property bubble in the UK – with Help to Buy, IHT changes and Pensions Freedoms key culprits. I think Messrs Weale and Forbes would like to use rates whilst Messrs Shafik and Cunliffe would like to use macro-pru. This makes Carney and Broadbent the ones to watch.

 

 

This morning most of yesterday’s gains have been surrendered. Mining drugs and energy have been off their grub – FTSE 100 is down 60 points at 6375. The commitment to the cause is flaky at best.

 

UK companies posting numbers – BARCLAYS, BT, AVIVA, ROYAL DUTCH SHELL, SMITH & NEPHEW, HENDERSON GROUP, NATIONAL EXPRESS, Friday IAG, RBS, BG, PETS-AT-HOME, MYLAN, AON – Monday 2nd November – HSBC BANK

U.S. companies posting interim results –Thursday – AETNA, GOODYEAR, BUNGE, PITNEY-BOWES, MASTERCARD, EXPEDIA, LINKEDIN, STARBUCKS, Friday – EXXON MOBIL, CHEVRON, BRINKS

 

ECONOMIC DATA – Thursday – US INITIAL JOBLESS CLAIMS, Friday – EU JOBLESS RATE, UK CONSUMER CONFIDENCE

 

 

David Buik – market commentator

 

 

Panmure Gordon & Co​

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TODAY’S FAYRE – Tuesday, 28th October 2015

 

“I’ve got you under my skin

I have got you deep in the heart of me

You’re so deep in my heart, that you’re really a part of me

And I’ve got you under my skin

 

I’ve tried so not to give in

You know I said to myself,

This affair ain’t gonna go so well

Oh but why should I try to resist, when baby, I know so well

That I’ve got you way under my skin

 

I would sacrifice anything come what might

For the sake of having you near I

n spite of a warning voice that comes in the night

And repeats in my ear

 

Don’t you know you fool, you never can win

Use your mentality, wake up to reality

But each time I do, just the thought of you

Makes me stop before I begin

‘Cause I’ve got you, you’re under my skin

 

I’d sacrifice anything come what might

For the sake of having you near

In spite of a warning voice that comes in the night

And repeats, how it yells in these ears.”

 

Cole Porter – Lyricist – 1891-1964

 

So the most recognisable ‘voice’ from the world of sport – Sir Peter O’Sullevan, who died in July aged 97 – was finally laid to rest at St Luke’s Church in Chelsea yesterday at a glittering memorial service brilliantly organised by the ‘Prince of PR’ Ladbrokes’ Mike Dillon, attended by over 1000 family, friends and acquaintances. His ‘Desert Island Discs’ were played before the service. There were beautiful poetry readings from Sir Terry Wogan (GK Chesterton) and Joanna Lumley (Philip Larkin).  Hugh McIlvanney gave a eulogy the like of which you are unlikely to hear in another life time and Rory Bremner’s imitation of the great man in a scintillating rendition of ‘calling his guests to his wake’ in Sir Peter’s totally distinguishable styled race commentaries was the icing on the cake! It was gloriously subtle humour with Rory at his very, very best! It was a celebration and a half! As I said there was a cast of thousands.

 

Amongst those there – JP McManus, Tony McCoy, Derek Smith, Michael Tabor, John Gosden, Rachel Hood, Paul Nichols, Nicky Henderson, Martin Pipe, David Pipe, William and Maureen Haggas, Coral Pritchard-Gordon,  Nigel Payne, Alan Byrne, Joe Mercer, Jimmy Lindley, Bruce Rayment, Clare Balding, Ian Balding, Harry Herbert, Michael Dickinson, Arthur Moore, Philip Mitchell (whose father trained Sir Peter’s horses), Francois Doumain, Lord Broughton, Robin Oakley, Mike Cattermole, John Riley, Sean Magee, Mick Fitzgerald and Alastair Down.

 

Last night the Spectator hosted another brilliant occasion with Andrew Neil interviewing former FED Chairman Ben Bernanke in a very candid and hugely enjoyable exchange of views.  The event was sponsored by 7 Investment Management.

Several interesting points were made by Mr Bernanke. It was his measured opinion that ‘panic’ exposed the fragility of the system and that regulation was wholly inadequate. It transpires that that the likes of AIG, Bear Stearns and most important of all Lehman were never properly regulated.

When asked why Gordon Brown was only mentioned once in his recently published ‘tome’, Bernanke did not really respond with a satisfactory answer. However in the grand scheme of the global banking and credit crisis the UK probably only enjoyed as ‘spear carrying’ role.

 

Why was Lehman not saved? Lehman was probably the straw that broke Congress’s back. The bail-out money was desperately needed. Lehman was probably a bridge too far. BOA and Barclays were asked to buy Lehman. BOA refused. Ironically BOA buying Merrill proved to be very catastrophic! Asked whether Alasdair Darling was right to refuse Barclays permission, Mr Bernanke thought that for the sake of the world he hoped Barclays would step up to the plate, but from a UK perspective the correct decision was made.

 

Most mature global indices enjoyed another lack-lustre session.  In London the FTSE lost 58 points to 6365. Even better than expected numbers from BP failed to ‘fire up the band’ as they say.  St James’s Place’s effort was positive but the brand not significant enough to lift spirits. Shire, thanks to an eye drug grabbed the yellow jersey. At one point shares were up 7%.  Clouds of earnings concerns continued to hover over most bourses. I suspect the UK’s declining GDP number of +0.5% for the 3rd quarter did not help.   The Street of Dreams also saw inertia set it.  Ford’s numbers did not really light anyone’s fire and the big guns on the day reported after hours – Apple Alibaba and Twitter. Twitter reported a rise in revenue for the three months to September, but missed analysts’ expectations with slow user growth numbers. The social networking site reported revenues of $569m, up 58% from $361m during the same period last year. Shares were clattered after hours down 12.7%! Alibaba posted a profit of $3.6 billion with revenues up 28% at $112 billion. Mobile use for transactions was 59%.

 

On Monday Apple’s shares dropped 3% due to concerns about key suppliers and China.  Some fears were allayed, when results were posted after hours. In the last quarter Apple increased revenue by 22% to $51.5 billion with a profit of $11.1 billion. EPS came in at 1.96 – all above expectations. A year ago revenue was $42.1 billion and the profit was $8.5 billion. Gross margins were up from 38% to 39.1%. $17 billion was returned to shareholders. iWatches sales may have reached 3.5 million and Apple TV sales have started well with no confirmed data.  Apple now has 100k employees. It’s the power of this operation that blows me away!

 

Last quarter 48 million iPhones 5&6 were sold – 39 million a year ago. Ipads sales dropped from 11 million to 10 million with Mac sales quite strong with sales up from 5.5 million to 5.7 million. It was the Chinese data that was pleasing.  There are 25 Apple shops in China going up to 40 by the middle of 2016. Apple does 25% of its business in China. Revenue in China increased by 99% to $12.5 billion.

 

Volkswagen is set to present quarterly results today. A loss of $1.6 billion is expected – the first for 15 years.  VW has taken a €6.5 billion ($7.2 billion) charge against third-quarter earnings to pay for a global recall of as many as 11 million vehicles.Lloyds Banking Group posted a net profit for the last quarter of £1.54 billion and a 9 month pre-tax profit of £6.35 billion. Tier One capital of 13.7% was excellent.  However this PPI provision number keeps going up and up – another £500m was put aside, making a total of £13.9 billion – twice as much as any other bank. The figure is likely to go up during the year.  BATS suggests that despite a 4.2% increase in revenues the outlook could be challenging. NEXT produced another set of excellent sales data with Next Brand sales up 6% with Retail up 5.9% and the Directory by 6.2%. Many will be surprised that the Competition Commission seems to be happy for BT to swallow up EE (Orange & T-Mobile) for £12.5 billion.  This could help Gavin Patterson, BT’S CEO, if he is forced to split BT’s business. It should not be necessary for this to happen.

 

UK companies posting numbers – LLOYDS BANKING GROUP, C&C GROUP, BAT (TS), NEXT, ANTOFAGASTA (TS), STANDARD LIFE, GSK, Thursday – BARCLAYS, BT, AVIVA, ROYAL DUTCH SHELL, SMITH & NEPHEW, HENDERSON GROUP, NATIONAL EXPRESS, Friday IAG, RBS, BG, PETS-AT-HOME, MYLAN, AON – Monday 2nd November – HSBC BANK


U.S. companies posting interim results – Wednesday – PAYPAL, VALERO ENERGY, HERSHEY, STARWOOD HOTELS, BOSTON SCIENTIFIC, NORTHROP GRUMMAN, MARRIOTT, AMGEN, Thursday – AETNA, GOODYEAR, BUNGE, PITNEY-BOWES, MASTERCARD, EXPEDIA, INKEDIN, STARBUCKS, Friday – EXXON MOBIL, CHEVRON, BRINKS

 

 

 

ECONOMIC DATA – Wednesday – FOMC MEETING, US OIL INVENTORIES, Thursday – US INITIAL JOBLESS CLAIMS, Friday – EU JOBLESS RATE, UK CONSUMER CONFIDENCE

 

 

David Buik – market commentator

 

 

Panmure Gordon & Co

MARKET UPDATE

Just toward the end of the auction at 4.30pm in London the FTSE 100 was down 46 points at 6340. It was a mucky sort of a session. There was that feeling that the earnings season was going to disappoint even though both BP and St James’s Place beat expectations. The kissing stopped on Friday night and a dose of reality was trying to set in. Markets were starting to look fully valued at present. Markets in the US as we head towards lunch are down between 0.24% and 0.35% and lack enthusiasm for the fray. I feel they are looking a little uncomfortable. Mining stocks eased between 2.5% and 4% and oil stocks were down 2%. BP added 2% at the opening, but as the sector came under pressure, BP surrendered value and closed down 1%, despite the presentation of a decent business plan with oil priced at $60 a barrel in 2 years.

 

St James’s Place with a 20% increase in funds under management added just 1%. Bloomsbury on the back of JK Rowling and cook books started brightly but eased down 0.5% by the close. TalkTalk, the telecom and internet operator, in response to a 15-year old youth being indicted for cyber-hacking, saw its shares rally by 13% on the day. Shire Pharmaceutical was a stand-out stock adding 7% on good news re drug regulation. Equiniti made a very inauspicious debut (IPO) and was down 13.5% at 151p (issue price 175p) at the close

 

3rd quarter GDP was worse than expected – +0.5% – 2.3% on an annualised basis. 0.6% was expected and manufacturing output fell by 0.35 and building and construction by 2.2%. That did not help the slightly negative mood which prevailed in London. The Pound dipped a tad to $1.5309. There is little positive data out there that could persuade most people that we need a rate hike on either side of the Pond before the New Year.

TODAY’S FAYRE

 

 

TODAY’S FAYRE – Tuesday, 27th October 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 shrudder comes o’er me–

Why wert thou so dear?

They know not I knew thee,

Who knew thee so well–

Long, long I shall rue thee,

Too deeply to tell.

In secret we met–

In 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

 

So unsurprisingly the Government’s tax credit legislation failed to get through the House of Lords, which will have ruffled the Chancellor’s feathers. No doubt Mr Osborne will vent his spleen on the upper house. Frankly it is dispiriting if George Osborne cannot see that for the poor and under privileged it is a visceral and cruel levy. If the UK needs to cut the debt by £16 billion a year, so be it. Try elsewhere; cut public expenditure in other departments or raise some taxation. It is high time that the NHS stopped being a political football and became a service for the common cause. Its ridiculous employment and salary structure for management is, currently I am told, protected by the NHS trusts under law from government scrutiny and interference. This is nonsense and everyone knows it! The number of people/administrators earning between £100k and £500k in the NHS, who bring very little to the party, is proportionately ridiculous. Doctors and nurses at the lower end of the scale do not get a fair crack at the whip. How the government can raise the threshold for inheritance tax, when the poor are being disenfranchised escapes me and that comment comes from a true Conservative.

 

Monday came and went rather unspectacularly. With Thursday’s and Friday’s Euphoria having been duly inhaled by investors and fund managers, the rest of us were left to deal with the toxic fumes of uncertainty associated with the doubtful quality of the 3rd quarter earnings season. In Europe the cream was skimmed off yesterday, with the FTSE 100 losing a mere bagatelle – 27 points to 6417. The day was all about TalkTalk and a further 12% loss in its share price, though a 15 year old hacker is alleged to have been apprehended. The atmosphere on the Street of Dreams was somnolent with the DOW easing by 0.13%, the S&P by 0.19%, though the NASDAQ staying just above the Plimsoll line at +0.06%. Xerox’s results did not impress and house builders including DR Horton, Lennar, Toll Brothers and Pulte were also under the cosh losing between 2-3%. Valeant, the Canadian drug company shed another 3%. The market is understood to be calling for a probe in ‘short-selling’ activity. It was confirmed that ICE is to buy Interactive Data Corporation for $5.2 billion. Apple is the most interesting as well as the most influential company to report earnings today. After stellar earnings last quarter can the iPhone sales maintain the same momentum? The FED starts its two-day meeting tomorrow, but I doubt we will be any the wiser as to when rates go up. With what is going on around the world it is hard to believe that a hike will be implemented before January 2016.

 

Asia enjoyed a lack-lustre performance thanks to concern about earnings and pre-FED neurosis ahead of tomorrow’s 2-day meeting. The mood in Asia this morning was not dissimilar with the ASX closing down -0.03% and the NIKKEI was 0.90% at the time of writing. At lunch the Shanghai Composite and the Hang Seng were easier – down 0.78% and 0.31% respectively, but recovered to stick their noses above the water line towards the close. The two successful IPOS – China Re and Japan Post ($11.9 billion) failed to trigger much in the way of a follow through.

 

Sir Martin Sorrell, WPP’S CEO made eye-catching comments on the back its recent set of numbers, which were decent – an increase in like for like revenues of 4.2%, though in the UK they only rallied by a marginally disappointing 1.1%. In my humble opinion Sir Martin is a brilliantly accurate barometer of economic activity. Why? Well, WPP is the largest advertising/PR agency with over 120 affiliated companies on a global basis, which include JWT, Y&R, Hill & Knowlton, Grey, Ogilvie and Mather.

 

Yesterday Sir Martin was not as ebullient about the outlook for global growth as many hoped he might be – down from 3.5% to 3% in his estimation. The US and Germany had performed well. The UK was far from ‘gung-ho’ on corporate expenditure. There were signs of anxiety in BRIC countries apart from India and some encouraging comments about China. The shares fell 2.2% to 1448. In the past 5 years shares have rallied from £8 to 1448p.

 

Considering oil prices fell by 40% in the last year and bearing in mind that BP may have a full and final settlement with the US authorities of $53 billion (outrageous behaviour by US government, this oil magnates figures were better than expected. Revenues fell from $98.4 billion this time last year to $55.9 billion – better than expected. The profit was $1.8 billion against expectations of $1.3 billion ($3 billion a year ago). Capital expenditure is understandably down to $19 billion in 2015 against expectations of £24-26 billion. BP intends to divest itself of another $10 billion of assets. The partnership with Rosneft gleaned a profit of $382 million against $110 million in 2014. BP intends to maintain its dividend policy.

 

This morning St James Place posted record profits and funds under management. Funds under management total £54.5 billion up from £49.1 billion. Bloomsbury Publishing saw profits increase from £1.7 million to £1.9 million. This company gets its publicity on the back of Harry Potter, but well done them. Sales were up 45% thanks to children’s and cook book sales. 3rd quarter GDP for UK due to be announced today – down from 0.7% to 0.5-6% – for the year 2.4%. We are too reliant on the service sector for contributions.

 

We hear from Apple and Alibaba tonight with their interim results. These results are key, as we wait for the rest of the week’s earnings, which could be patchy. BASF in Germany was a disappointment. I won’t be surprised if we see a modest slide in equity values during the week. Apple may be pivotal.

 

UK companies posting numbers – Tuesday – BP, WILLIS GROUP, BLOOMSBURY (TS), St JAMES’S PLACE (TS), Wednesday – LLOYDS BANKING GROUP, C&C GROUP, BAT (TS), NEXT, ANTOFAGASTA (TS), STANDARD LIFE, GSK, Thursday – BARCLAYS, BT, AVIVA, ROYAL DUTCH SHELL, SMITH & NEPHEW, HENDERSON GROUP, NATIONAL EXPRESS, Friday IAG, RBS, BG, PETS-AT-HOME, MYLAN, AON – Monday 2nd November – HSBC BANK

U.S. companies posting interim results – Tuesday – ALIBABA, FORD, COACH, MERCK, JETBLUE, PFIZER, BMS, FIDELITY, APPLE, Wednesday – PAYPAL, VALERO ENERGY, HERSHEY, STARWOOD HOTELS, BOSTON SCIENTIFIC, NORTHROP GRUMMAN, MARRIOTT, AMGEN, Thursday – AETNA, GOODYEAR, BUNGE, PITNEY-BOWES, MASTERCARD, EXPEDIA, INKEDIN, STARBUCKS, Friday – EXXON MOBIL, CHEVRON, BRINKS

 

 

 

ECONOMIC DATA – Tuesday – US CONSUMER CONFIDENCE, UK PRELIMINARY GDP, Wednesday – FOMC MEETING, US OIL INVENTORIES, Thursday – US INITIAL JOBLESS CLAIMS, Friday – EU JOBLESS RATE, UK CONSUMER CONFIDENCE

 

 

David Buik – market commentator

 

 

Panmure Gordon & Co​

Panmure’s David McCreadie’s comments on stock markets – What a ride!

 
The reverse crash action in the latter part of last week was something of a surprise. That kind of action is not however, new. There have been at least a six times over the past two months where sound technical analysis patterns, indicators, cycle turn dates and wave labelling’s have also offered prime possibilities for a top for the corrective rally from the Aug 2015 lows. None of those matured, and now there is another possibility this weekend. Perhaps this time. 

The S&P is now positive for the year. This could trigger some panic institutional buying, which we have not yet seen, so institutions are not trailing the trackers in an up year. However, in other years when the market was negative in Sept and then turned positive in Oct returns were not very good going forward and often the index struggled to maintain gains throughout Nov. In fact, there have been six other occasions since 1928 when the index has done this, the latest being in 2011. When the S&P turned positive in 2011 it hit a wall of selling causing a 7% loss in the following month and the day it turned positive marked the high for the year. Institutions will be well aware of this and are likely to adopt a cautious approach rather than throwing themselves into a catch up buying frenzy.

 
There has been clear and obvious active manipulation of markets going on over the past several days. When we see significant out of balance readings between demand and supply indicators, it tells us that something has distorted price equilibrium in the market, that intervention has occurred which has made shorts run for the hills. In a normal healthy rally, or an orderly decline, demand and supply pressure should move in tandem, equally, but in opposite directions. This has not been the case the past few days. Furthermore, only a few very large cap companies are leading the charge, which is a favourite strategy to move market indices higher through intervention. Intervention that gives an artificially inflated price to the indices happened in the US blue chips on Thursday, and in the NASDAQ 100 on Friday. For example, just two names, Microsoft and Apple accounted for 56 pts of the 157 point rally in the Dow on Friday. Moreover, the secondary indices did not move to the same extent creating unhealthy divergences. This happens from time to time, and is eventually built into technical analysis price patterns and wave labelling’s and indicators and cycle studies, and in hindsight is clearly understood and useful in future projections of trends. However, at the time of intervention it can be unsettling to a particular forecast or expectation.
 
This week’s FOMC is important. The latest policy decision for short-term and long-term interest rates will be announced. Perhaps it was felt to be important for this meeting that the stock market be in a good place which lets face it, isn’t new.  Complicating the Fed’s task are several items.  First, China dropped interest rates again on Friday and Draghi announced that he is thinking about more QE. These actions have put a bid under the dollar which is likely to rise more. If the Fed believes that equities have reached current levels by reasonable valuations and that their eco data is accurate, (it’s not), then of course they should raise rates. However, if Yellen raises interest rates, the dollar will rise further, exports will drop, and the U.S. economy will slow. Either the market is strong, the economy is strong, and the Fed is about to raise interest rates, or all that is a mirage and Yellen will announce no change to policy. 

The dollar in fact enjoyed a net 2.8% gain last week. The structure looks like a bull flag and is inviting a break above 100. The implications of the dollar trading >100 should be clear to anyone with an interest in the commodity complex.

TODAY’S FAYRE – THE PAST, PRESENT & FUTURE!

 

 

TODAY’S FAYRE – Sunday, 25th October 2015

 

And thou art dead, as young and fair As aught of mortal birth;

And form so soft, and charms so rare,

Too soon return’d to Earth!

Though Earth receiv’d them in her bed,

And o’er the spot the crowd may tread

In carelessness or mirth,

There is an eye which could not brook

A moment on that grave to look.

 

I will not ask where thou liest low,

Nor gaze upon the spot;

There flowers or weeds at will may grow,

So I behold them not: It is enough for me to prove

That what I lov’d, and long must love,

Like common earth can rot;

To me there needs no stone to tell,

‘T is Nothing that I lov’d so well.

 

Yet did I love thee to the last

As fervently as thou,

Who didst not change through all the past,

And canst not alter now.

The love where Death has set his seal,

Nor age can chill, nor rival steal,

Nor falsehood disavow:

And, what were worse, thou canst not see

Or wrong, or change, or fault in me.

 

George Gordon, Lord Byron – poet – 1788 – 1824

 

“Photograph 51” is the nickname given to an X-ray diffraction image of DNA taken by Raymond Gosling in May 1952, working as a PhD student under the supervision of Rosalind Franklin, at King’s College London. It was critical evidence in identifying the structure of DNA. It has been adapted as a play at the Noel Coward Theatre starring Nicole Kidman as Rosalind Franklin, Stephen Campbell Moore as Maurice Wilkins, Will Attenborough as James Watson Edward Bennett as Francis Crick Patrick Kennedy as Don Caspar Joshua Silveras Ray Gosling. Though rather a dry subject for a play, the drama is brilliantly acted, particularly by Nicole Kidman, whose English accent is perfect. Not only is she stunningly attractive, even with no ‘war paint’ on, but she is also a very substantial and talented actress. Stephen Campbell-Moore is also no slouch as a rather ‘bi-polar’ character and scientist Dr Wilkins. A superb evening!

 

There was little in the way of expectations for stock markets at the beginning of the week. The start to the 3rd quarter earnings season had been inauspicious with even the great banking ‘Gods’ JP Morgan Chase and Goldman disappointing, as had the aluminium mogul, Alcoa. There were smouldering embers of concern permeating around fund managers’ tables that profits may not meet expectations. A persistently strong dollar, aided and abetted by the FED’S desire to put up rates was likely to impede exports and therefore adversely affect corporate earnings growth. Economic data from around the world has hardly been inspirational. China’s growth remained brittle, despite announcements at the beginning of the week, which were more encouraging than reality would have us believe – GDP at 6.9% and Retail sales increasing by 10.9% in September. Japan’s trading data was unappetising, suggesting that Abenomics was just ‘jumbo-jumbo’ rhetoric of little consequence.

 

However there was a feeling that ‘Mario Draghi’, the highly respected Svengali amongst Central bankers may well have to pull a rabbit out of the hat to reignite Europe’s festering economy. That rabbit might come in the form of more quantitative easing, but at the start of the week, it was only considered an option – ‘far from a nailed-on-certainty!’ Based on the information available and any possible subsequent Central bank intervention, many investors and analysts understandably felt that mature equity indices looked fully valued. There was no evidence to suggest that sentiment would turn so positive on a sixpence last Thursday, reflected by most bourses rising like the proverbial grilse! The initiatives introduced by Chinese stimulus packages and the increase in the ECB’s E1.1 trillion facility if required towards the end of the year saw a seismic increase in appetite for equities and risk. At present the threat of interest rate hikes remain temporarily in the ‘in-tray!’

 

So at the end the week, thanks to intervention by the Chinese authorities and the philanthropic approach from Mario Draghi that he is prepared to be more expansive with QE in December, if the current QE largesse is perceived to be insufficient, investors in equity and bond markets were prepared to embrace the opportunity of selecting another gear. This presupposes that the EU will show little inclination to come back on to the bridle of growth. So by the close on Friday the S&P 500 had added 1.64%, the FTSE 100 1.0%, European stocks 3.8% and the Nikkei 2.92%. This was a remarkable achievement considering that on Wednesday evening equities were friendless with confidence at a very low ebb.

 

As much as the U.S. wants to put up rates, allow me to assure those in the UK and the EU that ‘hell has a better chance of freezing over’ than QE being withdrawn for some years on this side of the pond! Why? The wholesale money markets, as a tool for bank funding, are all but moribund. Conditions are marginally better than six years ago, but nowhere near where they were back in 2007/8. Banks don’t trust each other and whilst those adverse perceptions prevail, there is little chance of QE being withdrawn. Deputy Governor Sir Jon Cunliffe also expressed concern that mutuals’, money funds’ and fund managers’ gargantuan holdings in specific equities and bonds could put liquidity under massive strain if sentiment turned negative and a ‘herd-reaction’ prevented an orderly exit from their respective positions. Legislation restricting the liquidation of positions to a relatively small percentage in any one session may be the order of the day in the not too distant future.

 

Having expressed concern over the quality of 3rd quarter earnings there was a certain irony when Google, Amazon and Microsoft all posted stellar results on Thursday, triggering the respective rally of their share prices by between 8-9%!  Amazon posted a £79 million profit on a turnover of $25.4 billion. Google’s profit was $4 billion – up 45% and even though Microsoft’s profits were down 6% their ‘Cloud’ and Bing services made great progress. Facebook’s share price also breached the $100 barrier for the first time. Drugs stocks and biotech also continued to suffer with Spectrum Pharmaceuticals dropping 21% on Friday. Ferrari came to the market by way of an IPO on Wednesday, ludicrously over valued (35x earnings) with an issue price of $52. It commanded a 15% premium on the first day’s trading. There is no accounting for taste and frankly the demand was there.

 

In London it was a difficult week for TalkTalk with the cyber hacking. SIG suffered badly from a profits warning as did Home Retail (-15%) on Wednesday. The market was also pretty merciless in its treatment of Travis Perkins’s profit warning. Not only did their shares tumble by 7%, but its news had an adverse effect on the housebuilding sector. Pearson had a rough time, as well, as did Anglo- American. Anglo may be considering a sale of its niobium and phosphate operations to Brazil for about £1 billion. However mining stocks did OK with Glencore adding 8%. On Friday Cable & Wireless’s shares shot up by 20% on news that Liberty Media a £3.7 billion bid. John Malone’s operation already owns 13% of CWC. 100% control would enable him to bed CWC down with his Latin American operations.

 

Much of last week London spent an inordinate length of time on China’s President Xi Jinping’s visit to the UK. Around all the pomp and circumstance about £62 billion worth of deals were negotiated or agreed in principle, with the massive investment in nuclear energy at Hinckley Point, Sizewell and Bradwell very much to the fore. These deals are financial madness but no doubt are politically prudent.

 

Banks are rarely out of the headlines for long. We hear news of over $1 billion of fines being levied at several banks including Barclays and HSBC for foreign exchange manipulation. There were informed rumours that HSBC was considering New York as an alternative centre for its head office.  We understand that since rubbishing CEO Stuart Gulliver personally the UK government and regulators have gone some way to placating HSBC with less draconian banking levy requirements, but Douglas Flint and his board are not wholly satisfied with the concessions. However I doubt it will be New York, as regulatory requirements are probably more draconian than London.

 

Barclays’ chairman John McFarlane made some injudicious comments, though he might think they were expedient in support of the rumoured appointment of Jes Staley as CEO, about excessive bonuses and greed. Mr McFarlane knows only too well that Barclays needs to be competitive if it wants to remain a front line investment bank particularly in the U.S. Comments about when he was at ANZ that it was not necessary to pay such ludicrous emoluments is wholly misleading. ANZ though a well-run bank was not an international player in investment banking or M&A activity.

Barclays posts its 3rd quarter numbers on Thursday. Profits are expected to fall by 4% to £1.8 billion, mainly due to lower investment banking income. Lloyd’s posts its numbers tomorrow and the market is expecting a 4.5% increase to £2.3 billion, but further PPI demands may continue to dog the ‘Black Horse’s’ balance sheet. RBS’S profits on Friday may come in at £988 million. However investors are more interested in the details of the sale of £2.1 billion worth of shares, dropping the taxpayer’s stake down from 78% to £73%. Ross McEwan’s board will be thinking about paying a dividend. PPI may cost another £600 million and reconstruction costs may total £850 million. It is also interesting to note that RBS’S stake in Citizens, floated in 2014 is down to 20%.

 

I wonder if equity geeks will be feeling as euphoric at the end of this coming weeks. With oil company results likely to be weak and the possibility of further profit warnings, markets may have to enjoy another roller-coaster ride. We shall see!

 

UK companies posting numbers – Monday – LLOYDS BANKING GROUP, WPP (TS),Tuesday – BP, WILLIS GROUP, BLOOMSBURY (TS), St JAMES’S PLACE (TS), Wednesday – C&C GROUP, BAT (TS), NEXT, ANTOFAGASTA (TS), STANDARD LIFE, GSK, Thursday – BARCLAYS, BT, AVIVA, ROYAL DUTCH SHELL, SMITH & NEPHEW, HENDERSON GROUP, NATIONAL EXPRESS, Friday IAG, RBS, BG, PETS-AT-HOME, MYLAN, AON – Monday 2nd November – HSBC BANK

U.S. companies posting interim results – Monday – XEROX, BROADCOM, Tuesday – FORD, COACH, MERCK, JETBLUE, PFIZER, BMS, FIDELITY, APPLE, Wednesday – PAYPAL, VALERO ENERGY, HERSHEY, STARWOOD HOTELS, BOSTON SCIENTIFIC, NORTHROP GRUMMAN, MARRIOTT, AMGEN, Thursday – AETNA, GOODYEAR, BUNGE, PITNEY-BOWES, MASTERCARD, EXPEDIA, INKEDIN, STARBUCKS, Friday – EXXON MOBIL, CHEVRON, BRINKS

 

 

 

ECONOMIC DATA – Monday – BBA MORTGAGE LENDING, Tuesday – US CONSUMER CONFIDENCE, UK PRELIMINARY GDP, Wednesday – FOMC MEETING, US OIL INVENTORIES, Thursday – US INITIAL JOBLESS CLAIMS, Friday – EU JOBLESS RATE, UK CONSUMER CONFIDENCE

 

 

David Buik – market commentator

 

 

Panmure Gordon & Co

MARKET UPDATE

 

Just as I and many other far greater luminaries were beginning to think that the equity party may be coming to a temporary halt with a ‘sell-off’ waiting patiently in the wings, the ECB’s Mario Draghi gave European equities a shot in the arm with soothing and reassuring comments about more QE being available if needed. This gave European equities quite a boost in the lunchtime session, triggering a modest recovery in US futures trading. Better than expected US initial jobless claims were also constructive. After 90 minutes trading on the Street of Dreams the DOW was up 200 points. Another profits warning from Caterpillar was ignored – in the market the spivs said, sending the stock 1% higher. Also a delay to the 2-year debt auction did not even create a ripple.

 

Panmure’s David McCreadie summed up the current situation very succinctly with the following observation. “It is ominous is that the list of struggling companies is geographically agnostic and includes a plethora of well-run operations with respected management. Such is the growing momentum of misses, disappointments, warnings and downgrades I doubt that the market will be able to hold the dam indefinitely.”

 

Anyway as I write, the FTSE 100 is up 30 points at 6380.  Miners are up 2%, despite Anglo American initially tanked 3.4% but then regained some pause – down 1%. Glencore grabbed the yellow jersey – +8%. Drugs after a terrible day on the back of Valeant of Canada’s dire performance yesterday, added 2% with GSK and Astra Zeneca to the fore (both up 2%) but Shire was down 0.5% ahead of tomorrow’s figures. Media was poor – down 2% – thanks to Pearson’s tale of woe yesterday. Telecoms were very buzzy with Vodafone up 4% and BT up 2%.

 

Those companies posting results and trading statements faired as follows at 4.00pm – Debenhams +4%, Mothercare +8%, Ladbrokes +7.3%, SIG -25%, GKN +2% and LSE +2%.

 

 

 

 

Panmure’s David McCreadie’s Challenges ahead!

CHALLENGES AHEAD

Good morning and the list of earnings casualties continues to grow. What is ominous is that the list is geographically agnostic and it includes well run companies with respected management. Such is the growing momentum of misses, disappointments, warnings and downgrades the market won’t be able to hold the dam indefinitely. Reality is setting in and its not coming from equity strategists, it’s coming from companies. Phrases like ‘challenging market conditions,’ lower than anticipated demand ‘ and ‘margin erosion,’ are now common currency.’ Given the technical backdrop it would be difficult to conjure up a more favourable bearish market scenario. In fact, for bears, what we have is almost too good to be true. One is therefore left to contemplate if indeed, it is too good to be true and might a further upside test lies ahead. My fear is that the equity market is storing up trouble and when the ‘moment of collective market recognition,’ arrives the consequence will be more violent than otherwise might have been the case had the market discounted events, as is its perceived function but which it very rarely manages to do.

The whole Valeant thing in the US is not something that I’ll spend much time on but for those interested, John Hemptons blog makes good reading, (as always). You can find the Citron research piece here. 19 analysts meanwhile have buy recommendations, 6 with holds and just 1 with a sell recommendation. The 12 month average target price amongst them is $248. Guess we’ll find out who is right. Bill Ackman having bought another 2m shares yesterday is obviously going with the 19. I think his fund is heading south. What sort of advisor puts their client’s money into a fund that has such concentrated long and short bets that the failure or success of just one position gives the fund a binary outcome.

 

Staying in the US and the main financials look to have dodged a bullet, or a firing squad, in respect of oil and gas related loan losses. While the banks are seeing rising defaults and are setting aside increasing levels of provisions they are not taking the hits one might expect given the size of loans made. Banks made loans  to the sector backed by reserves. When the borrowers reached their limits the banks pushed them to issue bonds. They paid off the loans with the proceeds which enabled a new line of credit. When that was limit up, they repeated the exercise. This left the banks with revenue from bond issuance, interest income and fees but loaded up the companies with debt and bondholders who now carried most of the risk. Now that the sector is self combusting the banks are taking some collateral damage but the main bond investors, mostly private equity and hedge funds, are being eviscerated. The big trade of buying energy bonds for cents on the dollar in the expectation of a crude price recovery only works if there is a price recovery. The WSJ has listed those who have taken the biggest hits and names like Magnetar, King Street, Blackstone, Brigade, Phoenix are notable. The sector is instructive in reminding us that cheap does not always equal value.

 

Meanwhile, a warning comes from Thomas Curry, Comptroller of the Currency, in a speech yesterday. “We are clearly reaching the point in the cycle where credit risk is moving to the forefront.” The Office of the Comptroller of the Currency (OCC),  one of three federal bank regulators alongside the Fed and the FDIC is articulating their elevated concern about banks’ exposure to the increasing risks of ballooning auto loans, particularly subprime auto loans, and commercial real-estate loans. (We’ve discussed this frequently in the past!).

 

As you are probably aware, banks are “repackaging” these loans, including subprime loans, into highly-rated asset-backed securities, in face of “strong demand by investors” that are reaching for yield, in an environment where banks “are reaching for loan growth.” After having “already extended credit to their best customers,” they’re now lending to “less creditworthy borrowers, with all of the increased risk that entails.” But the auto-loan binge is good for everyone. It’s good “for automakers and the economy,” he said. “It’s also good for banks,” whose financing made “this activity possible.” By the end of Q2, auto loans accounted for 10% of all retail credit in OCC-regulated banks, up from 7% in Q2 2011. Total auto-loan balances outstanding shot up 10.5% in 12 months at the end of the second quarter and hit $1 trillion, according to Equifax. And 23.5% of new loans earlier this year were subprime, up from 22.7% a year ago. Mr Curry went on to say,’ But what is happening in this space today reminds me of what happened in mortgage-backed securities in the run up to the crisis. At that time, lenders fed investor demand for more loans by relaxing underwriting standards and extending maturities. Today, 30% of all new vehicle financing features maturities of more than six years, and it’s entirely possible to obtain a car loan even with very low credit scores. With these longer terms, borrowers remain in a negative equity position much longer, exposing lenders and investors to higher potential losses. Although delinquency and losses are currently low, it doesn’t require great foresight to see that this may not last. How these auto loans, and especially the non-prime segment, will perform over their life is a matter of real concern to regulators.’

 

In essence, he is not warning about the loans themselves but of the concentration of loans. Moreover, the regulator then goes on to warn about commercial property loans saying that ‘valuations are now rather full.’ In fact, US commercial property prices have soared 97% from May 2009 and are now 21% higher than they’d been during the days of September 2007, the peak of the commercial property bubble that collapsed with such splendid results during the Financial Crisis.  Fitch too are getting a tad nervous. They obviously rate Commercial Mortgage Backed Securities, “There is nothing inherently dangerous about a real estate cycle. It only becomes dangerous when market participants forget there is one.” And it warned: “CMBS cannot afford a repeat of the 2008-2009 experience.”

 

The NASA forecast, that there is a 99% risk of at least a 5.0 quake hitting LA within 30 months, is about the only thing that may offer mitigation for the overheated commercial property market. In summary, and the real thrust of this short note, is to make the point that structural excesses have again been baked into the system. No one can anticipate what the outcome will be in the real world but there is clearly enough there to worry regulators. If its worrying them, its worrying me. Meanwhile, corporates are reflecting a global slowdown and the technical backdrop of the market is nowhere near as robust as actual trading levels suggest.

 

I think this is as tough an investing environment for managers as they are ever likely to see. When it’s down 25%, everything is so much easier.

 

Have a great day! McC

 

David McCreadie

 

D +44 (0)20 7886 2711 | M +44 (0)7780 612 643 | S +44 (0)20 7886 2500

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

TODAY’S FAYRE

 

 

TODAY’S FAYRE – Tuesday, 22nd October 2015

In Xanadu did Kubla Khan

A stately pleasure-dome decree:

Where Alph, the sacred river,

ran Through caverns measureless to man Down to a sunless sea.

 

So twice five miles of fertile ground

With walls and towers were girdled round:

And there were gardens bright with sinuous rills,

Where blossomed many an incense-bearing tree;

 

And here were forests ancient as the hills,

Enfolding sunny spots of greenery.

But oh! that deep romantic chasm which slanted

Down the green hill athwart a cedarn cover!

A savage place! as holy and enchanted

As e’er beneath a waning moon was haunted

By woman wailing for her demon-lover!

And from this chasm, with ceaseless turmoil seething,

As if this earth in fast thick pants were breathing,

A mighty fountain momently was forced:

Amid whose swift half-intermitted burst

Huge fragments vaulted like rebounding hail,

Or chaffy grain beneath the thresher’s flail:

And ‘mid these dancing rocks at once and ever

It flung up momently the sacred river.”

 

Samuel Taylor Coleridge – poet – 1772-1834

 

Though Governor Mark Carney manfully tried to make a balanced speech on the EU referendum at Oxford University last night, he was never likely to succeed in achieving that goal.  Having carefully selected Sir John Cunliffe, a former EU mandarin to be Deputy Governor, presumably and totally understandably to eventually help with maintaining the status quo, how could the Governor’s colleague possibly ‘ghost’ his speech with an ‘anti’ or out of EU bias – unthinkable.

 

And so it was. There were three points flagged up by the FT that made it game, set and match to the PM, Chancellor Osborne, the latter being easily the most politically cute minister in Parliament. Firstly the UK has done well out of Europe (I would challenge that over the past decade!). Secondly closer integration with Europe has made us financially more vulnerable (I agree with that!).  Finally policy makers need to get their act together to prevent damage to British interest. That implies to me in bureaucratic geek talk, that a solution will be found as ‘Brexit’ could be astronomically expensive. In fairness to the Governor, the BOE’S report is solely concerned with how EU membership affects the Bank’s ability to achieve core objectives of maintaining monetary and financial stability.

 

I attended a wonderfully engaging interview by the Spectator’s Andrew Neil with Charles Moore, former editor of Daily Telegraph and official biographer of Baroness Thatcher. His second book – “Everything She Wants” – on the Thatcher years has just been published.  Andrew Neil is the quintessential interviewer and Charles Moore was witty, engaging, perceptive and insightful. The occasion was a riveting ninety minutes – as a Thatcherite or not! It was such a privilege to be there!

 

Prior to the start of this third quarter earnings season, there were quite a few rumblings and some chuntering about the quality of the ‘earnings season’, with many fearing disappointment and a few profits warnings. The word ‘few’ may just have been an understatement. Across the pond we have seen them starting Netflix with undoubtedly more to come. The change in market culture in the past year is noticeable. Market makers and analysts are now visceral in their treatment of underperformers. In years gone by share prices after a profits warning may have been cut by 2-4%.  Today it appears to be a minimum 5% up to say 20% which SIG was subjected to this morning.  Yesterday Home Retail was stripped of its raiment – down 15% and Travis Perkins suffered a ‘few slings and arrows of outrageous fortune’ with a downturn in house building material requirements – down 8% initially – now down 6.8%.

 

There are so many companies posting numbers on both sides of the Atlantic today, many felt today might be a good day to bury bad news! – Not so; so far! Results from Google, McDonald’s, Freeport-McMoRan, Amazon and Microsoft will be eagerly awaited. There is no hiding place for any company in the next two weeks in London, Zurich, Rome and New York or wherever. Next week BP, Shell, GSK, Astra Zeneca, tobacco companies and the week after UK banks all step up to the plate! Stand and deliver!

 

Yesterday the FTSE had another uninspiring session and the Street of Dreams saw a few profit takers in the ring with drug, mining and resource companies being the recipient of a little remedial treatment. The DOW was down 0.28%, the S&P 500 by 0.58% and the NASDAQ by 0.84%. eBay’s results were well received.  Apple shares were virtually unchanged with CEO Tim Cook determined to keep investing in China despite slowing growth in the world’s second-largest economy. Cook understands that some people are worried about China’s economy. He believes that China is a superb place to be. Ferrari made an astounding IPO debut despite its lofty valuation, posting at one time a 15% premium. Asia had a somewhat muted session this morning, the ASX closed up 0.30% with the NIKKEI down 0.64% thanks to poor trade data. Having a relatively moribund start the Shanghai Composite was up 1.48%, though the Hang lagged towards the close – down 0.68%.

 

This morning, in London there were some creditable results posted by LSE, DEBENHAM, GKN, LADBROKES and great numbers from Mothercare (+4.6%). Debenham’s CEO Michael Sharpe will be going in the New Year. It has been a tough environment for retail and Debenham’s share price has risen from 78p to 82p during Mr Sharpe’s tenure! Time to go, me thinks! Mothercare has made a remarkable recovery, triggered by overseas business. Online trading in the UK was impressive. Anglo-American posted a 27% drop in diamond revenues – down 3.46%. We are hopeful of hearing more news on possible QE intervention by the ECB at today’s meeting chaired by Mario Draghi.

 

UK companies posting number – Friday – WILLIAM HILL, DECHRA PHARMACEUTICALS, SHIRE, TSB.

U.S. companies posting interim results – Thursday – GOOGLE/ALPHABET, MCDONALD’S, RAYTHEON, NASDAQ, FREEPORT-McMORAN, BJ RESTAURANTS, AT&T, AMAZON, PULTE, MICROSOFT, EASTMAN KODAC, Friday – WHIRLPOOL, THOMSON-REUTERS, PROCTER & GAMBLE,

 

ECONOMIC DATA – Thursday – ECB, US INITIAL JOBLESS CLAIMS, RETAIL SALE

 

 David Buik – market commentator

 

Panmure Gordon & Co

TODAY’S FAYRE

 

 

TODAY’S FAYRE – Wednesday, 21st October 2015

 

“The boy stood on the burning deck

Whence all but he had fled;

The flame that lit the battle’s wreck

Shone round him o’er the dead.

 

Yet beautiful and bright he stood,

As born to rule the storm;

A creature of heroic blood,

A proud, though child-like form.

 

The flames rolled on – he would not go

Without his Father’s word;

That father, faint in death below, H

is voice no longer heard.

 

He called aloud – ‘say,

Father, say If yet my task is done?’

He knew not that the chieftain lay

Unconscious of his son.

 

‘Speak, father!’ once again he cried,

‘If I may yet be gone!’

And but the booming shots replied,

And fast the flames rolled on.

 

Upon his brow he felt their breath,

And in his waving hair,

And looked from that lone post of death

In still yet brave despair.

 

And shouted but once more aloud,

‘My father! must I stay?’

While o’er him fast, through sail and shroud,

The wreathing fires made way.

 

They wrapt the ship in splendour wild,

They caught the flag on high,

And streamed above the gallant child,

Like banners in the sky.

 

There came a burst of thunder sound –

The boy – oh! where was he?

Ask of the winds that far around

With fragments strewed the sea! –

 

With mast, and helm, and pennon fair,

That well had borne their part –

But the noblest thing which perished there

Was that young faithful heart.”

 

Felicia Hemans – poet – 1793 – 1835

 

210th Anniversary Battle of Trafalgar – 1805

Admiral, Lord Horatio Nelson RIP

 

I don’t think I have ever seen anyone look more uncomfortable and disorientated in a ‘monkey suit’ than Jeremy Corbyn did last night at HM The Queen’s state banquet at Buckingham Palace in honour of President Xi Jinping. At least he donned the evening suit, even if he did not look the part. After all, he’s not pear-shaped like your scribe and for a man of 69, he’s as slim and as fit as a butcher’s dog! So he should have felt quite at home.

 

By the end of the week the Chinese President’s visit to the UK will have reached saturation point with television and newspapers drowning in stories and angles on the visit. Hugely important though it may be, I don’t think I bring anything special to this party worthy of making special comment. Suffice to say that China is an easy target to blame for flooding the steel market when there is a 30% over-capacity problem with steel. What many must find so frustrating is that the writing has been on the wall for 30 years. After the British Steel Corporation under Sir Monty Finniston, various pioneers and Mavericks from Corus to Arcelor Mittal to Tata to Caparo Industries have attempted to capitalise on opportunities presented. However with labour and running costs so much cheaper in China, Russia and Eastern Europe, these sorties were always going to be paired down or end in tears. What I find irritating is that no contingency plans have ever been made by any UK government in the past 50 years to build other factories like car assembly plants on Teesside or in Lanarkshire, similar to Nissan hugely successful operation in Sunderland. Sadly the 5200 jobs that could be lost to the steel industry redundancies could end up totally 25k if one includes ancillary industries and services. This could be a community crisis in quite a few areas.

 

Though there have been no economic wireworks from China in the last 24 hours, expectations and aspirations about fresh stimulus packages still permeate around the major global financial centres. Today Japan’s export data left a little to be desired with any positive effects from Abenomics dissipating with monotonous regularity. It looks as though today’s Asian equity centre may finish the session just in positive territory, though Hong Kong remains closed for a holiday today. Yesterday the Street of Dreams did not feel particularly comfortable in its own skin. The quality of earnings continued in many cases to disappoint.

 

 

Yahoo! For example saw income fall by 8% in the last quarter to circa $1 billion. This is the 9th quarter in the last eleven that Yahoo has seen revenues drop. The shares fell 1.19% after hours and this company has been very reliant on the contribution made from its stake in Alibaba. It may just be that Marissa Meyer the CEO will consider teaming up with Google on search as well as continuing to use Microsoft’s Bing. Verizon was the pick of the positive earnings with net income up 9.3% to $4.04 billion with 1.3 million new subscribers. Tesla’s efforts did not pass muster with the reliability of these cars being challenged – shares were down 6%. Ferrari’s IPO looks like a hot ticket. The shares will be issued at the top end of the range at $52, valuing the company at just under $10 billion. This pricing puts Ferrari on a multiple of 35x earnings against GM at 6x and Ford at 8x!

 

The FTSE lost just 7 points yesterday in a really dull session, though Whitbread caught the eye in a positive manner ending the session up 2.6% with Genel falling by 5.6% having been down 8% at one time. Mark Price’s departure after 9 years as head of Waitrose surprised many. There were uncomplimentary remarks made about his move in the wake of Aldi and Lidl seeing their sales increase by 17% in the last quarter. Mark Price may have run his race but together with Sir Charlie Mayfield the chairman of John Lewis and Andy Street the CEO, they have been a brilliant team of this very unusual cooperative, where profits are shared transparently with all employees. Most people will wish Mr Price well in his quest to become chairman of Channel4.

 

Credit Suisse’s Tidjane Thiam posted near enough acceptable Q3 numbers – a profit of CHF779 million. Radical management changes will be implicated with the emphasis for expansion being focused on Asia with a global concentration on wealth management. We are expected that CS will need a cash injection of between CHF6 billion to CHF 8 billion. Redundancies are inevitable.

 

BOE Governor Mark Carney is expected to make a speech on the BOE’s prognosis on the EU referendum, goaded on by the PM. MC thinks the findings will be rather dull, but I suspect that the speech will tow the party line without party political influence but almost certainly recommending the UK remains in. No surprise that Sir Jon Cunliffe the former EU diplomat has put the dossier together. Barclays chairman John McFarlane may well be setting the cat amongst the pigeons. It is rumoured that the ‘Bald Eagle’ will recommend that its high street operations be placed on a temporary basis in the investment bank’s balance sheet to prevent the investment bank’s credit rating being slashed. I am very sympathetic with this proposal but I suspect ‘hell has a better chance of freezing over’ than BOE’S Andrew Bailey & Co accepting this idea. I never have seen the real value of ring fencing, though I understand the concept of protecting the consumer. Surely it is much better increase capital weightings for investment banking business?

 

Today ARM Holdings posted revenues up 17% with profits of $375.5 million. This is a welcome return to form. Shares are up 13% this year. Home Retail’s efforts will not pass muster having seen sales fall 2% in the last 6 months. Argos is struggling though on line business has improved. Reckitt Benckiser saw a 7% growth in its 3rd quarter with revenues up 5%. These shares have been stellar – shares up 19% this year. Finally SKY, which is hardly feeling the heat from BT’s kitchen. Q1 revenues were up 6% to £2.8 billion. Profits were up 10% to £375 million and what impressed me most was 134k new subscribers signed on.

 

UK companies posting number – Wednesday – SKY, RECKITT BENCKISER, HOME RETAIL, BHP BILLITON Thursday – LSE, DEBENHAM, GKN, PEARSON, LADBROKES, ANGLO-AMERICAN, TRAVIS PERKINS, FOXTONS, Friday – WILLIAM HILL, DECHRA PHARMACEUTICALS, SHIRE, TSB.

U.S. companies posting interim results – Wednesday – eBAY, GM, BAKER HUGHES, ABBOTT LABS, BOEING, EMC, BIOGEN, COCA-COLA, TEXAS INSTRUMENTS, DOLBY, Thursday – GOOGLE/ALPHABET, MCDONALD’S, RAYTHEON, NASDAQ, FREEPORT-McMORAN, BJ RESTAURANTS, AT&T, AMAZON.COM, PULTE, MICROSOFT, EASTMAN KODAC, Friday – WHIRLPOOL, THOMSON-REUTERS, PROCTER & GAMBLE,

 

 

ECONOMIC DATA – Wednesday – US OIL INVENTORIES, Thursday – ECB, US INITIAL JOBLESS CLAIMS, RETAIL SALE

 

 

David Buik – market commentator

 

 

Panmure Gordon & Co