TODAY’S FAYRE – Sunday, 11th October 2015


Small, busy flames play through the fresh laid coals,

And their faint cracklings o’er our silence creep

Like whispers of the household gods that keep

A gentle empire o’er fraternal souls.

And while, for rhymes, I search around the poles,

Your eyes are fix d, as in poetic sleep,

Upon the lore so voluble and deep,

That aye at fall of night our care condoles.

This is your birth-day Tom, and I rejoice

That thus it passes smoothly, quietly.

Many such eves of gently whisp’ring noise

May we together pass, and calmly try

What are this world’s true joys, ere the great voice,

From its fair face, shall bid our spirits fly.”


John Keats – poet – 1887-1915


Perhaps I am being naïve, but I am left with the impression that the West is taking Putin’s very aggressive stance in Syria rather too lightly. Equity markets have ‘cocked a snook’ at the Russian leader’s bold initiative and ignored it.  Crude oil prices have gone up a smidgen.  But that seems to be that!


I wouldn’t consider myself the brightest pin in the box, but even I understand that Putin has stolen a major march on the West! Why? Sanctions against Russia are really biting, resulting in Russia’s economy to be seriously hanging in rags. Putin realises two things. Russia will never have global naval supremacy. However if Syria is used by Russia as a springboard to greater goals, the ramifications could be far-reaching. As a result of a strong imprint in Syria, Russia could manage to scoop up all the oil pipelines in Iran and Iraq. That action could provide Russia with a huge prize; a considerable control of Middle-East oil, particularly as the US could be self-sufficient in 5 years, which would mean that Saudi Arabia could diminish in importance to the US. These are very worrying times. Putin may be a despot, but Obama’s open contempt of the Russian President is diplomatically naïve and very unhelpful. Like it or not Obama MUST engage with Putin before matters get out of hand.


I was delighted to see that the ‘No!’ Campaign have started to get their act together, by pooling resources, with the exception of UKIP.  This is sensible tactics, since ‘Dave’s troops’ with his political chief of the Defence staff, George Osborne and his adjutant Lord Rose are very much on the front foot in attempting to rail-road the electorate into accepting the status quo – ie continued membership, without an adequate debate. Most people think the PM is determined to remain in the EU, regardless as to whether he has persuaded the EU to implement the necessary radical changes that would be required to placate the doubters. There are some good Mavericks involved in ‘Vote Leave’ – Messrs Lawson, Cruddas, Hoey, Odey, Wheeler and Carswell. Others will follow and hopefully Nigel Farage can be persuaded to join the club. His message might be more effective than ploughing a lonely political furrow.


‘Fools rush in where angels fear to tread and wise men never fall in love..’  Last week there was a feeling that equity markets may well have looked over-sold with the added ingredient that ‘short-sellers’ in certain sectors such as supermarkets and mining were sufficiently exposed to have their backsides handed to them by unforgiving market makers, as soon as it became clear to the FED and the BOE that the prevailing economic data in the US and UK was sufficiently benign to keep interest rates hikes under wraps for some little time yet, thus allowing market ‘Bulls’ to select another gear.  Market activists of all shapes and sizes are heartily fed up with Central banks’ flawed policy on forward guidance. Forward guidance has made a measurable contribution to the economic fall-out in many emerging countries, thanks to a strong Dollar, which has increased the cost of borrowing by a significant amount, thus substantially eroding margins of corporate profitability.

However despite the perceived plight of emerging countries and stark warnings from Mme Lagarde of the IMF of the potential dangers for as much as $3 billion of impairment charges on bad loans, equity luminaries put their best foot forward last week, which resulted in a seven week ‘high’ for equities and one of their best weeks this year. Now that the Central banks have removed their hobnailed boots from the throat of the market place for a few weeks and perhaps months, equity traders were encouraged to take the S&P 500 up by 3.29% last week, with the FTSE 100 eclipsing that percentage with a gain of 4.67%. European bourses rallied by an average of 4.44% and the NIKKEI by 4.03%. Crude oil gained nearly 9% to $52.54. Copper rallied by 3.6% on the week, with Gold up $20 an ounce last week, briefly touching $1158. Despite the heat coming out of the interest rate kitchens, 10-year bond yields rose 2/3 pips on the week. Investors should however remain vigilant. Only daisies and dandelions are growing in the garden – not roses!

We were all wrong in thinking that there was sufficient benign data to persuade Ian McCafferty to come in to line with the rest of the MPC to keep UK rates unchanged, where they have been since March 2009. But no! He voted again for a change! Many realise that McCafferty believes there is sufficient wage inflation to justify voting for an increase. However the cynics amongst us think that McCafferty may have been used as the fall guy for Carney, who insists that there must be a signal that the next move in rates is up – whenever. There is no doubt though, that market activists are becoming frustrated by being continuously hoodwinked on forward guidance by the BOE.

New York’s rally last week was based almost exclusively on relief and the fact that the FED’S minutes confirmed its wish to continue prevaricating over hiking interest rates. Though many observers think it will be in December, I would not bet may last Dollar. It could well be the spring of 2016. Despite rising oil prices the outlook for the U.S. airline business was very positive with United, JetBlue, American and Delta all making significant gains. Most US banks post 3rd quarter earnings next week and then the earnings floodgates open the following week.  In London there was a total turnaround in sentiment for mining stocks – Vedanta +12%, Lonmin +13% and Glencore about 25%. Overall that sector jumped by 30% from a decade low. There is no doubt that Glencore was the ‘mover & shaker’ with CEO Glasenberg determined to prove the company’s viability by cutting debt, selling assets and lightening the labour force. Shares in the past two weeks have rallied from 72p to 129pon Friday. Equities enjoyed a stellar week, but concern remains that 3rd quarter earnings may not be as robust as before (maybe down 5% overall from this time last year) and maintaining current levels of dividend could prove a bridge too far in some cases.

Tesco’s results on Wednesday were eagerly awaited. Like for like sales fell by 1.1% in the last 6 months – better than -4.6% recorded last year. I am absolutely gobsmacked that 250k people have registered to buy shares in Lloyds Banking Group in response to the Chancellor offering £2 billion, as promised in the Budget, to retail investors in the spring of next year at a 5% discount to the current price at the time of the sale. With greater capital requirements, low interest rates and further PPI charges, it is hard for a Luddite like me to see these bank shares as growth stocks. However when the watery spring sunshine appears, maybe everything in the garden will look much rosier. I shall not be holding my breath. In have to say I think Morgan Stanley has done a brilliant job dribbling out stock in the last year on behalf of UKFI taking the taxpayer’ stake down  to 10.9%. There were also rumblings that RBS’S stock will be on offer before too long! Is RBS fit for purpose?

China was on holiday for much of last week. However when Shanghai returned to work on Thursday, its Composite index put in a moderately robust performance. Further Chinese data due out this coming week will test investors’ and regulators’ resolve!

AB InBev’s CEO Carlos Brito will no doubt increase the offer for SAB Miller above £65 billion from £42.15 to circa £43-44 a share. An increase to that level might persuade the Colombian Santo Domingo, whose family owns 14% of SAB as well as Altria which owns 27% of the brewer to consider the bid in a more positive light. Regulation will also be a minefield. Talking of regulation VW’S Michael Horn gave pitifully poor evidence to Congress in response to the emissions crisis. Congress understandably chewed him up and spat him out for coming to the hearing so inadequately prepared. This saga may run longer than the BP disaster! TalkTalk’s Dido Harding continues to whinge to Ofcom about BT’s dominance of the telecom market in the UK, calling for BT to break up its business. I hope she is unsuccessful – free markets please! Charge what the traffic will bear. I also disapprove of BT raining on Sky’s parade. Again charge what the traffic will bear. Sky got there first!


Despite the vagaries and uncertainty that prevails in the market M&A activity remains rampant and in terms of IPOS, having seen a quiet summer, interest appears to be returning with Metro, Hastings and McCarthy & Stone all possibly being offered as ‘sacrificial lambs’ to the market place in the weeks to come. There was an excellent article in the Times on Saturday by Martin Waller.


Good hunting with 3rd quarter earnings this week!






ECONOMIC DATA – Monday – US Treasury Budget statement, Tuesday – UK PPI, EU PPI and Germany’s ZEW index, Wednesday – EU Industrial Production, US Beige Book, UK Employment data, Thursday – US CPI and Initial Jobless Claims, Friday – US Industrial Production.



David Buik – market commentator



Panmure Gordon & Co


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