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