TODAY’S FAYRE – Sunday, 8th November 2015


“With proud thanksgiving, a mother for her children,

England mourns for her dead across the sea.

Flesh of her flesh they were, spirit of her spirit,

Fallen in the cause of the free.


Solemn the drums thrill: Death august and royal

Sings sorrow up into immortal spheres.

There is music in the midst of desolation

And a glory that shines upon our tears.


They went with songs to the battle, they were young,

Straight of limb, true of eye, steady and aglow.

They were staunch to the end against odds uncounted,

They fell with their faces to the foe.


They shall grow not old, as we that are left grow old:

Age shall not weary them, nor the years condemn.

At the going down of the sun and in the morning

We will remember them.


They mingle not with their laughing comrades again;

They sit no more at familiar tables of home;

They have no lot in our labour of the day-time;

They sleep beyond England’s foam.


But where our desires are and our hopes profound,

Felt as a well-spring that is hidden from sight,

To the innermost heart of their own land they are known

As the stars are known to the Night;


As the stars that shall be bright when we are dust,

Moving in marches upon the heavenly plain,

As the stars that are starry in the time of our darkness,

To the end, to the end, they remain.”


Laurence Binyon – Poet – 1869-1943


One of the bonuses there is for getting up with the larks during the winter is being able to watch test cricket from far-away places on Sky. As an inveterate insomniac it gives me a chance to familiarise myself with the progress of talented though relatively new players to test cricket. When one generation has run its race, another readily appears, well coached and ready for battle.


Such is the case in the current Australia v New Zealand test being played at the Gabba in Brisbane. So far we have seen sparkling performances from two relatively new gladiators to test cricket – Khawaja and Burns as frontline batsmen. Suffice to say that David Warner has scored two amazing centuries in the same match. Also Kane Williamson’s rear-guard action against the battery of Australian ‘quicks’ has been outstanding. Williamson is far from new to the test cricket arena.


It will come as no surprise that interest rates returned to the top of the agenda last week. Super Thursday loomed in the wake of FED’S Janet Yellen, aided and abetted by cohorts Fischer and Dudley, making it clear that the US economy was ready to accommodate a symbolic interest rate hike of say 25 basis points, provided the economy remained robust and that the labour market continued to improve. There was good manufacturing and industrial production data posted early last week and even though inflation is still short of 2% in the US, the FED will have been more than encouraged by the bonanza Non-farm payroll data, which was posted on Friday. No less than 271k jobs were created in October and there was an upward adjustment of 135k to September’s figure. So come December the FED is very likely to start the process. The Treasury market felt there was a 23% chance of a hike on 22nd October a 57% chance last Friday morning and a 70% chance in the evening.  The Dollar blazed the trail for the last couple of days last week and bond yields rose.

There was an apocryphal adage on one of the TV stations about the MPC’s track record on forecasting the strength of the economy, inflation and growth, which was cruelly and nervously, but specifically focused on Governor Mark Carney.  It went along the lines of football fanatics’ chant ‘You don’t know what you’re doing!’ In fairness all Central bank forecasting for the last decade has been abysmal. It’s a job no one would wish on their worst enemy.

For 2 years the Governor has been obsessed with ‘forward guidance’ for all the right reasons, in an attempt to ween business and the public on to commercial rates of interest.  Forward guidance has proved to be an absolute ‘pup’ and very misleading globally. The Fed is every bit as guilty as the BOE. Inflation in the UK is zero and 1% may not be attained until the autumn of 2016 thanks, if at all, to falling commodity and softer oil prices. Therefore it seems unlikely that the guideline 2% inflation threshold will be attained until towards the latter half of 2017. The Pound is also very strong. Against that background how can the BOE put up rates, which have remained at 0.5% since 9th March 200? The vote at the last meeting was 8-1 with only McCafferty voting for a hike. Messrs, Weale and Forbes seemed desperate a few weeks ago to vote for a hike as well, with Broadbent, Shafik and Carney not requiring that much encouragement to do the same. However with soft economic data, the move has been pushed forward.

The Bank of England is now also becoming increasingly concerned about house prices, which went up 3.7% in the last quarter and look to be heading in to ‘bubble territory.’ Soft credit requirements and easy availability of mortgages will have to be reined in before too long. It appears that the worst of China’s falling growth pattern may now be over! Certainly there is a belief that ‘bull market conditions could return. Since its August ‘low’ the Shanghai Composite has rallied by 22%. June 2014 to June 2015 this index went up by 150% and it adjusted by 40% from June to August 2015.

Last week the S&P ended the week up 0.5%, with the FTSE closing down 0.1%. European stocks faired rather better adding 1% with Japan’s Nikkei closing up 0.96%. On the threat of higher rates the US banking sector rallied by an average of about 2.7% on Friday. In London oil and the mining sector put on its best bib and tucker early in the week, with Glencore acting as the standard bearer, having added 7% on news that its debt mountain was being cut. However it surrendered half the gain by Friday and other mining stocks did not fair very much better. Standard Chartered Bank was larruped losing nearly 12% on poor results and the need for a monster £5.1 billion rights issue and investors carried on its love affair with M&S. The business conveys the impression it has been downsized. Consequently the headline numbers look good. However general merchandise sales keep falling on dowdy fashions, which must worry Marc Bolland and Belinda Earl.

M&A remains a major ingredient in terms of keeping some momentum going for a falling equity market though the Bulls require little encouragement, desperate to hang their hats on the retail sector. Suggest they look at Amazon and or the likes of eBay rather than M&S, supermarkets and the likes of Burberry, which reports on Thursday. The drug/biotech sectors remain rampant on the back of a rumoured tie up between Pfizer and Allergan. Astra Zeneca and GSK both posted adequate numbers last week, with the former laying out $2.7 billion to buy ZS Pharma (renal and cardiovascular medicines). IHG soared by 6.2% on rumours that Wyndham Worldwide was running the ruler over their global hotel management operations. IDBS Tullett +9% and ICAP +7% are in talks to split their businesses up – ICAP focusing on technology platform based booking and Tullett on voice broking.


I felt that this deal, which looks a very good one to me might incur the wrath and indignation of the Competition regulators, The FT’s very knowledgeable Philip Stafford felt there was little chance of the competition authorities will break the proposed deal up. Markets are going electronic, with voice broking just being an adjunct. It’s a global market with three big players with banks having plenty of alternatives if they don’t want to use voice IDBs. They can go electronic through the likes of ICAP, Bloomberg, and Tradeweb. Michael Spencer ICAP’S CEO has been focused on electronic trading for some time. Brokertec, Traiana and TriOptima are very innovative businesses. The underlying threat of brokers to getting ICAP into trouble in the future dissipates. Of course there will be a need for voice brokers but the market does not need to be serviced by five companies. Three is plenty! Just as an adjunct, I suppose age makes us mellow. How sensible that Mr Terry Smith can put the high degree of antagonism that previously prevailed between the two companies behind him to consider the excellent merits of this deal.


Rolls Royce’s CEO Warren East should provide plenty of evidence that he will not be bullied by active shareholder ValueAct, when numbers are posted on Thursday. Sainsbury CEO Mike Coupe will post a 24% drop in profits when numbers are posted on Wednesday, though sales may be just up. 281 pharma outlets have been sold to Lloyds Pharmaceuticals. Lonmin will need to work hard on their shareholders to pick up $400 million rights issue to avoid total catastrophe! Many feel that Ford’s car sales may benefit in Europe thanks to VW’S misdemeanours. Steel remains a real issue in UK with Tata turning screws on suppliers and China’s Trident possibly investing in Sheffield Forgemasters. National Grid posts numbers on Tuesday, which could also provide details on a possible £10 billion sale of its gas distribution operation.


Equity bulls have massed their troops as head towards the end of the year. Interest rates may well go up in December. The market can probably handle this modest hike, but are valuations looking a little rich. Let’s face it – It is ‘buy-backs’ and M&A activity that is delivering shareholder value!


US companies posting interim results – Monday – SOTHEBY’S, Tuesday – DR HORTON, Thursday – NORDSTROM, Friday – JC PENNEY

ECONOMIC DATA – Tuesday – BRC Retail sales, Wednesday – UK unemployment, Thursday – UK Treasury Budget Statement, Friday – EU GDP.


David Buik

Panmure Gordon & Co


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