TODAY’S FAYRE – Sunday, 29th November 2015
“Love and fortune and my mind, rememberer
Of that that is now, with that that hath been,
Do torment me so that I very often
Envy them beyond all measure.
Love slayeth mine heart; fortune is depriver
Of all my comfort; the foolish mind then
Burneth and plaineth, as one that seldom
Liveth in rest, still in displeasure.
My pleasant days they fleet away and pass,
But daily yet the ill doth change into the worse,
And more than the half is run of my course.
Alas, not of steel, but of brickle glass,
I see that from mine hand falleth my trust,
And all my thoughts are dashed into dust.
William Shakespeare – poet & playwright – 1564-1616
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” – Ernest Hemingway – author – 1899-1961
When there is a scandal within a political party, I simply don’t understand why the decks are not cleared. Also anyone else involved or on the peripheries of the management of that party should resign or be sacked forthwith, allowing that party to get on with the business of the day unencumbered!
On Friday there was a very well-researched article by the Evening Standard’s Jonathan Prynn on the ramifications concerning the UK’S banking sector, if this country was to vote to leave the EU. Mr Prynn painted a fearful picture, courtesy of an August banking contact, who ventured to suggest that the sector could be decimated and the loss of 100,000 jobs could not be ruled out. Luxembourg, Frankfurt, Paris, Madrid and Amsterdam would be euphorically jumping up and down in picking up the spoils left behind on London’s high table
First and foremost I both like and admire Jonathan Prynn; he’s a fine journalist, but the information he was given was jingoistic ‘scare-mongering’ twaddle! I have on this occasion not got my ‘vote leave!’ hat on, but let’s be clear on a number of issues.
Firstly London is the centre of the time zone. English is the international business language of the world. With respect the German or French languages do not have the same resonance as English does! Then of course this nonsense ‘transaction tax’ and the EU anti-investment banking rhetoric would just mean that banks will head east and west and not to the EU. FINALLY there is no finer market place for raising capital and financing of foreign trade than the wonderful City of London. We have the ability and the track record! International businesses find it conducive to business here with relative ease.
Much of last week in London was spent formulating an opinion on the leaked or well chronicled contents of George Osborne’s Autumn Statement and analysing it. The ‘U’ turn on tax credits was dismissed by the Chancellor as almost irrelevant. More than a little good luck in terms of the performance of the UK’S economy (growth of 2.4% in the next two years) is required to prevent the Government going back to the drawing board, such was the importance attached to the amazing and unexpected windfall of £27 billion that conveniently fell in to the Treasury’s coffers, thus preventing any serious austerity, yet again! Property and house building attracted significant comment.
Though observes could understand politically the importance of 400,000 new affordable homes, more than a few property aficionados told me unequivocally that the Government’s policy of penal stamp duty on expensive houses is preventing the necessary downsizing happening – so necessary to stop prices at the lower end rising indecently quickly. I challenged this perception, but was told that the level of activity in houses costing more than £2 million has come to a grinding halt. Surely thought I, if you can afford a house costing £5 million, you can afford stamp duty of £250k – a mere bagatelle. Not so, I was told! It is a psychologically barrier and the same applies to a house costing just over £2 million, when £100,000 is required.
Equity and bond markets had much to consider last week. The week started badly for equities. The threat of a hike in US rates loomed threateningly on the horizon, which allowed the Greenback to nudge towards a 6-year high. December 15/16 cannot (FOMC) come fast enough. Investors are deeply frustrated by the level of indecision. BOE Governor and the MPC are also feeling heat from the level of persecution, created by forward guidance, which many believe is a hindrance rather than guidance. Gold fell to a 12- year low of $1057 an ounce and there were sharp reverses in nickel and copper. Towards the end of the week, the Shanghai Composite shed 5.5%, in the wake of allegations that brokerages were the subject of regulatory investigations, which shook the rafters of Asian markets.
By the end of the week, despite an increase level of global geopolitical issues, US and European equity markets managed to keep their poise. The S&P 500 ended the week up 0.05%, probably aided and abetted by Thanksgiving falling on Thursday and Friday. The FTSE was 0.6% to the good with European bourses rallying by an average of 0.5%. The Nikkei finished just above the Plimsoll line – up 0.02%.
Though the week was flat media stocks had a torrid time with Disney losing 3%, Viacom 3.3% and 21st Century 1.2%. Pfizer confirmed its merger with Allergan in $160 billion deal, much to the chagrin of the US government, which could lose several billion Dollars of taxation. In the UK mining stocks struggled against the tide of falling prices. Oil saw a 0.8% rebound on the week, which allowed the likes of BP and Shell to stay calm. Betfair was the star of the week ahead of its merger with Paddy Power. Its shares have risen from £7 in 2011 to £36! SuperGroup also added 5% on Friday. However despite many bulls still raging European equities feel heavy to me. Yes we could see more stimulus packages from the ECB, but….
And so to sales for Black Friday and Thanksgiving. In the US traffic was down 1.5% on last year and shop spend was down by 1.4%. It appears that Thursday and Friday yielded sales totalling $12.1 billion of which $4.45 billion were on line. Black Friday in the UK proved a bit of a damp squib on the high street with retail park sales down 8.9% and the number of shoppers down 6.5%. On- line trading was a winner with sales supposedly rising by an average of 28%. We shall have to wait until Tuesday to get further analysed data.
Banking was an easy headline grabber last week. Barclays was there in neon-lights with a £72 million fine over sloppy controls of a few ‘elephant deals’ totalling £1.88 billion with top of the range customers. The Bank of England’s forthcoming stress tests ventures to suggest that Lloyds Banking Group may well have to rein its dividend aspirations. Much to everyone’s joy banks could be cutting bonus pools by 60% due to falling profits on trading and M&A, though one ventures to suggest this may not be the case in the US where M&A has been buoyant. Shell & BG expect to receive green light messages from Asian regulators over its proposed £55 billion takeover. In order to consummate its purchase of SAB Miller in a £177 billion deal, AB InBev will be putting Grolsch and Peroni up for sale, having already agreed to sell its 58% stake in Molson Coors. Chinese investors may cast the ruler over IHG after Starwood falls to Marriott.
UK companies posting results – ABERDEEN ASSET MANAGEMENT, IG (TS), Tuesday – TOPPS TILES, COLLOGEN, Wednesday – BREWIN DOLPHIN, ZOOPLA, GREENE KING, Thursday – GW PHARMACEUTICAL, DS SMITH, Friday – BERKELEY GROUP, EASYJET (TS) US companies posting interim results – Tuesday – FORD (sales), Wednesday – AMERICAN EAGLE, AEROPOSTALE, Thursday – KROGER, DOLLSR GENERAL, BARNES & NOBLE, Friday – BIG LOTS Economic data – Monday – UK Consumer Credit & mortgage applications, Tuesday – UK PMI manufacturing, Wednesday – US Beige Book, UK Construction, Thursday – ECB meeting, Friday – US balance of trade.
Market Commentator – Panmure Gordon & Co