TODAY’S FAYRE – Thursday, 7th January 2016

“Half a league half a league,

Half a league onward,

All in the valley of

Death Rode the six hundred:


‘Forward, the Light Brigade!

Charge for the guns’ he said:

Into the valley of Death

Rode the six hundred.


‘Forward, the Light Brigade!’

Was there a man dismay’d ?

Not tho’ the soldier knew

Some one had blunder’d:


Theirs not to make reply,

Theirs not to reason why,

Theirs but to do & die,

Into the valley of Death

Rode the six hundred.


Cannon to right of them,

Cannon to left of them,

Cannon in front of them

Volley’d & thunder’d;

Storm’d at with shot and shell,

Boldly they rode and well,

Into the jaws of Death,

Into the mouth of Hell Rode the six hundred.


Flash’d all their sabres bare,

Flash’d as they turn’d in air

Sabring the gunners there,

Charging an army while

All the world wonder’d:


Plunged in the battery-smoke

Right thro’ the line they broke;

Cossack & Russian

Reel’d from the sabre-stroke,

Shatter’d & sunder’d.


Then they rode back, but not

Not the six hundred.

Cannon to right of them,

Cannon to left of them,

Cannon behind them Volley’d and thunder’d;


Storm’d at with shot and shell,

While horse & hero fell,

They that had fought so well

Came thro’ the jaws of Death,

Back from the mouth of Hell,


All that was left of them,

Left of six hundred.


When can their glory fade?

O the wild charge they made!

All the world wonder’d.

Honour the charge they made!

Honour the Light Brigade, Noble six hundred!”


Alfred, Lord Tennyson – poet laureate – 1809-1892


There is a very nasty acrid stench of fear permeating over global equity markets. Yesterday on the Street of Dreams, content of last month’s FOMC meeting suggested the vote to hike was very marginal. Despite the US believing that its economy is in pretty good shape, sentiment was very negative throughout the session with the DOW closing down 1.47%, the S&P -1.31% and the NASDAQ by 1.14%. Market economists, traders and observers have known for some time that the Chinese authorities have been economical with the truth over growth. It was extraordinary that the Shanghai Composite added 150% between June 2014 and June 2015, just at the time growth was on the decline. 


The ludicrous number of Chinese IPOS, which were floated, was mind boggling with the government encouraging retail investors to fill their boots with cheap money from its banks – a recipe for disaster.  The Greenspan dynasty in the US reminds us only too well of what happened at the turn of the century – In 2000 the market went ‘POP!’  There was a definite pointer exposed yesterday as to the softness of the Chinese economy, when Apple announced it was cutting back its production of the iPhone. Apple’s shares were down 1.96%. However it is as well to remember that China’s Huawei Technologies’ consumer division’s revenue rose 70% to more than $20bn (£13bn) in 2015 from a year ago on strong smartphone sales. Sales had jumped almost 40% in the first half of 2015.


This morning proved to be another public relations disaster for the Chinese authorities. Whilst the government persists in attempting to manipulate markets, the markets themselves keep telling China supply and demand decides the level of stocks, but the message seems to fall on deaf ears.  So, very early this morning, the Shanghai Composite fell 5% with indecent haste – the second time this year!  The Shanghai market closed to regroup but the circuit breaker failed to shore up the dam and a further fall to 7.3% down transpired, resulting in the market shutting for the day. Whether there was method in China’s madness, who knows?  Certainly the Yuan fell like a stone, which could help exports provided there is sufficient demand.  At the time of writing the ASX closed down 2.2% and the Nikkei -2.5%. Just after lunch the Hang Seng was easier by 3%. It looks very messy out there.


On Wall Street yesterday sentiment was negative, not really helped by the content of the FOMC minutes, which suggested that the vote to hike rates was close. The market fears more indecision or maybe the US economy is not quite so robust as many thought.  However there were upbeat comments about railway and media stocks for the year. Chipotle restaurants were 14% easier. Gold related stocks such as Barrick Gold were up 4%. Large oil titans were in the doldrums as oil fell to a 12 year low.


Chancellor Osborne correctly warned us that in this climate we must stick to our guns in attempting to cut debt and expenditure. Hopefully the government has no intention of taking its foot off the pedal. However news that he wants to sell Bradford and Bingley’s £17 billion loan book, though laudable, may prove difficult in this climate as will ‘offering’ lumps of shares in RBS for sale, unless sentiment improves. I wish Sir Terry Leahy good luck in his quest to put a consortium together to buy Home Retail. The competition out there is fierce (Amazon +), so surely this operation represents value as an add-on-attraction?


The usual suspects featured in the FTSE 63 point fall yesterday to 6073, with mining stocks, oils and banks leading the charge downhill.  BAE Systems providing the only bright colour – 3.7%.   Expect another 120 loss at the opening. A general measurable ‘sell-off’ is expected. This morning M&S posted desperately disappointing sales numbers apart from food +0.4%. General Merchandising sales were down 5.8%. Mild weather was used as an excuse for poor sales. I’ll give you a clue – bad and unattractive fashion has much more to do with it! The good news is that Marc Bolland is at last going and will be replaced by Steve Rowe, a ‘lifer’ at M&S for 25 years.  He has been head of general merchandising.  I hope he can see that the fashions are dowdy and that he and Belinda Earl, who has been there 2 years, must ‘digitum extractum.’


Panmure’s Michael Stewart’s comments on M&S


M&S Q3 update: Excellent performance in food in a highly competitive and deflationary market and in the wake of Waitrose numbers yesterday (-1.4% LFL over Christmas), sales are up +3.7%, LFL +0.4% for the quarter.


GM continues to disappoint however with sales down -5%, LFL -5.8%. This is particularly disappointing given relatively easy comparatives; remember that GM sales were down 5.8% in the comparative quarter with online sales impacted by issues at the Castle Donington warehouse. Mild weather over the period has obviously played its part over the period but I think M&S’s decision to stand firm on its promotional stance has done the real damage, albeit this has provided some degree of margin support; FY margin guidance upgraded to the top end of guidance (+200/250 bps). This seems a credible explanation given Next’s rather disappointing results, with unprecedented levels of discounting across the high street over Black Friday and Christmas I think both retailers have been priced out of the market. Stock availability also cited as an issue, evidence that their IT systems and stock management systems are still a long way off where they’d like them to be.


Marc Bolland going is seen as positive. Steve Rowe an M&S lifer was in charge of general merchandising – can he see the woods from the trees?


Persimmon’s numbers were solid and Poundland offered what looks like a profits warning!


UK Companies posting results this week –Thursday – POUNDLAND, M&S, PERSIMMON, SIGNET, RATHBONE


US Companies posting interim results this week – Thursday – WALGREEN BOOTS, CONSTELLATION BRANDS, KB HOMES, BED, BATH & BEYOND, RUBY TUESDAY – Friday ACUITY BRANDS


Economic data this week – Thursday – UK car registrations, US Jobless Claims – Friday – US Non-Farm Payrolls (est: 210K), Unemployment data (Est: 5%) and Consumer Credit, UK Balance of Trade. 


David Buik


Market Commentator – Panmure Gordon & Co 


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