TODAY’S FAYRE – Markets, Apple, FCA, IPOS & RBS

 

TODAY’S FAYRE – Wednesday, 28th January 2016

 

“Tell me not, in mournful numbers,

Life is but an empty dream! 

For the soul is dead that slumbers,

And things are not what they seem.

 

Life is real! Life is earnest! 

And the grave is not its goal; 

Dust thou art, to dust returnest,

Was not spoken of the soul.

 

Not enjoyment, and not sorrow,

Is our destined end or way; 

But to act, that each to-morrow

Find us farther than to-day.

 

Art is long, and Time is fleeting,

And our hearts, though stout and brave,

Still, like muffled drums, are beating

Funeral marches to the grave.”

 

Henry Longfellow – author & poet – 1807-1882

 

I was very sad to hear of the death of Lord Cecil Parkinson – probably the most courteous politician in the 20th century. Of course he broke the eleventh commandment – ‘Thou shalt not get found out!’ His well-chronicled 12-year affair with Sarah Keys resulting in the birth of their daughter Flora, put the brakes on his glittering career in the Thatcher Administration. He was at the Department of Trade and Industry at the time of ‘Big Bang’ – at the time I briefly made his acquaintance at a lunch I hosted in August 1986. The city was less than convinced that he understood the ramifications of ‘Big Bang’, which would be manifested as a result of the change in business, trading and broking culture.  Nonetheless he had wonderful interpersonal skills, which endeared him to many. At the end of that lunch he insisted on going to the kitchen to personally thank the cook and waitresses for their contribution to the occasion.  I have never seen kindness of its type from a person in high office before or since!

 

There seems to be some correlation between the price of oil and the performance of many global equity indices, which does not seem all that logical.  However crude oil triggering back towards $32 a barrel yesterday certainly had the desired effect of giving momentum and a little exuberance towards the afternoon session in Europe and the entire day on the Street of Dreams.  The DOW ended the session up 1.78% to the good with the S&P 500 adding 1.41% and the NASDAQ a rather more measured and muted 1.01%, as it waited rather nervously on Apple’s results, which were to be posted after hours. Wall Street was in good form, despite inclement weather conditions.  It responded to a 4% rally in the price of crude oil and some decent quarterly earnings from the likes of Johnson & Johnson and Procter & Gamble – both beat the Street’s expectations. There was also a strong perception held by investors and observers that when the FOMC ends its 2-day meeting at 7.00pm GMT today, there may be some hint or guidance that the FED has tempered its enthusiasm to raise interest rates in the foreseeable future – well certainly not another three times in 2016.  This should calm emerging markets down and take a little froth off the value of the Greenback as well as create a calmer frame of mind on global markets. Even Governor Mark Carney seems to have conceded that the FED’s decision to hike rates had spooked global equity markets.

 

When he presented Apple’s eagerly awaited 4th quarter interim results, CEO Tim Cook was ebullience personified about the future, particularly in China, when, despite a record quarter, Apple’s outlook suggested a flat-lining in sales and profits, particularly in China. However Apple’s revenue for the last quarter was a record $74.6 billion with a profit of $18 billion, having sold 74.8 million iPhones. The EPS was up 48% at $3.06. Gross margins increased from 37.9% to 39.9%. Last year the profit for the same quarter was $57.6 billion with a profits of $13.1 billion. The outlook for revenue for the next quarter will be between $50 and $53 billion against market expectations of $55.6 billion.

 

At the time of writing Asian bourses have responded quite well apart from Australia’s ASX which close down 1.20% and the Shanghai Composite which is down 2,64%, thanks in the main to international mistrust of the authorities’ market stimulation and also that Industrial profits fell 4.7% in December and by 2.3% on an annualised basis. The Hang Seng is up 1.06% and the Nikkei closed up 2.72%.

 

George Osborne’s idea, with the support of Mark Carney to appoint Andrew Bailey as head honcho at the FCA was inspired in such turbulent times, when public opinion and to the Treasury Select Committee are baying for blood from transgressors.  He is a man of great intellect, huge integrity, with a quiet composed and thoughtful demeanour with a very steely resolve. He ticks all the boxes and he will not be bullied but he is a listener.  That is why he is so popular amongst his peers and commands respect from all quarters. He is no pushover and will not go ‘soft’ on banks. He is more than happy to be logically confrontational, without ever being emotional in his decision making process.  He will certainly give John Mann MP a run for his money. A word of thanks should go to Tracey McDermott, who did a splendid job holding the fort in such trying circumstances.

 

Despite the fact that the Shell deal with BG was struck when oil was $60 a barrel, the £47 billion acquisition is expected to go through despite that lack of support from Standard Life and others. Most shareholders appear to think that in the long term BG bring much to the gas party with economies of scale of a joint savings of $2.5 billion.  The joint company will probably be valued at $250 billion, making it probably the largest company in the FTSE 100.

 

NAB served notice that the IPO of Clydesdale will take place next Tuesday 2nd February.  75% of this bank will be retained by NAB and 25% sold to mainly institutional shareholders. The issue price will be between 175p and 235p valuing the bank at between £1.5 billion and £2 billion. Advisors will be hoping that sentiment in equities continues to improve as there masses of banking stock potentially for sale – Lloyds, RBs, Metro tec.

 

Metro Bank is set to unveil plans for a massive £1.9bn float, and could possibly be listed by the end of February. Metro is also hoping to raise £500m by selling new shares to its existing investors, which will bring the total amount raised since the bank launched in 2010 to £1.1bn. The shares are to be priced at £24 each. Tomorrow Metro Bank posts results for the fourth quarter of 2015, which could reveal a 78% increase in deposits, up to £5.1bn. Losses may also have been reduced, narrowing from £10.7m in the third quarter to £10.1m.

 

These forthcoming IPOS will not be helped by the fact that RBS has posted a £2.5 billion provision for UK PPI (£500k), $1.5 billion fine by SEC for miss-selling of mortgages in the US pre-2008. This will put RBS in a loss situation for this year. Shares are down 4.5% at 249,15p – 251p off breakeven. There is also a charge against the valuation of Coutts & Co its private bank of £498 million. The taxpayer still owns 73%. This actually cannot come as any surprise to CEO Ross McEwan. Rumours have abounded for weeks in the US that RBS was implemented. This bank is unlikely to be fit for purpose for at least another 2 years. At least there is hardly the remnant of any investment banking left in RBS apart from a shareholding in Citizens Bank and I doubt they are big players.

 

 

U.K. earnings this week –  Wednesday – Antofagasta, Britvic, Paragon, Aberdeen Asset Management, Sage Group, Thursday – Anglo-American, 3iii, RPC, First Group, Diageo, SSP, SSE, Lonmin, DMGT, Kaz Group, Friday – Sky, AB Barr, Vedanta Resources

 

US Earnings posted this week –  Wednesday – PayPal, Boeing, BIOGEN IDEC, Texas Instruments, Facebook, Thursday- Ford, Caterpillar, Pulte, Baker Hughes, Microsoft, Visa, Raytheon, Hershey, Bristol Myers Squibb, Friday – Colgate-Palmolive, Chevron, AbbVie, Honeywell, MasterCard

 

Economic data this week – Wednesday – FOMC, BBA mortgage applications & bank lending, Thursday – UK preliminary GDP

 

 

 

David Buik

 

Market Commentator – Panmure Gordon & Co 

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