TODAY’S FAYRE – Sunday, 31st January 2016


“They often murmur to themselves, they speak

To one another seldom, for their woe

Broods maddening inwardly and scorns to wreak

Itself abroad; and if at whiles it grow

To frenzy which must rave, none heeds the clamour

Unless there waits some victim of like glamour,

To rave in turn, who lends attentive show.


The City is of Night, but not of Sleep;

There sweet sleep is not for the weary brain;

The pitiless hours like years and ages creep,

A night seems termless hell. This dreadful strain

Of thought and consciousness which never ceases,

Or which some moments’ stupor but increases

This, worse than woe, makes wretches there insane.”


‘The City of Dreadful Night’


James Thomson – poet – 1834-1882


A visit to Tyndesfield, a Victorian estate, built by the Gibbs family (of Antony Gibbs fame) in the 19th century was much enjoyed last week. This house would have been the apple of John Betjeman’s eye – such was his love of Victorian architecture. However, though considered to be of enormous historical importance, it would only be fair to say that to the average enthusiast’s eye, this house is uglier than sin! However it is set in beautiful grounds and the contents of the 47 rooms are fascinating, particularly the individually bound books in a sensational library.


If I wasn’t absorbed and fascinated by London, which I believe is the finest city in the world, which I would never leave under any circumstances, I could adopt Bath, if forced to, as an alternative city to inhabit. It is stunningly beautiful and will be even more so, once the developers stop using it as a builder’s yard!


I must confess that I admire Amanda Staveley – my word she has enormous courage or a massive ego or both! – for suing Barclays Bank for £950,000 over the 2008 £5.8 billion capital call, of which £3.5 billion was made on Abu Dhabi, negotiated and introduced by M/S Staveley’s involvement in PCP Capital Partners. This capital injection probably averted Barclays requiring government help. The spat appears to be over fees or advisory services of £322m, which caught the FCA’s attention, resulting in an investigation. Should one assume that reputational damage is also an issue? We need to know more. The city’s appetite has just be wetted. Though I am not familiar with the intricate details of the deal, I am not sure I would revisit that problem if I were her.


I suspect that UBS’s Tom Hayes may feel somewhat aggrieved that whilst he is languishing in prison at Her Majesty’s pleasure for the next 5-11 years, 5 brokers were unanimously acquitted for being complicit in this LIBOR skulduggery, with only one awaiting the outcome of the jury’s verdict. It appears that the CPS and the SFO simply did not get the act together or it has finally become abundantly clear that LIBOR had been a flawed system for some years. How the pricing of $500 billion of bank loans could have been decided by a trade association, escapes me. Also how no senior manager or director of a bank, whose employees have been indicted, has not appeared before the beak astounds me? The buck must surely sit at the top.


It is rumoured that an American law firm is planning a class action suit in Europe against the major banks involved in the currency manipulations. These banks have already paid billions in fines; now comes the lawsuits. If they stay out of New York City, they might get a real court to go after the bankers. The lawyers have said that they have corporations and central banks of countries lining up as clients as well.


Even though the FTSE 100 added 3.1% in value this week, together with other international indices, January was the poorest and most inauspicious start to the year for equities since 2008. Personally I was astonished to see the S&P 500 add 0.83%, with European indices pushing on by an average of 1.18% and the NIKKEI 3.30%. The reason the FTSE excelled in comparison to many of its peers was due to oil rallying from a low of $27 a barrel to $34, mining shares, especially Anglo-American and Glencore making exceptional gains and the retail sector joining in on the festivities. As for the NIKKEI adding 3.3%, this was almost exclusively due to the idea that the Bank of Japan will introduce a negative interest policy in an attempt to stimulate its economy. Respectfully this policy is ‘old hat’ and dangerously inadequate. Japan needs to start large infrastructure projects NOW to kick star! – No further delay! It won’t happen; so it will only be a question of time before Japan faces the same old issues, with Abe-San and others refusing to face reality.


Also since the beginning of the year doubts over the robustness of China’s economy and its declining growth has been a real thorn in the side of the world’s economic activity. Not surprisingly this has been reflected in the performance of the Shanghai Composite, which has fallen 19.1% since the start of the year and in the past week it has fallen by 6.5%. Government bond yield rates in the longer end fell quite sharply on news that the FOMC, though still prepared to keep the policy of increasing interest rates on the table, it was becoming increasingly a less than enthusiastic option, with the rest of the world sinking in economic turmoil.


One has to ask oneself why these illogical, emotional and astonish gains were made last week following very average official economic data. UK GDP expanded 0.5% in final three months of 2015, up from 0.4% growth in the previous quarter and in line with consensus. Buried in this data was the unnerving analysis that the UK’s post-industrial economy showed services exports now exceed overseas sales of manufacturing. On a year earlier, GDP was up 1.9%, after growing an annual 2.1% in the third quarter. This latest quarter marks the slowest annual expansion rate since early 2013. For 2015 as a whole, GDP growth was 2.2%. The US GDP data posted on Friday endorsed the perception that the economy grew by 0.7% in the last quarter and on an annualised basis should grow by 2.5%. Could this all be a temporary lull before another storm? Such a sharp rally of this nature based on very little suggests another ‘bear-squeeze-rally!’ I sincerely hope I am wrong!


It certainly was not a great week for the banking sector. Not only was RBS forced to declare a £3.5 billion increase in impairment charges including a $2 billion provision for FX manipulation by New York regulators, but also Chancellor Osborne was forced to postpone the forthcoming sale of £5 billion of shares in Lloyds Banking Group at a 5% discount to retail shareholders for a year, due to unsuitable market conditions and negative sentiment prevailing. It then appears likely that the senior management of HBOS at the time of its collapse will be subject to a stringent inquiry. Adverse findings could lead to prosecution. It seems unfair that only Paul Cummings at HBOS was forced to pay a fine for his role in reckless lending. Barclays Bank will be releasing a further 1000 employees from its investment banking division before too long – many surprisingly from New York, including the head of rates in the US and Europe – Michael Yarian. Finally Deutsche Bank’s John Cryan formally served notice that the bank will post a full-year loss for the first time since 2008.


NAB hopes that its Clydesdale Bank IPO will receive the thumbs up to go ‘live’ this week and Metro Bank hopes to follow in its wake before too long. I would not be holding my breath, though they are small fry in comparison to Lloyds; nonetheless not inconsequential. The City was extremely pleased that Deputy BOE Governor Andrew Bailey was appointed head of the FCA. The comments that have been made are understandably universally positive. In my humble opinion Andy Haldane should be a ‘shoo-in’ as the new head of Prudential Banking Authority, as he was previously responsible for Financial Stability, though there are strong rumours that the Australian Greg Medcraft is a warm order with Governor Carney’s affections. I am sure he is competent, but surely someone English is more than able to do the job? John Kingman is also talked about in the corridors of power. Hopefully he will replace Sir Nick McPherson as the Treasury’s mandarin.


On the general news front, Ford Motor Company will be closing down large parts of its European operations. Royal Dutch Shell looks as though it has attracted sufficient shareholder support to complete its acquisition of BG Group in a £47 billion deal, despite the deal being struck in principal last April when crude oil was $60 a barrel. If Sainsbury is to be successful in landing Home Retail, it may have to up the ‘ante’ to £1.4 billion. Amazon’s earnings on Thursday did not pass muster – the bar was set very high- and shares after hours fell by 13.5%.


Iran seems to have enjoyed the fruits of Hassan Rouhani’s visit to Europe which has yielded gargantuan deals valued at a rumoured E17 billion including 118 Airbus. I wish I could be as enthusiastic as many. I have not forgotten that Iran’s best pal is Russia and Europe’s and the UK’s relationship with Russia is hardly cordial. Russia is rumoured to be in wide ranging talks with many countries about a 5% cut in global oil production. I will believe that when I see it. Apart from the rally in oil and mining stocks, it was totally understandable that IMPS hit a record high – a classic flight to quality exercise. Many, however, believed this mood was down to IMPS being a possible takeover target in the months to come. When posting updates this week BP and Shell may well show that profits have been slashed in the last quarter by 65% and 57% respectively in the last quarter to $730 million and $1.8 billion.


U.K. earnings this week –  Monday – RM Group, QinetiQ, Tuesday – St Modwen, Ocado, BP, Wednesday – Foxtons, Hargreaves Lansdown, GSK, Severn Trent, Johnson Matthey, IAG, Thursday – Royal Dutch Shell, Astra Zeneca, Smith & Nephew, Bellway, Vodafone, Compass Group, Friday – BG Group, Aon


US Earnings posted this week – Tuesday – Dow Chemicals, Exxon Mobil, Pfizer, Wednesday – Merck, Marathon, Thursday – Yum! Brands, Philip Morris, Boston Scientific, Metlife, Cigna, Marsh McLennan, Friday – Tyson Foods, Weyerhaeuser, Moody’s.


Economic data this week – Monday – US mortgage approvals and consumer credit lending, Wednesday – ADP Employment Index, Thursday – MPC Meeting, US Jobless Claims, Friday – Non-Farm Payrolls,



David Buik


Market Commentator – Panmure Gordon & Co 

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