TODAY’S FAYRE – Barclays

TODAY’S FAYRE – Tuesday, 1st March 2016

The Queen she sent to look for me,

The sergeant he did say,

“Young man, a soldier will you be

For thirteen pence a day?”

 

For thirteen pence a day did I

Take off the things I wore,

And I have marched to where I lie,

And I shall march no more.

 

My mouth is dry, my shirt is wet,

My blood runs all away,

So now I Shall not die in debt

For thirteen pence a day.

 

To-morrow after new young men

The sergeant he must see,

For things will all be over then

Between the Queen and me.

 

And I shall have to bate my price,

For in the grave, they say,

Is neither knowledge nor device

Nor thirteen pence a day.”

 

 AE Housman – poet – 1859 – 1936

 

‘BROOKLYN’ – What a film! It’s a joyous story that I missed when on general release. Such wonderful actors tell the story of an Irish girl migrating to the US. The film is laced with breathtakingly imaginative costumes and scenes from the ‘50s. Saoirse Ronan and Emory Cohen star, but such fabulous cameo roles played by Julie Walters and Jim Broadbent. I would not have missed this film for all the tea in China. There’s no sign of any violence – just a great story of humanity.

 

There was little in the way of good news to buoy equity markets yesterday, certainly not from an investor’s perspective. Considering there was further stimulus in the way of a cut by China’s PBOC of 0.5% on reserve capital requirements for banks, some average Chicago PMI data in the US and to cap it all negative CPI data in the Eurozone, most equity bourses did well to either surrender modest value or just tread water. Despite a major rally during the last two weeks of February, which saw the DOW add 0.3% in that month and the S&P lose 0.4% in the same period, there is still a great deal of negative chat out in the street with many of the ‘bears’ refusing to disperse. They wait patiently for another retrenchment, which many believe is inevitable. Evidence endorsing that perception was provided by nervous savers pulling almost half a billion pounds out of the stock market in the biggest exodus since the financial crisis. Growing fears about the global economy and the safety of banks has spooked British investors, with many sovereign wealth funds also lightening up their holdings in the financial sector. Figures from the Investment Association show savers withdrew £463million more from fund management than they invested in January. The seismic level of volatility also tested investors frayed nerves, inviting them to lighten up on risk.

 

Yesterday the FTSE finished virtually flat at 6097. Miners were the gainers but there were a sufficient number of companies to stay in the line of fire – nothing too fearful but enough to prevent any momentum. Tesco had a decent session adding 3%, though Ocado lost 7.7% on the back of Morrison cuddling up towards Amazon, who has agreed to distribute their goods and chattels despite the fact that there is a 25 year agreement between Ocado and Morrison, for which the former paid £216 million. This figure is likely to be adjusted. Genel Energy lost a massive 40%, which will have rattled Tony Hayward’s personal coffers.

 

On the Street of Dreams there was a late rather vehement sell-off, thanks to concern about China’s economy. Though oil rallied Chevron and Exxon Mobil did not – down about 1%. Also all the banks surrendered an average of 1% as well. These actions saw the DOW easier by 0.74%, with the S&P surrendering 0.81% and the NASDAQ 0.71%. In passing Yahoo! shares bounced 3% on news that the company will be shedding 15% of its workforce.

In Asia, despite desperate Chinese factory and PMI data was posted – the worst since November 2011 – Markets were almost irresponsibly buoyant – ASX closed +0.85% with Nikkei holding up adequately – +0.4%. Towards the close the Shanghai Composite was up 1.68% and the Hang Seng by 1.5%. There is a school of thought that suggests that China’s economic decline is heading towards the end of its current trough. This decline is likely to bottom out at the new level for a year or two. We shall see.

 

This morning, advised by Morgan Stanley ICE, which owns the NYSE popped its head above the parapet and threatens to rain on the Deutsche Boerse’s parade with an improved bid for the LSE, whose shares rallied by 5.5%. I will leave investors and analysts to draw their own conclusions as to what the outcome will be.

 

Barclays posted their annual results today. Chairman John McFarlane hasn’t enjoyed the greatest six months of his life, having seen the bank’s share price fall from 300p on 1st August 2015 to 161p (down 6.2% today) and 46% since August. He was been weighed down by a change in leadership, replacing Antony Jenkins with Jes Staley, who was appointed CEO on 1st December 2015. He has also seen fresh capital requirements hurt the profitability of the bank, with litigation damages and PPI impairment charges constantly increasing. Barclays is attempting to focus on core businesses, having seen many turn unprofitable. Emerging nations are a problem; hence it is looking to sell its 62.5% stake in Barclays Africa (ABSA predominately).

 

Barclays has already dispensed with Italy, Portugal and Spain at a cost of circa £750 million. Impairment charges for PPI were increased in the last quarter by £1.45 billion. The profit was down 8% to £2.07 billion. Tier One capital is adequate at 11.4%. What rattled investors’ cage this morning was the cutback in dividend, which really triggered the visceral treatment of its share price. The decision to cut the dividend was probably influenced by the bank’s vulnerability due to Basel 3 capital requirements, which manifested themselves from the December stress tests. I would like Messrs McFarlane & Staley to talk about plans for the future and what will happen to investment banking in New York, rather than pontificate on BREXIT. Their views on this subject are of limited interest. Also the market needs updating on the spat between Amanda Staveley and the bank over payments made or not for the introduction of Qatar capital in 2008.

 

UK companies posting results this week – Tuesday – Barclays, Direct Line, Just Eat, Taylor Wimpey, Tullett Prebon, Greggs, Fresnillo, Moneysupermarket, Glencore, Ashtead – Wednesday – ITV, Dignity, Intertek, Stagecoach, Thursday – Whitbread, CRH, Admiral, Inmarsat, Denel Energy, Shawbrook, Travis Perkins, Friday – LSE, WPP

 

US companies posting interim results – Tuesday – Autozone, Dollar Tree, Ford Motor (sales) Wednesday – Brown Forman, Abercrombie & Fitch, Thursday – Rite Aid, Stage Stores, Ciena, Barnes & Noble, Kroger, Smith & Wesson, H&R Block, Friday – Big Lots.

  ECONOMIC DATA – Tuesday – UK PMI, Wednesday – US PPI and Oil inventories, UK PMI construction, Thursday – UK PMI services, US Initial Jobless Claims, Friday – UK CPI inflation estimates , US Non-Farm Payrolls & employment data. 

 

David Buik

Market Commentator – Panmure Gordon & Co

D +44 (0)20 7886 2775

Mobile – 0044 7788 144 877

Panmure Gordon & Co

One New Change | London | EC4M 9AF | United Kingdom

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