TODAY’S FAYRE – DUDLEY AFFAIR & A BIT OF BREXIT

TODAY’S FAYRE – Sunday, 17th April 2016

 

 

“I have had playmates, I have had companions,

In my days of childhood, in my joyful school-days,

All, all are gone, the old familiar faces.

 

I have been laughing, I have been carousing,

Drinking late, sitting late, with my bosom cronies,

All, all are gone, the old familiar faces.

 

I loved a love once, fairest among women;

Closed are her doors on me, I must not see her —

All, all are gone, the old familiar faces.

 

I have a friend, a kinder friend has no man;

Like an ingrate, I left my friend abruptly;

Left him, to muse on the old familiar faces.

 

Ghost-like, I paced round the haunts of my childhood.

Earth seemed a desert I was bound to traverse,

Seeking to find the old familiar faces.

 

Friend of my bosom, thou more than a brother,

Why wert not thou born in my father’s dwelling?

So might we talk of the old familiar faces –

 

How some they have died, and some they have left me,

And some are taken from me; all are departed;

All, all are gone, the old familiar faces.”

 

 

Charles Lamb – poet & author – 1775-1834

 

 

The front page of the Times made pretty, though perhaps uncomfortable reading for former PM – Tony Blair.  If the allegations are true that he used a secret trust to maximise earnings from his multi-million pound fortune, then Mr Blair must be very naïve in thinking the world at large was never going to find out about it! By the by Sir John, where is your long overdue ‘Chilcot Enquiry Report?’  It is about 2 years late – sharpen up!

 

I can understand that the PM and George Osborne want to win the EU Referendum vote at all costs and for the next 68 days it will be ‘dog eat dog’ out there.  It is crucial to their future plans.  However I was astonished with his remarks to reporters on Capitol Hill on Friday, in a break from the IMF/World Bank meetings that suggested a BREXIT vote would see costs rise and an increase in mortgage rates!  Where on earth did he get that from? NO ONE knows for sure how markets will respond. However if the UK economy, in event of a BREXIT vote, were to come under the cosh, then rates would have to remain very low. Too much scaremongering is being manifesting! It is thought that HM Treasury will come out next week with all guns blazing, illustrating the benefits of remaining in the EU with terrifying threats as to the consequences for leaving – INTELLIGENT GUESSWORK, but none the less PURE SUPPOSITION!  

 

It was a full-on-week for economic data, oil, earnings and executive pay. China posted a drop in GDP, measured in March to 6.7%.  Most people think it is probably nearer 5%, but that is still a good deal higher than any other mature economy. However the fact that in March the service sector grew by 7.6% and industrial production posted its highest increase of 6.8% in 9 months, were encouraging. However might these numbers be a blip or are the stimulus packages working? Also the fact that exports grew far more than expected in March by 11.5% contributed to improved sentiment in Asian markets. Japanese data remains very mixed though a measurable drop in the Yen did give the NIKKEI a real boost last week – +6.5%! US inflation remains benign at +0.9%, which probably means rate hikes by the FED this year may be stalled.  Here in Old Blighty there were no shocks in the BOE’S MPC meeting. Rates remain at 0.5% – they have been at that level for 7 years and a month! The Committee’s guidance, looking in the tea leaves suggests a hike in rates before 2016 is unlikely despite inflation bouncing last month to 0.5%. Comments were made that BREXIT might have a moderately adverse effect on growth – There again that is pure supposition. 

 

In the US the bank earning season came and went without too much consternation, though Citigroup’s results on Friday were not encouraging. Expectations for these earnings were low; so little damage to any share prices was inflicted; in fact most made gains. Impairment charges particularly from loans to energy companies increased and trading and investment banking earnings were sharply lower.

 

Since its low in the middle of January at $27 a barrel oil has risen by 48% to circa $40.  It came off 3% on Friday ahead of the Doha OPEC meeting. The consensus of opinion is that production will be pegged. Now that Saudi Arabia have played their political games against the US’S fracking and Russia there’s with Iran and Syria, there seems to be a realisation that oil at $30 a barrel, apart from a consumer’s perspective, is dangerously low and uneconomical. However unless the outcome of the meeting is very different to expectations the current level of crude oil is fully priced in for the time being.

 

The net result on the week was that the S&P 500 rose 1.7% – within 1.5% of last May’s all-time high! The FTSE enjoyed a rally of 2.25% and European bourses by 3.6%. In London oil and mining did well and out of the clouds came a measurable rally in UK banks from much trashed levels. Many believe there was a bear squeeze rally. Retail experienced quite a torrid time with investors venting their spleens with a compendium of reasons – mostly falling sales or poor outlooks – Tesco, Burberry, Mothercare and Poundland took a fair old bit of stick during the week. House builders also toiled as a result of housing sales worries with Persimmon, Berkeley, Barratt and Bovis taking a bit of a hit.  This news also affected the likes of Travis Perkins and Kingfisher. On Friday Man Group posted stellar fund management gains – shares up 7.2%. The drug sector may be brought to life next week if Astra Zeneca’s rumoured £7 billion bid for Medivation (cancer specialist) becomes a reality. I suspect the fall-out from the Panama Papers will have hardly selected second gear. All the main global regulators and tax evasion/avoidance experts will be having the drains up with many internationally based banks – UK, Swiss, German and maybe the odd US based bank!

 

In the past couple of years shareholders have understandably tightened their grip on corporate governance and in most respects quite rightly so. The ratio to executive pay and share option schemes has been disproportionate to delivering shareholder value. A decade ago these awards would be waved through unchallenged. I think it was the Bob Diamond regime at Barcap that stuck in many peoples’ crawl. The millions and millions of $/£ that were taken out of the ring in the form of bonuses were breath-taking – vulgar indecency personified. However, BUT for Barcap making between 40-60% of the profits for a decade until the banking crisis in 2009, Barclays could well have gone down the tubes or been thrown in to UKFI’S lifeboat – a prospect that the vacillating Gordon Brown could never have coped with. Lord King and Sir Paul Tucker would also not have viewed the possibility of that eventuality with much relish!

 

On the front page of Saturday’s FT there is a splendid graphic of an executive rogues’ gallery, whom the public believes want too much largesse for the services they have delivered. Sir Martin Sorrell is purported to want £70 million this year, Rakesh Kapoor £23 million from Reckitt Benckiser, Flemming Ornskov £14 million from Shire and rather lesser demands from Anglo’s Mark Cutifani and Aviva’s Mark Wilson. Even Xavier Rolet is alleged to be due £14 million if he delivers the ‘fatted calf’ in the form of the LSE to be served up on a charger to Deutsche Boerse or ICE! There is no doubt that the Financial Reporting Council will be raising its game in terms of toughening up on corporate governance for the appointment of chairmen and CEOS of public quoted companies, including remuneration packages.

 

In the case of WPP’s Sir Martin Sorrell he has been there for over 30 years (1985) and built this advertising and PR conglomerate in to a massively influential global operation. I have seem sympathy to his demands despite being marginally avaricious. As for the rest shareholders should make a fuss if they believe the demands are unrealistic. 

 

Now as for Bob Dudley of BP, I have a totally different view to the 59% of shareholders who voted down his pay award and that of his co-directors. Dudley’s co-directors’ demands were unrealistic in the wake of BP’s losses. These increases should be tapered significantly. As for Dudley’s recommended remuneration package, he deserves every single cent of the $19 million. I confess I have not read his contract. But I am reliably informed that part of his pay ward was based on the performance of BP’S share price as against his peers. Despite BP’S massive problems, BP outperformed Shell, Exxon and Chevron. In my humble opinion you can forget all that, Dudley deserves it for saving BP from extinction. Against all the odds including a very hostile President Obama, from whom BP received no assistance to resolve the tragic Deepwater Horizon disaster in the Gulf which cost the Sunflower $40 billion as a result of the tragic loss of 11 lives, due to negligence.  Dudley’s controlled leadership kept this oil mogul solvent and out of the hands of possible predators. Also Dudley’s knowledge around the political corridors of power on Capitol Hill was a massive benefit. 

 

 

Above all else it was Dudley’s relationship with Rosneft and the respect he is held in by the Kremlin, with President Putin amongst his fans that has kept the lid on the international spat railed against Russia, resulting in sanctions from getting totally out of hand. In these circumstances observers tend to overlook the value of business relationships. President Putin may be despotic, but the West is still obliged to try and keep a dialogue going.  As Wilfred Pickles said to his wife all those years ago – ”Give him the money, Mabel!” He deserves every penny! He appears to be a much more ‘canny’ diplomat than Obama, Cameron and Merkel put together. Every now and again in every walk of life, someone rises like cream to the top! I give you Bob Dudley. He’s in that category!

 

 

UK companies posting results –Monday – RIO TINTO, CENTRICA Tuesday – SAGA, AB FOODS, McCARTHY & STONE, BHP BILLITON (TS), ASHMORE, MEGGITT, UTLITYWISE, Wednesday – N BROWN, ARM HOLDINGS, MONEYSUPERMARKET (TS), GKN, TRAVIS PERKINS, PUNCH TAVERNS, Thursday – ANGLO-AMERICAN (TS), SEGRO (TS), GO-AHEAD (TS), SAB MILLER (TS), SKY, LADBROKES, COMPUTACENTER, PETS-AT-HOME, Friday – RECKITT BENCKISER (TS)

 

US companies posting interim results – Monday – PEPSICO, MORGAN STANLEY, NETFLIX, Tuesday – GOLDMAN SACHS, SONIC, NORTHERN TRUST, HARLEY-DAVIDSON, UNITEDHEALTH, OMNICOM, JOHNSON & JOHNSON, YAHOO!, Wednesday – ABBOTT LABS, COCA-COLA, YUM BRANDS!, AMERICAN EXPRESS, MATTEL, BARNES & NOBLE, Thursday – ALPHABET, CITIZENS FINANCIAL, MICROSOFT, GENERAL MOTORS, PULTE, DR HORTON, NANK OF NEW YORK MELLON, BIOGEN, VISA, BJ RESTAURANTS, SCHLUMBERGER, Friday – CATERPILLAR, KIMBERLEY-CLARK


Economic Data – Wednesday – UK EMPLOYMENT DATA, US EXISTING HOME SALES, Thursday – UK RETAIL SALES, ECB PRESS CONFRENCE, US CONSUMER CONFIDENCE, Friday – GERMANY IFO REPORT

 

 

 –
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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