TODAY’S FAYRE – Aftermath of Week of Long Knives!

TODAY’S FAYRE –Sunday, 3rd July 2016

 

Have you forgotten yet?…

For the world’s events have rumbled on since those gagged days,

Like traffic checked while at a crossing of city-ways:

And the haunted gap in your mind has filled with thoughts that flow

Like clouds in the lit heaven of life; and you’re a man reprieved to go,

Taking your peaceful share of Time, with joy to spare.

But the past is just the same – and war’s a bloody game…

Have you forgotten yet?…

Look down, and swear by the slain of the war that you’ll never forget.  

Do you remember the dark months you held the sector at Mametz-

The nights you watched and wired and dug and piled sandbags on parapets?

Do you remember the rats; and the stench

Of corpses rotting in front of the front-line trench-

And dawn coming, dirty-white, and chill with a hopeless rain?

Do you ever stop to ask, ‘Is it all going to happen again?”

 

Siegfried Sassoon – poet & soldier– 1886-1967

 

As a player at Fulham Chris Coleman was always an uncompromising centre half who gave his body and soul to the team – utterly and passionately committed until injury, as a result of a car crash, brought his career to an untimely early close. Al Fayed threw Chris in at the deep end as manager at Fulham.  Initially at the end of 2003 Chris saved Fulham from almost certain relegation and in the following years the club was going through a transition period. I felt that Al Fayed was impatient with him. Now look at Wales. They may have Bale, Ramsay and Allen, but overall their pickings are thin.  But what a team!  What passion! They are all proud of that ‘Red Dragon!’ Much of this success is down to Coleman’s man management skills. Such a pity that the England team did not seem to be that proud of the ‘Three Lions!’

 

To those not in the ‘know’ Theresa May is beginning to look ‘home & hosed’ to become the next leader of the Conservative party and Prime Minister, with Andrea Leadsom likely to have a very decent Cabinet post. However it is brave person who can unequivocally interpret the views of a very complex political maze like the Tory party. Michael Gove, as pointed out by BBC’S James Landale, must have put his speech and ideas together some time ago.  His comprehensive thoughts were surely not cobbled together on the back of a fag packet last Friday? An admirer of Mr Gove, I am, but this looks like a classic coordinated Tory assassination job on BJ and not just a question of the Justice Secretary changing his mind.  

 

Let me make a few observations, as this week of the political long knives comes to a very unsatisfactory close.  Firstly Boris Johnson may be a bit of a showman, but I do not recall him ever making a personal onslaught on any politician.  He has always behaved with dignity. Finally, though it seems likely that Theresa May is likely to be our next PM, her silence in the past few months has been deafening.  Is she a politician of conviction? Finally PM Cameron put Oliver Letwin in charge of the BREXIT Unit with 20 civil servants.  We need 200 to renegotiate trade, financial regulation, security and diplomatic issues.  We need to find them quickly.

 

Another astonishing week not only for markets, not only for the political classes and more to the point the regulation voter, who really did have his/her cage rattled.  The more I think about this, the EU Referendum vote had less and less to do with EU membership and more and more to do with social injustice and contempt for the Establishment.  The average voter hates being bullied or frightened unnecessarily. Let us just reflect for a minute on the behaviour of the FTSE 100. It closed on 22nd June 2016 at 6340.  It hit a temporary low on Friday 23rd June of 5780 (down 8.8%).  By Friday night it had rallied to 6577 (+13.7%).  Even during the days of the tech bubble (200) ‘9/11’, Iraq War 2003 and the Credit crisis of 2008/9 did we see such a turnaround in equity sentiment over 6 trading days. Why the recovery, when the government seems moribund? It is unequivocally down to stimulus packages. QE is like insurance – a necessary evil, but it does to trick in providing equity markets with confidence, though weening the market back to commercial reality could prove to be a real problem in the future.

 

The initial speeches by Governor Mark Carney last Friday week and Chancellor George Osborne on the following Monday did a fair bit to sooth some very fractious and frayed nerves. However when Mr Carney decided to address the nation for a second time, he let us have both barrels – more QE if required (£250 billion) and maybe a cut in rates if needed against a background of a deteriorating economic data, triggered by BREXIT. The Governor suggested that growth would drop to 1.6% in 2017.  A culmination of these initiatives was too much for equity geeks to sit on their hands. They were off to the races for the second time in a week. The BOE may loosen the capital buffers to encourage banks to lend, such is the Central bank’s concern that a recession is likely.  So many members of the establishment are talking the economy down, when it should be all hands to the pump.

 

The net result last week saw the FTSE 100 rally by 7.2%, but it should not be forgotten that 65% of FTSE 100 earnings come from Dollar related earnings and we did see 5% drop in the value of the pound last week and a 12% fall in in the last 6 months.  However the FTSE 250 is down 6.3% last week – 17333 to 16271, BUT it recovered 8.7% from its low last week of 14967. Other world indices behaved as follows – S&P up 3.2%, European indices rallied 3.5% and Japan’s NIKKEI by 4.9%. In London it was the mining, energy, tobacco and drug sectors that rallied to the cause, though banks, house builders that suffered the slings and arrows of outrageous fortune. On the Street of Dreams there were fine performances from energy, airlines and the motor sector.  Efforts by Netflix, Best Buy and Amazon were hardly shabby. Despite rating agency downgrades 10-Year gilt yield fell to 0.86% and Cable settled at $1.3267 on Friday. Gold shot to the top of the class at $1341 an ounce.

 

There were a number of interesting nuggets of information that passed through the week, which should have attracted more attention than they did.  Chancellor Osborne, not surprisingly, made it clear that that the Budget deficit won’t be cut by 2020. Revised UK GDP came in at only 0.4% for the first quarter. Capital Economics’ Roger Bootle felt that inflation would rise from 0.6% this year to 2.2% (EST 1.5%) in 2017 and 2.8% in 2018 (EST 2.01%). Many, like me, were delighted that HSBC Douglas Flint and Barclays’ CEO Jes Staley insisted that London was the place to be for financial services – BREXIT or not!. Telefonica has put the sale of o2 on hold as a result of BREXIT turmoil. Irene Rosenfeld is at it again.  Last time it was Kraft buying Cadbury.  Now she is with Mondolez who intend to buy Hershey for $107 a share.  The share price rallied last week from $97.14 to $111.87. Nestle are rumoured to have previously run the ruler over Hershey.  On Thursday Steve Rowe, M&S’S CEO is likely to disappoint the market by posting a like for like 4% drop in clothes sales for the past 4 months. The excuse given was the inclement weather.  Some analysts think the drop might be even more.  M&S shares were larruped by 22% last Monday.  

 

UK companies posting numbers –Monday – Kier Group, RM PLC, OneView Group, Tuesday – Imagination Technology, St Modwen Properties, Wednesday – Booker, Topps Tiles, Thursday – Marks & Spencer, Great Portland Estates, Friday – Ilika PLC

 

US companies posting interim results this week – Wednesday – Walgreen, Thursday – Costco and PepsiCo

 

David Buik
Market Commentator – Panmure Gordon & Co
+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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