TODAY’S FAYRE – Sunday, 31st July 2016



I am that merry wanderer of the night.
I jest to Oberon and make him smile
When I a fat and bean-fed horse beguile,
Neighing in likeness of a filly foal:
And sometime lurk I in a gossip’s bowl,
In very likeness of a roasted crab,
And when she drinks, against her lips I bob
And on her wither’d dewlap pour the ale.
The wisest aunt, telling the saddest tale,
Sometime for three-foot stool mistaketh me;
Then slip I from her bum, down topples she,
And ‘tailor’ cries, and falls into a cough;
And then the whole quire hold their hips and laugh,
And waxen in their mirth and neeze and swear
A merrier hour was never wasted there.
But, room, fairy! here comes Oberon.”


“A Midsummer Night’s Dream”


William Shakespeare – poet & playwright – 1564-1616


30th July 1966 – what a date to conjure with! World Cup Final – England 4 West Germany 2. Sir Geoff Hurst scores a hat trick. With the exception Bobby Moore, the captain, who died in 1993 and Alan Ball, who was only 19 at the time, who tragically died in 2007, all are still alive – Thanks for the memory. We will never see the like again in my lifetime. FANTASTIC!


This ‘May’ government is certainly shaking off all the smoldering embers from the ‘Cameron Regime!’ Putting the £18 billion nuclear project at Hinckley Point on hold at the 11th hour, shortly after EDF had just nodded it through 11-7, was a brave move by the Government for 2 reasons. Firstly the ‘entente-cordial’ with La Belle France is not exactly glowing post the BREXIT decision and secondly and more importantly to knock China at this juncture when the UK is looking for stronger trading counterparties and friends might be construed as an act of folly – admittedly few people know the details of the on-going saga. 


I could understand Greg Clark being told by PM May to use the deal as bargaining point with France over future trading arrangements, particularly as Hollande is not well disposed towards the UK and Michel Barnier, just appointed EU BREXIT negotiator, is no friend of UK regulatory bodies. However China is a different kettle of fish. China needs nurturing.  Perhaps the deal will be revamped and will eventually go through.  To wait until the early autumn seems like an eternity.


It strikes me that any deal will be agreed for political reasons rather than economic.  The cost of £18 billion plus is gargantuan and the power station will only come in to use in 2025 and will only supply 7% of the UK with power and electricity. In the case of nuclear power France is the only country in Europe with a proven track record – hence its involvement.  I simply do not understand why the UK has been reluctant to use more gas for electricity and power – after all it is relatively cheap and clean.


I was greatly amused that Lord Mervyn King has taken up a consultancy with Citibank at a reputed salary of £250,000. A touch of the gamekeeper turned poacher. Do I recall Lord King often referring to bankers, particularly those with an investment banking background as ‘greedy & incompetent?’ I am sure that his influence along the political and regulatory corridors of power in Whitehall and the City will be very useful.


So we waited with bated breath for the EBA bank stress tests and to all intents and purposes it was a fudge job.  Maybe my eye was not eagle enough to identify any definitive findings.  Of the 51 banks tested there were no Greek or Portuguese banks considered too small.  Also it was thought that in the event of a crisis Italy’s third largest bank, Monti Dei Paschi Di Siena, would run out of cash.  We know that Italy’s banks require a E46 billion bail-out or a capital injection.  Will private Italian funds provide the money? Will PM Renzi get the Italian government too sort it or will the issue be fudged by the EU, ECB and IMF?  The IMF’s star is not exactly in the ascendancy at present. By looking at the schedule provided by the EBA, you can work out who is under the cosh and who isn’t. Frankly it should be spelled out. Deutsche should feel uncomfortable with its lot in life; the same apples to Allied Irish Banks and from the UK’s perspective RBS would be under the cosh and to a lesser degree so would Barclays, if the UK economy fell out of bed, but the BOE suggests that no extra capital is required for the 73% taxpayer-owned bank or for the ‘Bald Eagle.’  


Apart from ruminating over the EBA Stress tests, the market was also in Central bank decision mode, with comments from the FED suggesting that another 25 basis point rate hike before the end and some euphoric expectations that the Bank of Japan would continue to throw the kitchen sink at further stimulus. As it happened investors were disappointed by the moderate package offered by the BOJ and the Dollar fell 2.7% against the Yen. There was also a slew of earnings on both sides of the Atlantic to consider. However the imponderables seem to take their toll on global indices or more to the point put them in neutral mode. The S&P gained down 0.3% on the week.  The FTSE 100 eased by 0.9%. European stocks gained a parsimonious 0.25% and the  NIKKEI shed 0.35%,  What cheered me up was the FTSE 250 gaining 6% in July


In the UK Royal Dutch Shell disappointed as did BP though not so markedly. Banks were very much to the fore with a shocking effort from Deutsche Bank, dispiriting efforts from Lloyds Banking Group with improved profits but below expectations and coupled with 3k redundancies and a poor performance from Barclays – profits down 21% and a further £400 million PPI charge. Switzerland’s banks – Credit Suisse and UBS – for the first time in a few years posted much improved numbers under Tidjane Thiam’s and Sergio Ermotti’s respective leadership. The latter also posted a plan for assisting  the salvation of Monte Dei Paschi Di Siena. Rolls Royce, ITV and Sky were the pick of those companies which posted stellar results. Across the pond it was the tech sector that captured most of the headlines – Apple, Facebook, Microsoft and Alphabet also posted better than expected results. On the M&A front AB INBev looked to improve the bid for SAB Miller by £1 a share to £45 a share. In the case of Softbank’s bid for ARM Holdings there may be work to be done and it will be some time before the LSE beds down with Deutsche Boerse.


And so to Thursday and Friday. Thursday is expected to see the much heralded 0.25% cut in UK base rates to save the economy – the first alteration to base rates since 9th March 2009.  One can only assume that the content of the BOE Inflation report must have dire warnings about the crumbling UK economy, which is purported to be standing over a vortex of despair and staring recession in the face. It is rumoured that growth will be slashed to less than 1% for 2017 when it was previously forecasted to be 2.3%. We should get an inkling from PMI data posted prior to Thursday. All I can say is that it must be terrifying stuff, if cuts in base rates requiring radical stimulus packages to be introduced at the same time. The QE facility may be increased from the existing one of £375 billion. By purchasing more bonds and or providing cheaper loans to the banks these packages can be passed on immediately for the benefit of business. The summer is increasingly becoming the silly season; so to make full judgement on the state of the economy may prove to be folly. Talking around to a compendium of different businesses, one gets the impression that the outlook is not quite as bad as the establishment and most parts of the media would have us believe. However deficits in private pensions would appear to have increased alarmingly from £294 billion to £400 billion since the end of May 2016, according to the Telegraph.


On Friday the US employment data may give us, and more to the point Janet Yellen and the FED, a lead as to whether a rise in US rates before the end of the year really is on the cards. The market expects 175,000 jobs to have been created in July.


UK companies posting results this week – Monday – Trinity Mirror, Senior, Cenkos, Vedanta Resources, Tuesday – Meggitt, Spirent Communications, Greggs, Morgan Sindall, Travis Perkins,  Fresnillo, Direct Line, Intercontinental Hotels Group, SAB Miller, Wednesday – HSBC, Standard Chartered Bank, StatPro, Moneysupermarket, Thursday – Aviva, Inmarsat, Pets-at-Home, RPS, Johnston Press, Cobham, Ladbrokes, Rio Tinto, Next, Friday – RBS, Bellway, Ibstock, William Hill, esure Group


US companies posting interim results this week – Monday – Loews’s, Tuesday – Pfizer, Pitney Bowes, Procter & Gamble, Wednesday – Time Warner, Metlife, Marathon Oil, Jack-in-the-Box, Thursday – Valero Energy, Fred’s, Zynga, Friday – Kraft Heinz, Liberty Media, Weyerhaeuser


Economic data due this week – Monday – US PMI Manufacturing, Tuesday – UK PMI Construction, Wednesday – UK PMI services, US ADP employment Index, Thursday UK MPC and BOE Inflation Report, Friday – US Non-farm Payrolls & employment data.


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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