TODAY’S FAYRE – Wednesday 3rd August 2016

“”I shut my eyes and all the world drops dead;
I lift my lids and all is born again.
(I think I made you up inside my head.)

The stars go waltzing out in blue and red,
And arbitrary blackness gallops in:
I shut my eyes and all the world drops dead.

I dreamed that you bewitched me into bed
And sung me moon-struck, kissed me quite insane.
(I think I made you up inside my head.)

God topples from the sky, hell’s fires fade:
Exit seraphim and Satan’s men:
I shut my eyes and all the world drops dead.

I fancied you’d return the way you said,
But I grow old and I forget your name.
(I think I made you up inside my head.)

I should have loved a thunderbird instead;
At least when spring comes they roar back again.
I shut my eyes and all the world drops dead.
(I think I made you up inside my head.)”


Sylvia Plath – poet – 1932-1963


There was absolutely nothing on TV last night worth watching and I didn’t fancy getting stuck in to the tome I am reading on ‘Napoleon’ by Andrew Roberts.  So I watched a favourite Ealing Comedy of mine – “The Lady Killers” for the umpteenth time. This is a classic, which still stands the test of time with Alec Guinness, Katie Johnson as ‘Mrs Lopsided’, Cecil Parker, Herbert Lom, Peter Sellers, Danny Green, Jack Warner and Frankie Howerd.  The gentle humour, low-key excitement and gentle drama still makes me chortle out loud!


I know it’s the summer but stock markets seem listless at the moment.  It is probably not surprising as in the last couple of months they have performed beyond the call of duty – the main reason I suppose is that the alternative asset classes still seem very unappetising. There has also been effects of BREXIT to contend with (if anything positive to date), lower global growth apart from the US, energy prices looking not as perky as they did, rampant Central bank influence with QE and other stimulus packages and quarterly earnings looking decidedly mixed.  The banking sector outside of the US is simply not performing and is drowning under the stress of massive capital requirements.


So taking in to account this compendium of facts, it did not come as a shock that the Street of Dreams took a turn for the worst yesterday, as it started to ruminate and fidget over Friday’s Employment data, which really needs to see at least 175k jobs created in July to keep any kind of momentum going through these steamy summer months (for some!). The Dow eased by 0.49% dragging the S&P 500 down by 0.64% and the NASDAQ by 0.90%, despite Procter & Gamble (shares +0.41%) beating the street’s expectations.  Pfizer’s (-2.12%) posted steady 2nd quarter revenues of $13.1 billion, reflecting 13% operational growth driven by the inclusion of legacy Hospira operations and 9% operational growth from Pfizer Innovative Health.


Yesterday the FTSE ended up losing 48 points at 6645.  Oil prices drifted. Market watchers didn’t like the PMI Construction numbers, though they never were going to.  Some of the earnings were a bit mixed though the defence stocks were strong – Unilever, Reckitt, IMPS and BATS. Direct Line grabbed the yellow jersey – up 12.2%! Banks throughout Europe had another bad day, with Deutsche Bank and Credit Suisse both being removed from the Euro-Stoxx 600 purely on size of capital. Who would ever have believed that could happen 10 years ago?


 In Asia overnight concern about global growth and disappointment over the qualified level of stimulus packages provided by the BOJ left markets listless.  Falling oil prices did not help either.  Towards the close the ASX was down 1.22% with the NIKKEI down by 1.59%. The Shanghai Composite was just in positive territory – always contrary! Up 0.22% and the Hang Seng was easier by 1.57%.


This morning HSBC reported quarterly and half yearly results. In the last quarter pre-tax profits fell from $6.11 billion to $3.61 billion (expectations $3.9 billion) and over the first half of the year pre-tax profits were down 14% to $10.7 billion. A $2.5 billion share ‘buy-back’ was announced. Tier One Capital increased from 11.9% to 12.1%.  Business in Europe declined by 28%, in Asia by 23% and in North America by design by 92%. BREXIT was not yet relevant though management was cognisant of the dangers. HSBC is not without its troubles.  There are still issues over money laundering and FX rigging in the US with a fine of £1.2 billion imposed by the SEC for the former misdemeanour. Chairman Douglas Flint will retire next year and CEO Stuart Gulliver the year after. The bank is already in the process of culling 25,000 jobs to cut costs.


Well they say what comes around goes around.  With Santander UK having refused and therefore pulled out from buying 316 RBS branches for £1.7 billion in a forced sale to meet EU requirements in 2012, these branches were used to form Williams & Glyn Bank in principle with the idea of disposing of this bank in IPO. However regulatory requirements and market conditions has meant the delay of any expectant IPO.  However there has been a re-think by Santander. No price has been attached to the bid officially.  However market conditions suggest banking is not in a great place at present.  So a bid lower than £1.7 billion seems likely. That does not presuppose that RBS will accept this bid, but it is meant to have dispensed with these branches by the end of 2017.  Standard Chartered posts numbers later in the morning.


The MPC meets tomorrow.  The futures market implies that there is a 98% chance of a rate cut to 0.25% – so I am told!  Is life that bad?  The Inflation Report must make dire reading if the futures interpretation is accurate, resulting in the BOE throwing the kitchen sink at the economy.


UK companies posting results this week – 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 – 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 – 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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