TODAY’S FAYRE – Sunday 7th August August 2016


“First frost, and I walk among the rose-fruit, the marble toes
Of the Greek beauties you brought
Off Europe’s relic heap
To sweeten your neck of the New York woods.
Soon each white lady will be boarded up
Against the crackling climate.

All morning, with smoking breath, the handyman
Has been draining the goldfish ponds.
They collapse like lungs, the escaped water
Threading back, filament by filament, to the pure
Platonic table where it lives. The baby carp
Litter the mud like orangepeel.

Eleven weeks, and I know your estate so well
I need hardly go out at all.
A superhighway seals me off.
Trading their poisons, the north and south bound cars
Flatten the doped snakes to ribbon. In here, the grasses
Unload their griefs on my shoes,

The woods creak and ache, and the day forgets itself.
I bend over this drained basin where the small fish
Flex as the mud freezes.
They glitter like eyes, and I collect them all.
Morgue of old logs and old images, the lake
Opens and shuts, accepting them among its reflections.”



Sylvia Plath – poet – 1932-1963


Unlike the majority of the people who follow markets I was somewhat surprised at the reaction to the MPC’S decision to cut rates by 0.25%, the first move in either direction since 9th March 2009, in the wake of one month’s stark, though worrying set of economic data. This decision was of course supplemented by an additional £70 billion of quantitative easing (£60 billion of gilts and £10 billion purchase of corporate bonds). It was interesting to note that Messrs Forbes, McCafferty and Weale were not supportive of more QE at this juncture.


Equity geeks hailed the decision sending the FTSE up 1.6% on Thursday, with savers licking more wounds whilst foreign exchange punters skimmed 1.5% off the value of Sterling against the Dollar and a not dissimilar amount against the Euro. Whilst endorsing Andy Haldane’s, the BOE chief economist’s comments – in rough terms – ‘it is necessary to use a sledgehammer to smash a peanut syndrome rather than go half-heartedly at a problem that could become acute’ – the Governor did not go over the top by endorsing his original thoughts during the EU referendum campaign that the UK was staring in to the vortex of recession.


Governor Carney, who is some piece of work – a real matinee idol when it comes to appearance and presentational skills – Dix points! However I feel that the Governor almost dug himself a hole that’s he felt that he had to get out of having been so incredibly visceral in his condemnation of the idea that the UK should want to leave the EU and the damage that decision would do to the economy. He will of course protest that he had no view on the matter. However his scaremongering tactics in concert with the ferocious concerns of the then Chancellor, George Osborne, the Treasury and the establishment as a whole, would suggest otherwise. Carney and the MPC believe that they are being pre-emptive to prevent a recession and if what has been thrown at the problem is insufficient there are more bullets left in the chamber. 


Governor Carney says he is no fan of zero or negative interest rates and now believes that the government must produce aggressive fiscal and infrastructure measures to prevent any major deterioration in the economy. He also feels that good BREXIT trade negotiations are fundamentally importantly. It seems unlikely that Chancellor Hammond will act before the Autumn statement in November, when many feel he might increase public expenditure. Also many feel that there is little chance of rates rising before 2021. What an awful prospect. I cannot believe that rates at these levels and QE, which is only an insurance policy to restore confidence in the financial sector is a good long-term solution to healthy commercial and economic activity.


Across the pond views on interest rates and the state of the US economy were rather different. The Labor department posted even more robust Non-farm payed rolls for last month than had been estimated (185k) with 255k jobs being created, with wage growth showing a modest improvement. This gives credence to FED Chairman Janet Yellen’s enthusiasm to put rates up again before the turn of the year. Friday’s upbeat number tells us that the futures market believes that the possibility of a hike has increased from 37% to 48%, with a 26% chance of it happening next month and a 48% of it transpiring in December. 


The week started slowly for most global equity markets but they gathered momentum towards the end of the week. At the death the S&P 500 added 0.38%. The FTSE 100 gained 1.02%, with the FTSE 250, which is a reliable barometer of UK economic activity, closing the week above the 22nd June pre-referendum level. The NIKKEI spluttered most of the week with investors disappointed at the rather lack-lustre level of stimulus package, resulting in the Yen strengthening markedly, losing 1.9%. The possibility of higher rates in the US gave banks a fillip with BOA Mellon adding 3.6% and Citibank 3.2%. Here in Old Blighty, mining stocks paused in places. Oil stocks improved on Friday as the price of crude regained some poise, with Cairn Energy adding 6.2%. Drugs were good all week, with Astra Zeneca benefitting strongly from Bristol Myers Squibb having its chemotherapy drug Opdivo turned down pro-gem by the FDA. There were good results also from Aviva and NEXT and an absolute shocker from Johnston Press – down 16% on Thursday.


No one was surprised when Ross McEwan, in a humble and very good natured manner posted another horrific loss for RBS in the first half of the year – £2.06 billion.  This makes the loss since 2008 in excess of £50 billion.  There were a further £400m PPI charges, so called legacy charges dating back to sub-prime lending in 2007 and litigation charges for FX and bond issues. On Friday the shares lost 7.2% to 178p. Breakeven is 503p. The chances of taxpayers having their pound of flesh in the next 5 years seems remote. 



Talking of the banking sector, Monte Dei Paschi Di Siena may well have found a get out of jail card by way of a bad bank syndrome for €22 billion worth of bad debts, with the bank taking a severe ”haircut’, but it will set a precedent for the remaining Italian banks which will need to raise a total of €46 billion.  Overall EU based banks probably have a shortfall of €300 billion of fresh capital that is required, with Deutsche Bank and Credit Suisse both being removed from EuroStoxx 600 index, purely based on size of capital. Some clarity on Deutsche Bank’s on-going problems would be helpful and constructive. Here in the UK there is a feeling that UK investment banking may be losing business to US investment banks. I see J-M Barroso as a dire appointment as chairman of Goldman Sachs UK.  This former communist activist has always loathed the UK and I cannot see the entente cordial improving with him as the titular chairman of such an important and august financial luminary. We need to crack on without relying too much on Goldman for business. We don’t need any negative factors pre our negotiations with the EU. 


Vodafone, on the back of long-tern benign low interest rates has issued a 40-year bond at 3%, below its recent 33 year bond issue which yielded 3.4%


Finally on top of Hollande’s popularity falling as low as 17%, Chancellor Merkel has also seen her popular rating to drop to 47%. There were a few other nuggets of news to digest. The Angbang Insurance Group could make a £7 billion bid for Holiday Inn and Crown Plaza Hotels.  There have also apparently been talks with Intercontinental Hotel Group. American hedge fund Elliott have upped their stake in Poundland to 17.5% with a view to making Steinhoff up their bid from £600 million. Finally it is rumoured that the SFO is putting more heat in Sir Philip Green’s kitchen in to the collapse of BHS and its unfortunate sale to Dominic Chappell and the on-going pension issues in BHS and Arcadia. We wait with bated the breath for a satisfactory outcome on the pension ‘black hole’ that Sir Philip promised was solvable.


UK companies posting results this week – Monday – Telit Comms, Lekoil – Tuesday – L&G, Quarto Group, Regus, Standard Life, AMEC, Worldpay, SIG, GW Pharma, Mylan, Savills – Wednesday – Prudential, Centamin, G4S, Interserve, Thursday – Coca-Cola HBC, Tui Travel, Old Mutual, Pagegroup, Cineworld, Aldermore, Glencore, DFS, Friday – Lookers



US companies posting interim results this week –Monday – Dean Foods, Allergan, Sotheby’s, Hertz, Tuesday – Walt Disney, Eastman Kodak, Wednesday – Ralph Lauren, Wendy’s, Thursday – Macy’s, Nvidia, Friday – JC Penney


Economic data due this week – FPC Statement, Tuesday – RICS, BRC sales.


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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