TODAY’S FAYRE – THREAT OF NEGATIVE INTEREST RATES

  TODAY’S FAYRE – Thursday 11th August 2016

 

”It is the football season once more

And the back pages of Sunday papers

Again show the blurred anguish of goalkeepers.

 

In Maida Vale, Golders Green and Hampstead

Lamps ripen early in the surprising dusk;

They are furred like stale rinds with a fuzz of mist.

 

The pavements of Kensington are greasy;

The wind smells of burnt porridge in Bayswater,

And the leaves are muffled to silence in the gutter.

 

The big hotel like an anchored liner

Rides near the park; lit windows hammer the sky.

Like the slow swish of surf the tyres of taxis sigh.

 

On Ealing Broadway the cinema glows

Warm behind glass while mellow the church clock chimes

As the waiting girls stir in their delicate chains.

 

Their eyes are polished by the wind

But the gleam is dumb, empty of joy or anger.

Though the lovers are long in coming the girls still linger.

 

We are nearing the end of the year.

Under the sombre sleeve the blood ticks faster

And in the dark ear of Autumn quick voices whisper.

 

It is a time of year that’s to my taste,

Full of spiced rumours, sharp and velutinous flavours,

Dim with the mist that softens the cruel surfaces,

Makes mirrors vague. It is the mist that I most favour.”

 

Vernon Scannell – poet & author – 1922

 

Democrat Presidential challenger, Hillary Rodham Clinton has supposedly splashed out $52 million on TV adverts, whilst her Republican counterpart Donald Trump ahs yet to spend a nickel with a view to improving his image. It may of course already be a bridge too far. I cannot ever remember two more unpopular candidates vying for arguably the most influential political appointment in the world.  Surely and regrettably Mrs Clinton is by the day looking like the ‘red-hot-jolly!’ Or is she?

 

These Olympic Games have been like a backward two-year old – taking for ever to come in its summer coat, despite an exemplary and enthusiastically exuberant BBC presentation. Whether it is Clair Balding or Matt Baker, whatever sport they commentate on or analyse seems like the reincarnation of the 1966 World Cup! Anyway last night with Jack Laugher and Chris Mears capturing the 3 metre diving gold, the games have finally come alive! And the pressure really is now on Tom Daley, who is still capturing miles more media attention than the gold medallists!

 

On what appeared to be very superficially a very quiet session at the open yesterday, Investors and punters were looking for a few ‘news pegs’ to hang their trading hats on! Initially gossip the previous day on why EOne’s shares had jumped 10% on Tuesday was unravelled. ITV’s overtures to pay 236p a share was rejected by Eone as inadequate with no doubt the 19% shareholder Canadian Pension Fund, which paid an average of 269p for its stake acting as Standard bearer. The bid represented a 47% premium on 23rd June (post BREXIT) share price of 156p. Market luminaries think a 300p bid might be nearer the mark. Shares closed at 237p. Then there was William Hill, who were forced to shake of a joint Rank/888 Holdings £3 billion bid. One suspects that this conversation may also not be dead in the water. The share only rallied 0.5% yesterday however they are up 18% since 20th July to 325p, which may coincide with M&A fever associated with this turf accountant.

 

Prudential captured the main UK corporate headlines with decent numbers resulting in the share price rallying by 2.23%, despite profits in its subsidiary, M&G falling 10%. Apart from that the session could only described as lack-lustre but very sold with the FTSE closing 15 points to the good at 6866. Suffice to say that had the banking sector put in anything like a decent performance in the last year the FTSE 100 would be above 7000!

 

The event that bothered market luminaries and observers yesterday was the behaviour of Gilt yields in the wake of the introduction of another £70 billion gilt buying facility (QE) implemented by the Bank of England’s MPC last Thursday in conjunction with a precipitous cut of 0.25% in base rate to 0.25% with the possibility of another if this does not do the trick. However Governor Mark Carney made it clear last week that he was not a fan of negative rates. Well, he has had to meet the threat of it rather sooner than he would have planned. Gilts on the short end are in limited supply and if the demand to buy is greater than to sell the yield goes down! – Hence yesterday maturities around 2019 and 2020 suffered the ignominy of falling briefly below the Plimsoll line. Also since 1st June 10-year Gilt yields have fallen from 1.5% to 0.53% and the 30-year yield has dropped from 2.17% to 1.25% in the same period. We are now in Rip Van Winkle territory! Surely this is insane!

 

Clearly pension fund managers were rather rueful of this little idiosyncrasy. The problem with Quantitative Easing is that few are certain that it does the job it was set out to do. It’s like consumer insurance – damned if you do and damned if you don’t! Few can be sure that the money from QE, apart from restoring confidence finds its way to the correct end user. Do SMES really want to borrow money in humungous amounts? I have my doubts. I am reluctant to be repetitive but is the UK’S economy in as dire shape as the establishment would have us believe? One admittedly appalling set of economic indicators does not necessarily make a summer, for want of a better expression.

 

In recent days Visa, BRC Retail Consortium and KPMG have also posted very upbeat retail activity. Regardless of the threat of economic Armageddon, punters are out there on holiday and spending their largesse. Steel makers in Sheffield, Boeing, McDonalds, Nissan, Honda and many others have an upbeat long term view of the UK’S economy. So let’s give it our best shot, regardless of the establishment’s dire warnings! In passing let me mention that DFS’S shares popped by 10% this morning thanks to good numbers, endorsing the theory that all is not lost by the decision to BREXIT.

 

The US enjoyed almost as painful a session as we did here in Europe. Oil prices fell nearly 2.5% which skimmed the cream off the energy sector. The DOW closed down 0.20% taking the S&P 500 with – -0.29% and the NASDAQ fell 0.40%, despite Alibaba having a bit of a pop – +2.4%. Like Amazon, Alibaba is extending its reach into a wide spectrum of businesses and technologies. Alibaba’s chief technology officer, Jianfeng “Jeff” Zhang, told markets that it is working on everything from big data to artificial intelligence and virtual reality. It is also investigating the possibility of spreading its wings in Russia. Asia also put in an enigmatic session with the ASX closing down 0.64% and the NIKKEI -0.18%. After lunch the Hang Seng was up 0.39% and the Shanghai Composite had surrendered 0.31%.

 

At the time of writing (9.20am) the FTSE 100 is down 45 points with 37 points attributable to dividends payable. A number of companies posted results. Again there have been some violent swings. Markets are either enthusiastic or visceral in their treatment of stocks – Coca Cola HBC +5%, Tui Travel +4% – conversely Old Mutual -5.99% and Card Factory -5.6%.

 

UK companies posting results this week – Thursday – Coca-Cola HBC, Tui Travel, Old Mutual, Pagegroup, Cineworld, Aldermore, Glencore, DFS, Friday – Lookers

 

 

US companies posting interim results this week – Thursday – Macy’s, Nvidia, Friday – JC Penney

                                                                                                         

 

 

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

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