TODAY’S FAYRE – Thursday 20th October 2016
“When I have fears that I may cease to be
Before my pen has gleaned my teeming brain,
Before high-pilèd books, in charactery,
Hold like rich garners the full ripened grain;
When I behold, upon the night’s starred face,
Huge cloudy symbols of a high romance,
And think that I may never live to trace
Their shadows with the magic hand of chance;
And when I feel, fair creature of an hour,
That I shall never look upon thee more,
Never have relish in the faery power
Of unreflecting love—then on the shore
Of the wide world I stand alone, and think
Till love and fame to nothingness do sink.”
John Keats – poet –1795-1821
I know the margin of victory for the ‘BREXITEERS’ was narrow. I accept that 16 million voters are dispirited. However that is democracy! The rhetoric on racism is despicable and some of the talk on immigration is over the top and excessively visceral. Immigration, properly policed, is brilliant for UK PLC. It has been proven without question. The visual media, virtually to a man, are ‘remainers’, despite protestations to the contrary that their presentations are balanced. Viewers see it, feel it and occasionally hear it. Whatever a few people think, the UK is not going to change its mind. Dream on! PM May is in a bit of bind over with the EU in attempting to deal sensibly with some understandably uncompromising individuals. Maybe I am being naïve, but when she goes to Brussels, other European capitals or meets EU politicians, couldn’t the media be a tiny bit supportive, rather than subvert what she is trying to do in such a sour manner!
The test match in Chittagong has been compulsive viewing. The wicket has been interesting to say the least. The bounce has been variable and when the spinners have pushed the ball through, it has turned sharply. Bangladesh play good cricket on this kind of surface and are more than giving England a run for their money. As I write, the brilliance of Stokes and Bairstow, who have mastered the conditions better than most, may not be enough to avoid defeat.
Lovely bit of spin by BBA’S Anthony Browne that bankers are quivering to leave London and head for Europe if BREXIT negotiations are hard. The Observer, virulently ‘Remainers’, has yanked the warning chain. Mr Browne is right that contingency plans will be made to move people out of London in their thousands at gargantuan expense and against their will. However at the end of the day it is all about negotiation. Frankly Frankfurt is a town of 750k and Paris a city of 5 million. People in financial services are more comfortable speaking English and they love living here and London is not going to surrender 70 years of infrastructure without one hell of a scrap. This is posturing and project fear rearing its ugly head again. A bit more clarity from the government would help to allay fears.
When looking at the performance of the main indices last week (S&P 500 -0.3%, FTSE +0.1%, European bourses +1.3% and NIKKEI +1.95%), one could be forgiven for thinking that it was a lack-lustre period apart from Germany, France and Japan. As we all know that would have been a poor assumption. Investors have had to digest and digress about the appalling US Presidential debate in Las Vegas last Wednesday and how fearful the outside world views these candidates. UK PM May made her first official visit to the EU and the reception was courteously frosty. Let me tell that boorish Juncker, Mrs May will be no pushover so maybe it would be better for all if he learnt some diplomacy and some basic manners. There was also a major debate across the world on interest rates, the threat of inflation and the long-term role of QE. Should that facility be reined in by the world’s main central banks? Then there was the 3rd quarter earnings season both in the US and Europe to contend with – Adequate, but not spectacular.
Finally there were two major M&A deals in the pipeline which certainly keeps the smouldering embers of expectation burning. BAT, whose main brand is Lucky Strike is negotiating to buy the remaining 58% it does not own of Reynolds American (Camel) in a $47 billion deal. Reynolds share price rallied by 14% and BATS was down -0.3% on Friday. The market also heard that AT&T were in advanced talks to buy Time Warner – owners of HBO, Warner Bros and CNN in an $74 billion deal, AT&T (-3%) was unsuccessful 2 years ago but are keen to add Time Warner (+7.8%) to their portfolio which already has DirectV. This will go some way challenging T-Mobile and Verizon in all areas of entertainment. The tablet and the mobile is the way forward!
Despite the rather neutral behaviour of UK equity markets last week it is as well to take stock of what has happened since 23rd June 2016, the FTSE is up 13% but down 5% in Dollar terms and the FTSE 250 is down 14% in Dollar terms. There are also signs of investors pulling out of emerging market bonds and more worryingly out of UK stock funds, due to uncertainty over hard BREXIT. Ahead of the banking reporting season this week, RBS (+10% this week), Standard Chartered (+8.2%) and Barclays (+7.7%) were under a bit of a wet sail. However Lloyds Banking Group which reports on Wednesday will not be without issues. Its pension hole may be growing and many expect a £1.2 billion impairment charge to meet this liability which affects 275k employees and retirees. Lloyds may now think twice about buying MBNA In the case of RBS on Friday, the EU (ha!ha!) will give this bank until the end of December to sell its 300 branches, which should have gone in Williams & Glyn and then on to Santander, now run by Nathan Bostock. But that idea appears to have been shelved or it has hit the buffers. There may be a deal with Virgin, Clydesdale and Yorkshire or the EU will do its worst unless Philip Hammond interjects. RBS will also have to make provision for a $10 billion fine or a significant amount for miss-selling in the US. We will be looking to Barclays to see how the disposal of non-core assets is getting on and the downgrading of investment banking apart from New York. CEO Jes Stayley has started to make his mark. Last week Laird the software operator surrendered 46% of its value and Keller and Senior gave up double digits of value for sharp profits warning. Pearson failed to impress with its update – down 6.9%
It will upset the ‘remainers’ but GDP posted on Tuesday is likely to hit 1.8% in 2016 and 1% in 2017 rather than the rather parsimonious 0.5% suggested by many economists.
Finally to the Sir Philip Green saga. Sir Philip always wants a deal! This issue that has persuaded Parliament to ask the authorities to strip of his knighthood, should have nothing to do with a deal. We all know that he has done nothing illegal. But it is generally felt that he is guilty of sharp practice or moral insensitivity. To fail to agree with the Trustees a figure to fill in the pension hole after 5 months is too long. People have run out of sympathy.
UK companies posting results this week – Monday – Petra Diamonds, Tuesday – Whitbread, St James’s Place, Anglo-American, GKN, Carpetright, National Express, Pentair – Wednesday – Lloyds Banking Group, Genel, Cobham, GSK, BAT, Antofagasta, Metro Bank, Bunzl, Thursday – Barclays, Debenhams, BT, DS Smith, C&C, Bloomsbury, Kaz Minerals, Inchcape, Friday – WPP, RBS,
US companies posting interim results this week – Monday – Visa, Tuesday – Whirlpool, Baker Hughes, Apple, Sprint, GM, Procter & Gamble, United Technologies, 3Ms, KKR, Valero Energy, JetBlue, Lockheed Martin, Corning, Juniper Networks, AT&T, Wednesday – Biogen, Boston Scientific, Coca-Cola, Comcast, Northrop Grumman, General Dynamics, Boeing, Dolby Systems, Thursday – Raytheon, Amgen, Altria, Blackstone, Bristol Myers Squibb, Conoco Phillips, Marathon Oil, Amazon, Linkedin, Friday – Xerox, Abbvie, Exxon Mobil, Chevron, MasterCard, Hershey, Weyerhaeuser
Economic data this week – Monday – CBI realised sales, Tuesday – BBA Mortgage applications, Preliminary GDP, Wednesday – UK Consumer Confidence, Thursday – Initial Jobless Claims, Friday – UK lending & money supply, US Michigan Consumer Confidence, US GDP
Market Commentator – Panmure Gordon & co
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Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom