TODAY’S FAYRE – Sunday 8th May 2017


“Go from me, summer friends, and tarry not: 
I am no summer friend, but wintry cold,
A silly sheep benighted from the fold,
A sluggard with a thorn-choked garden plot.
Take counsel, sever from my lot your lot,
Dwell in your pleasant places, hoard your gold;
Lest you with me should shiver on the wold,
Athirst and hungering on a barren spot.
For I have hedged me with a thorny hedge,
I live alone, I look to die alone:
Yet sometimes, when a wind sighs through the sedge,
Ghosts of my buried years, and friends come back,
My heart goes sighing after swallows flown
On sometime summer’s unreturning track.


Christina Rossetti – poet – 1830-1894



So the war of words between the EU and the UK continues apace.  On Friday the question of domicile for international clearing for business conducted in Europe was raised with gusto. The EU served notice that it planned to domicile back to Paris or Frankfurt all clearing business conducted in Euros on bonds, options, futures, IRS, inflation, credit default swaps. There is also Repo, spot FX, forwards and options, which are cleared through CLS to consider.   This is easier said than done for a number of reasons. Firstly the potential merger between Deutsche Boerse and the LSE which collapsed in a heap thanks to a ridiculous regulatory issue involving and Italian bond trading platform and almost certainly political skulduggery ahead of BREXIT, has muddied the waters. There were clearing issues attached to this deal, due to its ownership of LCH.  The EU, of course, knows how effective ‘London Clearing House’ and others are in conducting this very sophisticated clearing operation. Daily clearing turnover amounts to £800 billion. Clearing, with LCH somewhere to the fore, is in essence, the largest insurance market in the world. Instruments and payments cleared through LCH and other clearing house are guaranteed in terms of counterparty.


The EU legitimately has the perfect right to repatriate all clearing deals in Euros – unquestionably.  HOWEVER a large number of them have Dollars, Yen and Sterling as counterparties on IRSs and other instruments.  I think the US, UK and Japan would baulk at the prospect of a break-up, Why break up a solid proven, well run system, that ticks all the boxes from a regulatory and guarantee perspective, just for the sake of political revenge or restitution against the UK by the EU.  That is pretty small minded stuff.  I could see it happening, but again I think the US would be the overall beneficiary of any break-up of the system. The disruption would be massive. 80,000 jobs could be vulnerable. As the Chairman of the Treasury Select Committee, Andrew Tyrie, put it so succinctly ‘why indulge in needless self-harm?’ I know for a fact that Central banks are in constant touch with all the major clearing houses, such is the enormity of importance attached to global clearing for the smoothing running and regulation of all markets. Disruption could be an unnecessary and possibly dangerous distraction

After PM May’s onslaught at the EU, in response to the briefing by Juncker and his troops against the U.K. Government and the PM in particular, most normal level- headed people would have ‘drawn stumps’ and/or called a temporary halt to hostilities. But oh no! This obsessive and deeply moderate President of the European Commission had to continue to draw metaphorical blood in suggesting that the English language was diminishing in popularity as a result of notice being served by the U.K. to leave.  So long as he is part of the EU team, these negotiations might not even get out of the blocks.

In the grand scheme the U.K. does 40% of its trade with the EU, with the EU doing 10% of its trade with the UK. Nonetheless I do not understand why the EU wants to cut off its nose to spite its face. I just hope the EU’S intolerant attitude does not result in cooperation over security and defence being withheld. Perhaps the EU has an attitude, as Rhett Butler said in ‘Gone with the Wind’ – ‘I don’t give a damn!’ The relationship has been damaged – I hope not irrevocably. Frankly I am much more interested in what EU business, industry and commerce make of this unfortunate breakdown in relationships and what influence they can bring to bear rather than the wretched European politicians and bureaucrats. In the immortal words of Michael Winner – ‘Calm down, dear!’ Tusk, I think, has seen the potential danger of impasse! I would like to put these early skirmishes down to opening negotiation salvos, but bad blood is seeping in!

Apart from that truculent Luxembourger’s puerile outburst against ‘Grand Bretagne’, there were a fair few other political issues to ruminate over last week, headed by the final touches from ‘The Little Corporal Mark 2’ who goes under the pseudonym of Emmanuel Macron or ‘teacher’s pet’, if you prefer, to his French Presidential campaign. Mme Le Pen seems to have had her wings clipped sufficiently by the entire French press, France’s banks, with a final interjection conveniently coming from President Barack Obama, with Uncle Tom Cobleigh and all jumping on the bandwagon. At least this time Obama’s endorsement will be well received. Then, against the odds, it looks as though Congress will rescind the Obamacare bill. You have to hand it to Trump, he’s like a dog with a bone and it’s a brave person to bet against Trump getting a fair chunk of his proposed legislation on tax cuts and infrastructure spending through. Labour and UKIP were savaged at the local elections last Thursday, which may be pointer to 8th June General election, but a ‘seven week’ campaign is dangerous with many a banana skin out there to slip up on. Just for a week North Korean antics took a back seat, but few doubt it will not be too long before Kim Jong Un grabs the headlines again.


On the economic front US non-farm payrolls created 210k jobs in April against the rather disappointing figure of 98k in March.  Unemployment fell to 4.4% with hourly earnings coming in at 3.2%, against GDP average of 2.41%. This news may provide the final piece of the jigsaw puzzle in persuading the FED to raise rates by 25 basis points in June.  Here in the UK PMI data in construction and manufacturing were all positive, though the service sector, especially retail, was not quite so ebullient – more about that on Thursday with the Inflation report. I think we can more or less take it as read that rates in the UK will be on hold for the time being, with so much uncertainty. Today and Monday will be interesting.  We are told that all dealing rooms will be manned tonight to measure Macron’s big or modest win.  I cannot think why.  I suppose a big Macron ‘win’ will strengthen the Euro, with Macron supporting the onslaught against the UK. It may also give French banks some momentum, but the ‘Little Corporal’ will achieve very little with so many divided political factions and the fact that France is very conservative with a small ‘c’ and in essence the French loathe change!


Personally speaking I would be much more worried/interested in the correlation between the sharp drop in commodity prices and crude oil and the Chinese economy.  The drop in oil (Brent -4.7% last week) is almost certainly down to US fracking and OPEC not holding the line on production. However the drop in copper, gold and iron ore may require vigilance in the months to come.  At the end of last week, the S&P 500 had gained 0.33%, with the FTSE adding 1.30% in value thanks to banks and economic data. European bourses were smiling at the prospect of a left-centre government -1.78%.  Japan’s NIKKEI was closed for much of the week – down 0.56%.


On the corporate front in the UK, NEXT had a sales shocker – store sales down 8.1% with the Directory +3%; so did J Sainsbury – both operations saw their respective share prices down over 5%. NEXT’s shares have fallen 50% in the last 18 months. Conversely Wm Morrison did well with 9 week sales up 3.4%.  HSBC and Royal Dutch Shell pleased their acolytes.  Archie Norman was appointed chairman of M&S to succeed Robert Swannell.  This was an inspired choice based on the huge success Mr Norman had at ASDA and at ITV in the last 7 years. Elliott Advisors and their supporters are coming to the end of their tether in attempting to persuade Akzo Nobel accompanied by Dulux, to fall in to the arms of PPG in a £22 billion deal. This situation is likely to become hostile. Imagination served notice to Apple for compensation either in a friendly way or through the courts for pulling the plug on their relationship without notice. Imagination’s shares lost 60% a few weeks ago.  If there is any compensation it may have to be the courts as Apple is hardly known as a philanthropic society. After two faux-pas over whistle-blowing and supporting his brother-in-law against KKR, Barclays CEO Jes Staley is on a ‘yellow card.’ One more mistake and shareholders will be obliged to have him removed.




UK companies posting numbers this week – Monday – Centrica, Tuesday – AON, William Hill, Hiscox, Wednesday – TalkTalk, Vertu, Compass, Barratt Development, ITV, National Express, Thursday – BT, SuperGroup, Amex Foster Wheeler,  Mondi, Coca-Cola HBC, Vedanta Resources, Beazley, Aldermore


US companies posting numbers – Monday – Tyson foods, Tuesday – Allergan, Hertz, Marriott, Liberty Media, Walt Disney, NVidia, Wednesday – Dean Foods, Wendy’s, Thursday – Kohl’s, Nordstrom, Friday – JC Penney


Economic data this week – Tuesday – BRC sales monitor, Wednesday – NIESR GDP estimate, US FED budget balance, Thursday – BOE Inflation Report, RICS Housing, UK Manufacturing, Friday – US Retail 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​


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