TODAY’S FAYRE – Sunday, 11th June 2017

 

 

Out of the night that covers me,

Black as the pit from pole to pole,

I thank whatever gods may be

For my unconquerable soul.

 

In the fell clutch of circumstance

I have not winced nor cried aloud.

Under the bludgeonings of chance

My head is bloody, but unbowed.

 

Beyond this place of wrath and tears

Looms but the Horror of the shade,

And yet the menace of the years

Finds and shall find me unafraid.

 

It matters not how strait the gate,

How charged with punishments the scroll,

I am the master of my fate,

I am the captain of my soul.”

  

William E Henley – poet – 1849 –1902

 

What an awful week! The result of General Election proved one vital fact; the country has never been more divided than it currently is – not since the electorate hurled Churchill in to the long grass of political ignominy in 1945 or as Henry Pryor put it since the Battle of Edgehill in 1642. So much has been written as to what an awful Presidential campaign PM May promoted on the back of a dire manifesto, incoherently drawn up by those two Svengali characters – Messrs Timothy & Hill. It became increasingly clear that Mrs May would face a leadership challenge if these two “Rasputin-type-characters’ were not summarily dismissed. They resigned yesterday. However, despite their departure, Mrs May tenure at No: 10 looks very fragile indeed. Gavin Barwell, recently dislodged as MP for Croydon, will have a very challenging time as Mrs May’s new chief of staff. It is alleged that some Cabinet ministers are looking to Boris Johnson to mount a coup. I wonder if the Member for Uxbridge is up for another palace coup? I have my doubts!

 

Clearly the young had had enough and were galvanised on social media to “take up arms against a sea of troubles and by opposing end them!” This they did in the most vicious and effective manner. They came to the polling stations like locusts – unheard of in recent decades. They were tired of being unloved, forlorn at the lack of well-paid jobs, dispirited at the prospect of never owning a house, unhappy at the inevitability of running up £30k of debt at University and fed up to the back teeth with austerity.

 

Jeremy Corbyn came across as a caring grandfather figure who promised the earth, in the full knowledge that he was financially innumerate. This did not bother him or his frenzied supporters, one iota! Any government he may have led, had absolutely zero chance or hope of balancing the books. Anyway a vanguard of the young seemed to care not a jot! Sadly Mrs May failed to convey any warmth or humour whilst on the hustings or when being interviewed on television. The PM kept being turned away from BREXIT by the media and voters as it was not what they wanted to talk about. It was always social, care and the NHS. Sadly she had few answers to a poorly produced manifesto.

 

As a result of this inconclusive election, Mrs May’s Government will have lost kudos, respect and negotiating clout with the EU.  As both PM May and the EU appear to not want to delay the start of negotiations beyond 19th June, it gives the government inadequate time to present a water-tight cogent plan. As the Government has no overall majority and is now reliant on the DUP, who will require their own reassurances re BREXIT, it feels as if a soft BREXIT will be delivered, which will suit some and definitely not others. The Tory rank and file are up in arms over this electoral debacle and will be looking for blood to stay loyal. This will probably mean less austerity going forward and more borrowing to finance public sector needs.

 

There are interesting days ahead, that is for sure, and I want to look on the bright side – No Corbyn as PM, No McDonnell as Chancellor, Abbott won’t be responsible for UK security; Alex Salmond and Angus Robertson have gone back to Scotland and Ruth Davidson will make her presence felt for the Conservatives in Scotland hopefully preventing Sturgeon from another Independence drive.  On the negative side how long can Mrs May last and surely it would be folly to rely on the DUP for a majority in the Commons.  Apart from leadership and BREXIT issues, the main problem I can identify from the fallout from Thursday’s ignominious setback, which will provide uncertainty in spades, is the damage it will do to confidence in UK business and commerce. It could severely damage investment, if the ‘Remainers’ continue their subversive activity. The UK needs to agree a good and mutually acceptable deal as soon as possible.  

 

 It just didn’t seem to matter how large the shovels of dirt were, or the level of uncertainty or the political volatility that was thrown at markets last week, they demonstrated the capacity to soak them up and more. You could have heard a pin drop on Friday morning, when it became clear that the Conservatives had failed dismally to establish a decent working majority. However, the FTSE 100, laced with Dollar related stocks, rallied in response to a listless Pound, which eased by 1.6%. The FTSE 250, which is normally a decent barometer for UK economic activity, initially expressed some pre-prandial nerves, but ended up flat on the day, though it had surrendered 1.3% in the last 5 sessions. Even the spat Saudi Arabia and its allies experienced with Qatar failed to disrupt equity markets, though it has taken oil prices down 5% in the last week. This may be good for putting the lid on inflation.  Many thought that the disparaging remarks former FBI director, James Comey made about President Trump in his testimony to the Senate might rattle Wall Street’s cage! This did not materialise. At the end of the week the S&P 500 closed up 0.12%, with the FTSE 100, despite being subjected to uncertainty in spades, fell by just 0.27% below the Plimsoll line. European bourses lost 0.5% and the NIKKEI 0.81%.

 

 Much of the US stock market rally in 2017 has been based on the success and appetite investors have had for Facebook, Alphabet, Amazon, Netflix and Apple – all of which have risen by between 27% and 34% this year.  How long this can be sustained remains to be seen. The chipmaker Nvidia has started to attract attention, with its shares rising 14% so far this year. This rally compares favourably to Microsoft, the software titan that has added 15% in value this year. Here in Old Blighty, though there were bumps along the road – car sales were down 8.6% in May; many believing this was a reaction to bumper sales on March – there was little to unsettle equity markets’ equilibrium.

 

RBS settle its case with 9k shareholders, which cost the bank over £1 billion but prevented Fred Goodwin and his cohorts from giving evidence in court. Santander was forced by the Spanish authorities and the ECB, despite protestations to the contrary, to buy Banco Popular for E1 coupled with $37 billion of toxic debt, resulting in a E7 billion rights issue being required to complete the purchase.  Many UK clients in Santander UK (Abbey National) expressed their concern.  This joint venture will mean Santander globally has 17 million customers. 21% of WPP shareholders objected to Sir Martin Sorrell’s £48m package this year. Not matter it went through.  I hasten to add that there is a huge difference between an entrepreneur/innovator and a manager. Sir Martin has been there man and boy for over 35 years. The market still wants a proper explanation beyond human error why IAG’S computer system collapsed ruining 75k holidays and costing the company £150 million. I doubt any explanation will be satisfactory. Great results were posted from on-line retailer Boohoo – shares are up 326% in 18 months!

 

 To avoid a collapse in investment plans for business, Mrs May will need to clearly set down her stall and be prepared to deal with some demands to improve public services, resulting in increased borrowing – GOOD borrowing not money for profligate spending.  Money towards schools hospitals etc.  We need to see a slight easing in austerity and I suspect that this inconclusive election result will require an immediate response to settle for a much softer BREXIT than was originally envisaged. Airbus has started to rattle the government’s cage requiring reassurances on free movement of workers and sensible tariff free trade terms. There is ‘no’ time for prevarication.

 

UK companies posting numbers this week – Monday – Mitie, Servoca, Tuesday – Halma, Ashtead, Oxford Instruments, Capita, Merlin Entertainment, Ted Baker, Wednesday – Charles, Stanley, Norcross, Mulberry, Bellway, WH Smith, Gym Group, Thursday – Consort Medical, Majestic Wine, WS Atkins, PZ Cussons, Drax, Friday – Tesco

 Economic data this week – Tuesday – BRC Retail Sales Monitor, Wednesday – UK Unemployment and wage data, Thursday – Retail Sales, MPC Meeting, Friday BOE Quarterly bulletin.

 

 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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