WEEKLY FAYRE – Monday 12th March 2018
“Earth has not anything to show more fair:
Dull would he be of soul who could pass by
A sight so touching in its majesty:
This City now doth, like a garment, wear
The beauty of the morning; silent, bare,
Ships, towers, domes, theatres, and temples lie
Open unto the fields, and to the sky;
All bright and glittering in the smokeless air.
Never did sun more beautifully steep
In his first splendour, valley, rock, or hill;
Ne’er saw I, never felt, a calm so deep!
The river glideth at his own sweet will:
Dear God! the very houses seem asleep;
And all that mighty heart is lying still!”
William Wordsworth – poet – 1770-1850
I have been salivating at the prospect of seeing some great NH racing at the Cheltenham Festival, which starts on Tuesday. We all know that Cheltenham can be a graveyard for punters. However I think we have a great chance of seeing some real champions in the making land the spoils for their connections – “Getabird” in the opener the Supreme Novices Hurdle, ‘Bvveur D’Air’ retaining his crown in the Champion Hurdle, ‘Altior’ in the Arkle, ‘Sam Spinner’ in the Long Distant Hurdle and ‘Might Bite’ in the Gold Cup all look like ‘good things’ but how many times has that kind of comment been made in the past? These horses tend to make fools of us! They have to be able jump obstacles and we tend to forget that fact from time to time. Good hunting! All things being equal, many believe that ‘Altior’ and ‘Might Bite’ are very special. The going looks like it will be ‘good to soft’ on Tuesday and Wednesday with the ground possibly drying out towards the end of this amazing week of NH racing. I saw Willie Mullins had a 5-times at Gowran Park on Saturday – a decent omen maybe?
Last week was again dominated by political events rather than by financial and economic issues. Italy’s PM Renzi’s left-wing party was booted in to the long grass, leaving the right – 5 Star, Forza Italia and Lega to scrap it out in attempting to form a coalition. Immigration and austerity have turned the beautiful people of Italy against the EU and this change in political emphasis could spell further trouble for Juncker and his federalist chums. Meanwhile across the Atlantic, President Trump threw down the gauntlet by imposing tariffs for imported steel and aluminium to all but possibly Canada, Mexico, Australia and maybe the UK, resulting in the resignation of his economic adviser Gary Cohn. Is this the start of a trade war? This would be regrettable and should be avoidable. There are signs that Trump may taper his demands, but initially the news had negative connotations with volatility returning to equity markets in seismic proportions. Unfortunately, EU’S Juncker’s response, despite his irritation, was infantile and unhelpful. If that was not enough, North Korea’s Kim Jong Un popped his head above the parapet suggesting through South Korea, that a meeting with Trump could well lead to the end of N Korea’s nuclear arsenal proliferation. It made great headlines, but I’ll believe it when I see it. Russian and China will be watching from the wings with a high degree of pre-prandial neurosis. They will not be amused by this initiative. The terrible and fearful nerve gas incident in Salisbury, with suggested Russian involvement and the tiresome EU/UK exchange of rudeness and sarcastic bile, sadly seemed to pale into insignificance, as the week wore on.
This compendium of news made investors very neurotic in the early part of the week with again the teenage scribblers and algorithm traders exacerbating the level of volatility particularly in New York. By Thursday some decent data and a less draconian stance by Trump towards tariffs, the markets turned sharply positive and of course Friday’s stellar Non-farm payroll data was the icing on the cake for equities to end the week with some quite measurable gains (see above).
313000 jobs were created in the month of February – way above the estimated +200k. The two interesting factors were firstly more people were looking for jobs than before with the unemployment rate falling a pip to 4%. Secondly wage inflation was relatively benign at 2.6%, below previous levels of close to 2.9%. Nonetheless, there were plenty of positive pointers for the Fed to move this month by putting rates up by 0.25% this month – the first of perhaps three hikes. However, another robust earning season will need to manifest itself to convince Chairman Powell and his board to continue increasing rates.
Of the 3 main US indices the NASDAQ was the most prominent, with Apple, Amazon, Facebook, Cisco, Intel and Alphabet all adding more than 3% in value on the week. The key DJIA stocks over the past 5 days were JP Morgan, Goldman, McDonald’s and Caterpillar. Even Walmart abated its recent catastrophic fall of 10% 2 weeks ago and added 1% on the week. Whilst commenting about retail activity, many stores have posted disappointing results. Those whose share prices have fallen from grace recently have failed to get to grips with their on-line service. Amazon has been rampant, but if the larger non-food retail operations get their act properly together, they could of course be competitive. On the M&A front it looks like Intel is going to muscle in the Broadcom/Qualcomm deal by bidding $100bn for Broadcom. Whilst at the same time Softbank is eying up a bid for Charter Communications. This week’s ECB meeting indicated that interest rates would be raised in mid-2019 after winding down their bond purchases (QE) at the end of this year. The MPC enjoyed a dispiriting end to the week, with its trade deficit widening and further weakening in construction and the manufacturing sector plateauing. Panmure’s Chief Economist, Simon French, tells us that ‘this is not a desirable backdrop to increase interest rates, but the market is still pricing a 67% likelihood of a May hike.’
Here in the UK, L&G and Aviva posted sound numbers, as did G4S, with improving financial aid for Interserve’s beleaguered shareholders. But Rolls Royce grabbed the yellow jersey, with CEO Warren East posting underlying organic revenues +6%, pre-tax profit +25%, div flat. He expects RR to post mid-single-digit revenue growth in 2018, higher operating profits and free cash flow thanks to restructuring, 787 engine issues fixed by 2020. There will be redundancies as RR cuts its divisions down from five to two. In the wake of a difficult time under Sir John Rose and John Rishden, East has had the drains up and now the future looks bright with its share responding with an 8% increase on Tuesday, having initially risen by 13%. BT needs to be on its metal in the coming months as the government appears to be gunning for it to improve rural services. Finally, rumour has it that Melrose will raise its stakes above its £7.3 billion hostile bid, in its quest to capture GKN.
Chancellor Hammond will deliver his spring statement on Tuesday 13th March 2018. Expect little as the main Budget will be in the autumn. However, though the UK’S borrowing requirement will have dropped for the first time in 16 years, there is unlikely to be any signal to the end of the UK’s modest austerity programme, as it is still work in progress. The opposition will scream for infrastructure spending. Their cries are likely to fall on deaf ears.
UK companies posting results this week – Monday – Clarkson, Polymetal, Tuesday – Antofagasta, Cairn Energy, Fever-Tree, TP ICAP, Close Bros, Computercenter, Wednesday – Balfour Beatty, Hikma, Prudential, Wm Morrison, Marshalls, Dignity, Thursday – Old Mutual, Kier Group, Just Group, OneSavings, Phoenix Group, Savills, Friday – Mitie, JD Wetherspoon
US companies posting results this week – Tuesday’s – Dick’s Sporting Goods, Thursday – Dollar General, Jabil Circuits, Friday – Tiffany’s
Economic data posted this week – Tuesday – US CPI, Wednesday – US PPI, Retail Sales, Thursday – US Import prices, Friday – US Housing data and Industrial Production, BOE Quarterly bulletin
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