MARKET UPDATE

Though inflation data for December was marginally encouraging – down from 3.1% to 3%, the news from the front on Carillion looked dire.  Many people working for the small suppliers look like they are financially dead and buried. One hoped that the Government would have seen how important the small suppliers in the chain they are to us. But it does not look good.  I must say I get very irritated to hear the likes of Rebecca Long-Bailey – the opposition spokesman talking unhelpful drivel on the subject. However I have some sympathy with her over her frustration with the government and their inability to head off the inevitable collapse of Carillion after the profits warning.  I am sure the Government would have loved to, but the dye was cast months before that! It seems that 20k jobs are looking decidedly vulnerable.

London’s largest index is down 22 at points 7746 at 3.45pm. Trading has been sepulchral with little movement amongst the large cap stock.  BP shareholders did not enjoy the $1.7 billion cash call from the Deep Water Horizon nightmare.  This saga appears to be a bottomless pit. Shares are currently down 3%. Dunelm disappointed its acolytes –shares down 4.5%. Spire was 2% lighter and Ashmore eased by 1%

Those in the ascendency were Premier Food +3%, JD Sports with a profits upgrade from to £270 to £295m.  Greggs’ sausage rolls remain omnipotent – +1.5%.  The surprise package of the day was UBM with an upgrade – +5%

The Street of dreams breached the 26k threshold adding 260 points to 26058 Citogroup posted decent numbers – +1% but hardly barnstorming but they did not disappoint. Earnings season gets under way next week.

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TODAY’S FAYRE

TODAY’S FAYRE – Tuesday, 16th January 2018

 

 

“Think’st thou I saw thy beauteous eyes,
Suffus’d in tears, implore to stay;
And heard unmov’d thy plenteous sighs,
Which said far more than words can say?

Though keen the grief thy tears exprest,
When love and hope lay both o’erthrown;
Yet still, my girl, this bleeding breast
Throbb’d, with deep sorrow, as thine own.

But, when our cheeks with anguish glow’d,
When thy sweet lips were join’d to mine;
The tears that from my eyelids flow’d
Were lost in those which fell from thine.

Thou could’st not feel my burning cheek,
Thy gushing tears had quench’d its flame,
And, as thy tongue essay’d to speak,
In sighs alone it breath’d my name.

And yet, my girl, we weep in vain,
In vain our fate in sighs deplore;
Remembrance only can remain,
But that, will make us weep the more.

Again, thou best belov’d, adieu!
Ah! if thou canst, o’ercome regret,
Nor let thy mind past joys review,
Our only hope is, to forget!” 

 

George Gordon, Lord Byron – poet – 1788-1824

 

 

“Three Billboards outside Ebbing, Missouri” – what a film!  It had absolutely everything – depravation, love, hatred and excitement.  This film was very ‘left-field.’ It is hard to draw analogy.  I suppose the nearest comparison is probably ‘Fargo’ which had the same star turn from Frances McDormand.  For her performance as Mildred Hays a distraught mother of a young girl, who was killed and raped, who is determined to seek justice by forcing the local sheriff to take a greater interest, must surely land her the spoils as best actress for an Oscar and a BAFTA. Her facial expressions, her dishevelled look, her despair and her turn of phrase culminate in a brilliant portrayal.  The film is beautifully directed by Martin McDonagh. It also stars Woody Harrelson and Sam Rockwell, who in my opinion would both be worthy nominees for best supporting actor.  

 

So finally Ben Stokes is going to be charged with an affray. Therefore the likelihood of England having his services next summer looks fairly remote to me. The trial is unlikely to take place before June knowing the CPS’s track record for urgency.

 

 

In London yesterday, it was all about CARLILLION!  What a shambles! What a disgrace! This services/building contractor titan – a mongrel of Tarmac, McAlpine and John Mowlam was £900 million in debt and has built up a £600 million pension black hole, which when once the PPS has been brought in to play could cost the beneficiaries 20% of their benefit. The Government, according to David Lidington, was aware that after the July profits warning, Carillion could be in difficulties and that the government had supposedly had made some contingency plans.  However many of the sub-contractors have not been paid and are unlikely to be paid as a result of Carillion going in to liquidation. This disaster highlights the dangers of private enterprise and the public sector working together particularly when prisons and hospitals are involved.  Also Carillion manages 32000 meals a day. Why were Carillion awarded contracts, after the government suspected the company was in difficulties?  Did they think that by awarding big new contracts would mean that the banks might feel obliged to bail the company out? Well it was not to be.

 

Clearly many of these 450 contracts were very poorly priced. Reckless behaviour by the management to secure contracts they could surely not afford to deliver with a profit, helped bring the company to its knees. There also seems to have been a considerable element of management avarice, greed and negligent behaviour bordering on criminal. One wonders what Philip Green, chairman and the former CEO Richard Howson and his team at Carillion were up to! Such bonuses and remuneration were totally unwarranted. These, I fear, will need to be recouped! Bernard Jenkin, MP, Chairman of the Public Administration and Constitutional Affairs Committee, announced a full inquiry in to this debacle and the whole question of government contracts with public sector requirements. Clearly the banks and the shareholders will take the greatest hits.

 

The banks which include, Barclays, Santander, HSBC and Lloyds are expected to write off circa £2 billion. Builders such as Galliford Try and companies like Speedy Hire and Balfour Beatty will also suffer. Shareholders are expected to take a £580 million loss, but the greatest tragedy of all will be the losses taken by small firms which could be in the thousands which could lose over £1 billion. Let’s hope the drains come and those responsible are brought to book. Neither political party come out of this controversy with much in the way of their reputations in tack.

 

 

Yesterday was Martin Luther King Day – a holiday in the US out of respect for the greatest civil rights leader probably of all time! London’s main index was down a parsimonious 9 points at 7769. Activity was minimal with a few interesting companies such as Bodycote (+3.4%) and Gem Diamonds (+15%) putting in eye catching performances. GKN, with predators hovering around it like bees round a honey pot, hit an all-time high at 437.4p – up 4.14% on the day. BP is to take an extra $1.7 billion charge to settle Deep Water Horizon. Shares might dip 0.5% early on – Considered insignificant in the grand scheme of matters The Pound hit $1.38, its highest level since the referendum result in June 2016. It was down to the interest rate hike and the strength of crude oil (Brent $70 a barrel) which has taken the sheen off the Greenback. This morning UK inflation is posted. 3.1% is likely to be maintained because of the price of oil, but inflation should drop by the summer/autumn, if Sterling maintains its current level.

 

This morning Asian bourses were mainly higher due to the weakness of the Dollar and a strong flow of foreign funds in to the region. The ASX closed down 0.47% with the NIKKEI, despite the strength of the Yen closed up 1% – a 26 year high. At lunchtime the Shanghai Composite was 0.55% to the good and the Hang Seng was blazing the trail in adding 1.6% by lunchtime.

 

In London this AM there has been a slew or earning this morning. Two may be worthy of special mention due to a time factor of mine. JD Sports have upgraded the profit forecast from £270m to £295m – share may rally by 2%. They have risen from 98p in June 2015 to 365p. Also Premier Foods though their shares have drifted from 60p 15 months ago to 42p, it looks as though life is improving with group sales up 4%. Maybe the new initiatives with Nissin and Mondelez are helping stimulate sales.

 

 

 UK Companies posting results this week – Tuesday – NCC Group, Ashmore, Johnson Matthey, JD Sports, Dunelm Group, Ophir Energy, HIS Markit, Greggs, Premier Foods Wednesday – BHP Billiton, Burberry, Hochschild Mining, Thursday – Evraz, Experian, Pearson, Royal Mail Group, William Hill, AB Foods, Headlam, Halfords, Workspace, Whitbread,

 

US companies posting results this week – Tuesday – Comerica, Citigroup, CSX Group, Wednesday – Bank of America Merrill Lynch, Goldman Sachs, Thursday – Morgan Stanley, Bank of New York Mellon, IBM, American Express

 

Economic data posted this week – Tuesday – UK inflation and UK House Prices, Wednesday – US Beige Book, US Industrial Production, Thursday – US Housing data, Friday – UK 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 ​

TODAY’S FAYRE

 

TODAY’S FAYRE – Sunday, 14th January 2018

 

 

“When I have fears that I may cease to be
Before my pen has glean’d my teeming brain,
Before high-piled books, in charactery,
Hold like rich garners the full ripen’d grain;
When I behold, upon the night’s starr’d 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

 

It is not remotely surprising that President Trump has grabbed many a headline this week – from going cold on a NAFTA trade deal to refusing to come to UK to open the new US embassy to some very tawdry and undiplomatic expletives on African and Caribbean countries, again described by him as ‘fake nooze!’ Donald Trump has now been POTUS for 14 months and maybe we should reflect on what the dynamics were that took President Trump to the White House. But for the US voting system, he would probably never have made it to that big White House on Pennsylvania Avenue. In November 2016 President Trump won the popular vote in 47 states by circa 4 million votes. Mrs Hillary Rodham Clinton had a majority in 4 states, which included, New York and California of circa 7 million votes. As has been evident, never has the US been more divided politically than it is now. It makes the altercations surrounding ‘BREXIT’ look like a vicarage tea party in comparison to those who support Trump on the eastern seaboard and California, and those in that area who cannot abide him at any price.   The power amongst the NEO-Liberal Democrats is currently too thinly spread, with the New York area and most of the west coast apoplectic over Trump’s behaviour and attitude. Unorthodox behaviour or not, Mr Trump still has great support for his anti-establishment policies.


‘Holier than thou’ peripheral and parochial politicians like Mayor Khan need to pipe down, whilst governments in Europe and UK find a way diplomatically of trying to accommodate the US for trade and defence reasons, whilst never tolerating or condoning behaviour unbecoming of an international leader of such humongous importance! 


Joe Wright’s film ‘Darkest Hour’ was everything it was cracked up to be – high octane emotion, exhilarating, exciting with terrifying ramifications. The acting was off the scale. If Gary Oldman does not grab the Oscar and the BAFTA for best actor next month, then the voting has been rigged! His performance was stunning – the attention to detail was outstanding – his walk, the cigar, the barrel loads of whisky he drank, the voice intonation, the waspish look and the tears. They were all there. Oldman is a genius. What a versatile performer he is. Many of you will remember his portrayal of a drug-filled hoodlum playing opposite Jean Reno and Natalie Portman in ‘Leon’ – one of my all-time favourite action films.


The supporting roles played by Kristin Scott-Thomas (Clemmie), Lily James (the secretary Miss Leighton), Stephen Dillane (Halifax), Sam West (Eden), Ronald Pickup (Chamberlain) and Ben Mendelsohn (King George VI) were exquisitely acted! The only part of the film that disappointed me was the music. It did not tug at the heart strings! Under no circumstances must this film be missed!

 

Apart from Tokyo’s Nikkei, which suffered at the hands of a strong Yen (-025%), most global indices made steady, if uninspiring progress last week, with at one-time the DOW, S&P and FTSE all hitting record levels. The S&P ended the week up 1.37%, the FTSE was 0.7% to the good and European bourses added an average of 0.35%. Is the bubble going to burst? Admittedly the P/E ratios look quite rich for some peoples’ blood, but until there is evidence that QE is being aggressively tapered and interest rates are heading sharply north the prospect for more than a 5-7% downward correction seems unlikely. Bond yields have been slowly rising in the last couple of months, but insufficiently to put equity markets’ noses out of joint.  The Bank of Japan and the ECB have made very gentle efforts to taper bond renewals, but the rate has been benign. The Dollar has been weaker with Sterling looking quite perky at $1.36 and change.

 

However a poor 4th quarter earnings season in the US could soon wipe any sign of a Giaconda smile off many a punter’s face. The earning season started on Friday when JP Morgan Chase and Well Fargo posted better than expected efforts, though investment banking profits at JPM had fallen by 30%. However the proposed tax cuts will greatly enhance profits figures for these institutions going forward.  The fact that JP Morgan’s share price had increased by 47% since Election Day on 8th November 2016 and Wells Fargo by 40%, despite their problems, expectations were very high.  Investors were not disappointed, but were relieved. Oil has kept climbing with Brent crude nudging $70 a barrel, it highest level since 2014, when it briefly hit $115 a barrel.  Geopolitical issues in Iran and North Korea continue to provide momentum for this escalation in the price.

 

Last week equity markets were dominated by sales and trading updates from the UK’s main retailers.  They proved to be a very mixed bag – the good the bad and the ugly! Lidl and Aldi continued to snap at the heels of the main supermarkets, both enjoying excellent holiday sales. Boohoo and Quiz from the cheap, fashionable and cheerful brigade continued to maintain their attraction for the young. Primark, I suspect will produce the same sort of progress, when it reports on Thursday. ASOS is proving great successes on-line. Card Factory had a shocker and the outlook for House of Fraser, Debenhams, Mothercare and Moss Bros looks dire. Next’s efforts saw some improvement, but only on line, but it was significant (+13.4% for the Directory). Tesco fell a little short of expectation despite like for like sales coming in at +2.3%.  The disappointment expressed by the market dragged its new bedfellow Booker down as well. Sainsbury’s effort of an increase by 1.1% was OK but hardly spectacular. Morrison continued its resurgence under Dave Potts in posting a 3.7% increase in sales for the previous 6 week. For me the major disappointment was M&S, whose plight will not change until it stops selling dowdy fashions.  Also good though its food is, it is expensive – overall sales down for Christmas period by 1.4%. This may be work in progress, but Messrs Norman and Rowe are going to find a little magic to pull the business round.  Dunelm report on Tuesday and Halfords on Thursday and Kingfisher in a few weeks. With inflation running ahead of wage inflation, thus the consumer having less disposable income, the retail arena going forward looks tough and challenging. Price and fashion is all that matters.

 

It would appear to be the last throw of the dice for the construction magnate Carillion, whose share price has fallen 93% in recent months.  However it has so many badly priced government contracts for schools hospitals, prisons and defence homes and the likes of HS2, their banks and shareholders are in a real bind as to what to do.  Carillion’s debt is £900 million and the pension black hole is £600 million. Surely the public/taxpayer should not pick up the tab?  The banks and shareholders will need to take a haircut, whilst the Government helps to restore them to health or the company or assets are sold, which seems a very unlikely option. Time is running out as is the cash. So many government departments are involved, it strikes me that a rescue operation is essential until contingency plans can be made for the company and 20k plus people that are employed by Carillion and its subcontractors.

 

Having rejected a £7 billion bid Melrose Industries (405p a share 80% and 20% cash), GKN, the plane and car parts maker, is considering other options apart from breaking the company up.  It appears that CEO Anne Stevens may also have to fend off an approach from the Carlyle Group. GKN supplies Airbus, Mercedes and Jaguar Land Rover. Many will recall that Carlyle was criticised for its handling of and participation in the IPO of Qinetiq.

 

UK Companies posting results this week – Monday – Rio Tinto, Acacia Mining, Tuesday – NCC Group, Ashmore, Johnson Matthey, JD Sports, Dunelm Group, Ophir Energy, HIS Markit, Greggs, Premier Foods Wednesday – BHP Billiton, Burberry, Hochschild Mining, Thursday – Evraz, Experian, Pearson, Royal Mail Group, William Hill, AB Foods, Headlam, Halfords, Workspace, Whitbread,

US companies posting results this week – Tuesday – Comerica, Citigroup, CSX Group, Wednesday – Bank of America Merrill Lynch, Goldman Sachs, Thursday – Morgan Stanley, Bank of New York Mellon, IBM, American Express

Economic data posted this week – Tuesday – UK inflation and UK House Prices, Wednesday – US Beige Book, US Industrial Production, Thursday – US Housing data, Friday – UK 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

TODAY’S FAYRE

TODAY’S FAYRE – Thursday, 11th January 2018

 

 

As Hermes once took to his feathers light,
When lulled Argus, baffled, swooned and slept,
So on a Delphic reed, my idle spright
So played, so charmed, so conquered, so bereft
The dragon-world of all its hundred eyes;
And seeing it asleep, so fled away,
Not to pure Ida with its snow-cold skies,
Nor unto Tempe, where Jove grieved a day;
But to that second circle of sad Hell,
Where in the gust, the whirlwind, and the flaw
Of rain and hail-stones, lovers need not tell
Their sorrows. Pale were the sweet lips I saw,
Pale were the lips I kissed, and fair the form
I floated with, about that melancholy storm.”

 

John Keats – poet – 1795-1821

 

 

Rather than a slew of platitudes pouring from the lips of PM May, let’s hope some reassurance for the future of the City of London post-BREXIT comes from within the portals of No: 10 after today’s meeting of bankers with the PM, to stop the likes of Goldman’s Lloyd Blankfein and other committed ‘REMAINERS’ from constantly carping and moaning!

 

Let’s hope Philip Hammond and David Davis fare well in Brussels today, where the Times tells us that there is a chink of light at the end of the tunnel for the City. Subject to a fee being forthcoming UK banks may be granted entry in to the single market. Will it be a fee worth paying?

 

I appeared on BBC Biz-Live this morning and was privileged to watch Miriam Gonzalez, wife of Sir Nick Clegg, telling the country of her frustrations with the UK government for failing to set out cogently what plans it had for BREXIT. Though M/S Gonzalez is not of my political persuasion, she is undoubtedly very smart and a very able negotiating lawyer. I have been told that she would have been a superb lead negotiator for the UK government on BREXIT. She was probably not considered because of her passionate political leanings – a pity as the government is short of negotiators

 

Yesterday markets in the US and this morning in Asia were not exactly moribund, but uninteresting, as investors digested China’s threat not to be so supportive in buying US Treasuries and to the negative comments made by President Trump on a NAFTA trade deal.

 

This morning in London, it is the culmination of the retail holiday season for the high Street for posting Christmas and holiday trading statements. They have been good, bad and ugly! Ugly – Card Factory down 15% (a dire profits warning), – Bad – M&S -6.5%, Booker -4.5%, House of Fraser (unquoted), Disappointing – Tesco -4.5%, Good John Lewis Partnership (unquoted sales +1.5%) and Boohoo +1%, with revenues for the brand +25%.

 

Now let’s look at M&S – first the history of the High Street’s favourite son. Firstly what a mistake to withdraw the St Michael’s label! What a brand! Secondly M&S has only breached the £1 billion profit barrier twice 1997 and 2007 under Lord Stuart Rose’s stewardship. This year £650 million is nearer the mark. M&S’S share price hit its zenith in May 2007 743p. Since that day it has been downhill all the way, except for a euphoric bounce in June 2015, which did not last long. Give Marc Bolland, the then CEO, his due – the Prince of PR! Gone are the days when the ‘King of Gowns & Blouses’ Sir Philip Green aspired to buy M&S for 400p in 2004.

 

As we all know the problem has been dowdy fashions. Retail clothes operators under huge pressure from Primark, Boohoo, Quiz and H&M – all cheap, fashionable and cheerful, cannot possibly afford to promote fashions for grandparents and expect to make money. People who look like me – pear shaped – are hardly known for their sartorial elegance. Until M&S realise that the dynamics of the high street have changed, it will remain under the cosh. People don’t buy expensive clothes. They like chinos, shorts, sneakers and Bobbie socks – cheap and cheerful. People spend their money on entertainment and holidays. Chairman Archie Norman,  who is a great retail guru and CEO Steve Rowe – Wake up and smell the coffee! Maybe it is work in progress. If not, God help you! The nuts and bolts for the last trading quarter look like this – like for like sales -1.4% – Food -0.4% and general merchandise -2.8%. Shares are down 6.5% at 303p!

 

And so to Tesco, whose shares over the last year have hardly moved – about 4% down – today -4.4% to 202.50. CEO, Dave Lewis has done a good job tidying up this operation, particularly post the £250m over statement of profit in December 2014. However coming in to Christmas expectations were higher than what was achieved. Like-for-like sales for the 19 weeks to 6th January 2018 were up only 2.3%. Something north of 2.5% was expected. The acquisition of Booker will soon be bedded down, but it may be a few months before the real benefit is felt.

 

Finally take a ‘shufty’ at Lidl – sales up 16% over near enough the same period. Customers bought 6k tons of sprouts, 17 million mince pies and 800,000 litres of champagne and prosecco. Another 43 outlets have been opened in the last year to 693. Tesco, Morrison, Sainsbury Lidl and Aldi are not going away! As I write the FTSE 100 is up 10 points at 7760 at 12 noon.

 

UK Companies posting results this week – Thursday – Boohoo, Fenner, M&S, Barratt Development, Hays, Moss Bros, Mothercare, Premier Oil, Spire, Tesco, Booker, Rathbones, Ultra Electronics, Card Factory – Friday – Bovis Homes, TP Icap, Countrywide

 

US companies posting results this week – Thursday – Delta Airlines, Friday – JP Morgan Chase, Wells Fargo, Blackrock

 

Economic data posted this week – Thursday – BOE UK Credit Conditions, US PPI, Friday – US CPI, 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

TODAY’S FAYRE

TODAY’S FAYRE – Wednesday, 10th January 2018

 

 

“A thing of beauty is a joy for ever: 
Its loveliness increases; it will never 
Pass into nothingness; but still will keep 
A bower quiet for us, and a sleep 
Full of sweet dreams, and health, and quiet breathing. 
Therefore, on every morrow, are we wreathing 
A flowery band to bind us to the earth, 
Spite of despondence, of the inhuman dearth 
Of noble natures, of the gloomy days, 
Of all the unhealthy and o’er-darkn’d ways 
Made for our searching: yes, in spite of all, 
Some shape of beauty moves away the pall 
From our dark spirits. Such the sun, the moon, 
Trees old and young, sprouting a shady boon 
For simple sheep; and such are daffodils 
With the green world they live in; and clear rills 
That for themselves a cooling covert make 
‘Gainst the hot season; the mid-forest brake, 
Rich with a sprinkling of fair musk-rose blooms: 
And such too is the grandeur of the dooms 
We have imagined for the mighty dead; 
An endless fountain of immortal drink, 
Pouring unto us from the heaven’s brink.”

 

John Keats – poet – 1795-1821

 

 

After yesterday’s shambolic Cabinet reshuffle today’s supporting cast changes seems to go rather better and without incident. However, on reflection Conservative supporters should have been delighted with the appointment of Brandon Lewis as party chairman and James Cleverly as deputy chairman. These two have significantly more appeal than recent chairman have had in gendering support for the party. They possess all the zest, verve and drive needed to turn a few million heads, which are headed in the direction of a vortex of economic despair. The Tories are purported to have only 70,000 official members as against 1.2 million that Corbyn et all have swept in to Labour’s net in the last two years. Many of them have been attracted into Labour’s ranks through “Momentum’s” acutely affective, extremely clever, offensive and poisonous social media campaign.  The Tories will always be able to raise more money than Labour through donations, but membership is hugely important if a disenchanted public are to be persuaded not to listen to Messrs Corbyn’s and McDonnell’s hollow ‘sweet nothings’ which will lead this country to penury and a lengthy dole queue, rather than to the land of ‘Milk & Honey’ which their idealistic Marxist doctrine promises!

Dispiriting comments were made on the front page of the FT, with warning shots across the bow that the EU is planning for a ‘NO DEAL’ option, which they have passed on UK industry. Many found this stance irritating, but I suppose if our government can say ‘No deal is better than a bad deal’, so I suppose can the EU. There is just an unpleasant aroma of bad faith in the wind!

 

After a disappointing start to the week, when results and news concerning the likes of Mothercare, AO World and Micro-Focus took the edge of the London’s main index, resulting in it closing below the Plimsoll line when its peers in Paris and Frankfurt added 0.4%, yesterday saw London’s main index give a better account of itself, courtesy of better than excepted holiday sales by Morrison (+2.5%) which injected like into M&S (+2.4%), and Sainsbury (+3.1%). London ended the session up 34 points at 7731. Persimmon also posted decent numbers but surprisingly the shares fell by 1.2% – Why? The outlook for house builders is a little inconclusive with labour and materials being in short supply. Vauxhall announced their intention to lighten up the work force by 250 people at Ellesmere Port on top of the 400 redundancies announced last year. It was just further evidence of efficiency levels being met.

Glaxo’s CEO Emma Walmsley announced further swingeing cuts at senior management levels – 50 out of the top 125 have gone in just 283 days of her stewardship. GSK business emphasis is now focused on making and distributing blockbuster drugs. Europe’s largest drug company has not performed at all well with the share price falling 1600p a year ago to 1346p yesterday. Since Archie Norman replaced Robert Swannell as chairman of M&S, the drains have been hauled up. M&S are putting in a new sophisticated IT system initially costing £25 million though by 2022 savings of £30 million will be made. The idea behind this initiative that that M&S will become more aware of what their clients want and will buy, with hopefully useful information, which should stop the High Street’s Darling selling dowdy fashions.

On the Street of Dreams the Dow had another unimpeded run on the rails, as banks, health-care stocks rallied. The other bourses were somewhat somnolent as investors wait on Friday’s bank results. Wall Street closed as follows – DOW +0.41%, S&P +0.13%, NASDAQ +0.09%. In Asia the mood was mixed with oil on the rise, investors were circumspect – towards the close the main bourses stood as follows – ASX -0.50%, Shanghai +0.35%, Hang Seng +0.68%, Nikkei -0.13%.

 

There have been a slew of earnings this morning – some good, some disappointing and some worrying – At 3.30am the FTSE 100 is up 5 points at 7740. J Sainsbury +1%, Quiz+1%, SuperDry -2.5%, PageGroup +7%, Focusrite -1%, Taylor Wimpey -3%, Tullow +0.5%, Ted Baker +5.5%, Cineworld -0.5%. J Sainsbury, whose shares are down from 258p a year ago to 251p today and down from giddy heights of 573p achieved in June 2009, when Qatar acquired 26%. CEO Mike Coupe posted decent Christmas sales – +1.2% – like for like +1.1% in 15 weeks to 6th January 2018. Grocery sales grew by 2.3% and online by 8.2% and Convenience stores by 7.3%. General Merchandising and clothing also flourished. As for Argos, though lack Friday was decent, there was a feeling that Argos slightly under-performed, though synergies between Argos and Sainsbury have improved resulting profit estimates being raised from £72-77 million to £80-85 million. It’s going to be a tough year for retail, but this was not a bad effort. Taylor Wimpey saw completions up by 5% to 14541, but this was below expectations and shares subsequently were down 3%.

UK Companies posting results this week – Wednesday – SuperGroup, Quiz, Taylor Wimpey, J Sainsbury, Tullow Oil, Ted Baker, Foxton’s, InterServe, Cineworld, GoCompare, PageGroup, Thursday – Boohoo, Fenner, M&S, Barratt Development, Hays, Moss Bros, Mothercare, Premier Oil, Spire, Tesco, Booker, Rathbones, Ultra Electronics, Friday – Bovis Homes, TP Icap, Countrywide

 

US companies posting results this week – Wednesday – Lennar, KB Homes, Thursday – Delta Airlines, Friday – JP Morgan Chase, Wells Fargo, Blackrock

 

Economic data posted this week – Wednesday – UK Industrial Production, Manufacturing and Construction, NIESR GDP estimate, UK Trade Balance, Thursday – BOE UK Credit Conditions, US PPI, Friday – US CPI, 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

TODAY’S FAYRE

 

TODAY’S FAYRE – Monday, 8th January 2018

 

 

Bright star, would I were steadfast as thou art! – 
Not in lone splendour hung aloft the night,
And watching, with eternal lids apart,
Like Nature’s patient sleepless Eremite,
The moving waters at their priestlike task
Of pure ablution round earth’s human shores,
Or gazing on the new soft fallen mask
Of snow upon the mountains and the moors –
No -yet still steadfast, still unchangeable,
Pillowed upon my fair love’s ripening breast,
To feel for ever its soft fall and swell,
Awake for ever in a sweet unrest,
Still, still to hear her tender-taken breath,
And so live ever -or else swoon to death.” 

 

John Keats – poet – 1795-1821

 

Taking nothing away from Australia’s merciless performance, but England just capitulated at the SCG this morning – all out for 180 losing by an innings and 123 runs to an altogether superior outfit. Quite a pathetic effort!

It is understandable why Christopher Plummer and Michelle Williams were nominated for Global Globe awards for their respective performances in Ridley Scott’s film ‘All the Money in the World’, which incidentally they did not win.  This movie tells the story of the kidnapping of Paul Getty junior in Italy for $17 million back in 1973.  Both portrayals were very much the highlight of what was a very boring and unconvincing script. It should have been a very exciting film. Sadly it backfired like a damp squib. Kevin Spacey, regardless of his misdemeanours, would surely have been badly miscast as J-PG. Remembering John Paul Getty’s image as I do, Plummer looked the part and portrayed the perception of the richest and most parsimonious man in the world at that time exquisitely.  Well done to Gary Oldman for winning best actor in ‘Darkest Hour.’

It has been another quite astonishing week for investors, considering the amount of corporate news was very limited. President Trump was at his most vociferous if not particularly loquacious, in exchanging jingoistic rhetoric with Kim Jong Un before the year was a week old. As if that was not sufficient, then came Martin Wolff’s embarrassing tome – ‘Fury & Fire’ – about a dysfunctional White House, which attracted a wave of abusive and dismissive invective from the President on ‘twitter.’ Despite all this embarrassing infantile behaviour, markets feel that the US economy is in good shape and all three indices burgeoned their way to new record with the DOW breaching the 25k threshold and the S&P the 2700 threshold with a bit to spare during the 4-day week.

It is interesting to note that in the last year the DOW has risen from circa 20k to 25k, with Boeing being responsible on its own for 900points in that period. 5 out of the 30 stocks have been responsible for most of the 5k points – Apple, Goldman, Caterpillar, JP Morgan and Boeing. Friday’s Non-farm payroll data was adequate – However in the last year of Obama’s Presidency, job creation was greater than under Trump in the first year of his stewardship. In passing Friday’s payroll and employment data was as follows – No-Farm payrolls created only 148k jobs in December against expectations of 190k, but the unemployment rate stayed at 4.1%. The hourly earnings rate was up 0.3% to 2.5% on an annualised – hardly stunning but constant.

Next week sees the start of the first quarter’s earnings season, which gets under way with Wells Fargo, JP Morgan and Blackrock posting significant numbers on Friday.  The way bank shares have performed in the last 3 months, the market deserves some fairly stellar results.  We shall see! Investors and punters alike seem to refuse to accept that equity and bond markets may be in a huge bubble, which could burst! Valuations are really rather frothy.  However until there is a clear message that rates will rise aggressively, with QE being tapered with a degree of urgency, it is hard to see more than a mildly healthy correction in the first quarter. The quality of this current earnings season will tell us a great deal.   The FED has told us to expect another two rate hikes this year and one in 2019.

Asian markets fared well last week too, though Tokyo was shut for much of the week.  However the NIKKEI returned with a flourish adding 3.5% in value on Thursday to its highest level for 25 years. China is only expected to grow officially by 6.5% per annum, but the rest of Asia looks set fair. Those that know about these matters concerning stock picking tell me that in 2018 Tencent, Baidu & Alibaba will be all the rage!

Relatively speaking the UK and the EU were still on holiday politically, though not entirely from an economic perspective. There was good data on hourly productivity with November providing the sharpest rise since 2011. Manufacturing and the service sector were not entirely negative, but still the UK languishes behind the EU in some areas, but comparisons are often dangerous, though it does appear that Europe may have selected another gear in terms of growth, whereas the UK seems to be plodding its own weary path, thanks to uncertainty over BREXIT negotiations. Certainly many of the economists and teenage scribblers are determined that the UK is set fair on a rocky path in to the house of economic bondage.  As an observer of life, I am not sure that I subscribe to that theory.

At the end of this past week equity bourses were on particularly good terms with themselves with perhaps the FTSE’S performance being the least impressive thanks to the strength of Sterling – up just up 0.47%, with the S&P 500 being all but on fire scooping up 2.27% in the same period with European bourses being not that far behind with 2.17% added value there for all to see. The Nikkei added a whopping 4.17%, thanks to positive vibes about the resurgence of Japan’s economy. The fact that country of the ‘Rising Sun’ is hopelessly over-borrowed has hardly seen an eyebrow of concern raised.

In London most of the main news came from the retail sector.  We had unexpected good news from NEXT, which posted a 13.6% increase in its Directory sales in the last trading period, though high street sales fell by 6.4% – overall +1.5% – shares up 6% on the week.  Unfortunately Debenhams posted a disastrous profits warning – £55-65 million for the year against estimates of £82 million – shares down 17% on Thursday.  This news will have damaged Mike Ashley’s 20% holding in Debenhams and could precipitate a cheaper sales of Newcastle United to Amanda Staveley’s consortium for a price nearer £240 million than the £300 million demanded. House of Fraser looks as if sales data from their front will not be good. Carillion suffered as a result of a regulatory investigation – down 5% on the week. Tesco will post a trading statement this week on Thursday with like for like sales over Christmas and the New Year likely to have increased by 2.5%. Morrison’s effort may not have been that effervescent, out on Tuesday, but not bad with estimated sales coming in at 1.7% including Amazon. M&S post numbers on Thursday as well. Food sales will be flat but general merchandising may be up 1%. As for Sainsbury’s effort on Wednesday is likely to disappoint with sales only up 1%, with Argos perhaps not as buoyant as usual. Boohoo on Thursday and ASOS on 25th January are not expected to disappoint. Sales from Mothercare and New Look (withdrawal of credit insurance) are unlikely to smell of the most exquisite roses!

It is always fantastic to see a really professional boutique take on the big boys in their back garden.  Such was the case last week with Robey Warshaw, the M&A advisor run by Sir Simon Robey (ex-Lazard) and Simon Warshaw (ex-UBS). This company was involved in the Softbank/Arm Holdings, Liberty Global/Vodafone and Reckitt Benckiser/Mead Johnson merger deals.  We understand that £63 million of largesse was spread amongst about 18 employees. Finally the initial introduction of futures contract for Bitcoin did not immediately steady the ship, though a couple of days ago the price rallied sharply from $11k to circa $15k. This market is not for the faint hearted.  

UK Companies posting results this week – Monday – Micro Focus, AO World, Tuesday – Games Workshop, Centamin, Morrison, Persimmon, Ferrexpo, SafeStore, Wednesday – SuperGroup, Quiz, Taylor Wimpey, J Sainsbury, Tullow Oil, Ted Baker, Foxton’s, InterServe, Cineworld, GoCompare, PageGroup, Thursday – Boohoo, Fenner, M&S, Barratt Development, Hays, Moss Bros, Mothercare, Premier Oil, Spire, Tesco, Booker, Rathbones, Ultra Electronics, Friday – Bovis Homes, TP Icap, Countrywide

US companies posting results this week – Monday – American Eagle Outfitters, Tuesday – Simply Good Foods, Wednesday – Lennar, KB Homes, Thursday – Delta Airlines, Friday – JP Morgan Chase, Wells Fargo, Blackrock

Economic data posted this week – Monday – US Consumer Confidence, US Consumer Credit, Wednesday – UK Industrial Production, Manufacturing and Construction, NIESR GDP estimate, UK Trade Balance, Thursday – BOE UK Credit Conditions, US PPI, Friday – US CPI, 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

TODAY’S FAYRE

TODAY’S FAYRE – Thursday 4th January 2018

 

Pensive they sit, and roll their languid eyes,
Nibble their toast, and cool their tea with sighs,
Or else forget the purpose of the night,
Forget their tea — forget their appetite.
See with cross’d arms they sit — ah! happy crew,
The fire is going out and no one rings
For coals, and therefore no coals Betty brings.
A fly is in the milk-pot — must he die
By a humane society?
No, no; there Mr. Werter takes his spoon,
Inserts it, dips the handle, and lo! soon
The little straggler, sav’d from perils dark,
Across the teaboard draws a long wet mark.
Arise! take snuffers by the handle,
There’s a large cauliflower in each candle.
A winding-sheet, ah me! I must away
To No. 7, just beyond the circus gay.
‘Alas, my friend! your coat sits very well;
Where may your tailor live?’  ‘I may not tell.
O pardon me — I’m absent now and then.
Where might my tailor live?  I say again
I cannot tell, let me no more be teaz’d —
He lives in Wapping, might live where he pleas’d.”

 

John Keats – poet – 1795-1821

 

So near yet so far – England 233 for 5 at the close! Root and Malan were going well but it was not to be. The tail against the fearsome Australian attack will do well to reach 350. That is unlikely to be enough at the SCG in a first innings!

The Times headline – “BLAIR ‘warned Trump’ UK may have spied on him!” – made desperate reading this morning. Even if Tony Blair can prove it is fake news, it still does not enhance his diminishing reputation. He should leave the international stage. He’s history!

 

I was listening to Jeremy Hunt the Health secretary apologising to all those people expecting to have routine operations under the NHS in January. They are being postponed. It was only a matter of minutes before Twitter was alight with bile. Then the opposition spokesman on Health John Ashworth stepped up to the plate on BBC and Sky pouring contempt on the government’s health policy, moaning and groaning about the lack of commitment money etc. All Tories are cruel, uncaring and incompetent says Labour – not so says me! Jeremy Hunt is lucid, calm, clear thinking and caring. But Labour supporters do not want to listen to the oily rag when the engine driver is about.

So PM May needs to spell out the problems in words of one syllable. Be blunt. There is no point throwing money at a service that is woefully inefficient, tainted by an uncooperative union in the form of the BMA and an aging population. Also since Messrs Blair and Blunkett let 2 million people unaccounted for in to the country, it has put greater pressure on the NHS. I have no doubt that most of the immigrants are contributing to the economy but the fact remains their needs are adding to the strain being felt by the NHS. Mrs May needs to point all these issues out concisely with plans for the future. The NHS is a political football with neither Tories nor Labour remotely interested in tackling the problems on a united front. For some incomprehensible reason Labour thinks it owns the NHS, courtesy of Aneurin Bevan! It doesn’t. It made some shocking mistakes such as in Staffs, as have the Conservatives had its problems. Unless Mrs May sets down her stall coherently, Tim Montgomerie is quite right in saying the NHS will become an election pooper! Let me tell you from a personal perspective – I have had intense dealings with NHS for three months. All I can say is medically the service has been first class!

 

In closing the NHS should be dealt with as part of our day to day life. We need to work out how can ‘EVERY ONE OF US’ contribute to its success. It’s a business, which has financial issues, management and employee problems and humanitarian requirements.

 

Whilst President Trump and Kim Jong Un were hurling nuclear abuse at each other yesterday, Wall Street went about its business with a spring in its heal. Like Trump or not the market feels that the US economy is on a roll. Also we have only had 2 days trading and there is already a pretty decent sized corporate deal announced, which should be consummated – Dominion Energy a nuclear power company will shell out $14 billion to buy Scana, which saw the latter’s shares rocket up by 22%. By the time gong was rattled at the close the three main indices closed as follows – S&P breaching 2700 barrier for first time (a record) – DOW +0.40%, S&P +0.64%, NASDAQ +0.84%. The movers and shakers were as follows – Nvidia +6.6%, AMD +5.5%, Lennar +3.7% and DR Horton 3.5% were living proof of the market’s belief in the economy. Viacom, Macy’s, Ralph Lauren and L-Brands took a day off. In fairness retail had a terrific run on the rails before Christmas so a bit of profit taking was inevitable. Spotify, the music stream-lining giant is considering an IPO. Last year it was valued at $19 billion. I wonder whether Apple might come and attempt to take the company in to their portfolio as an alternative.

 

Tokyo’s response to its holiday break was ebullience personified – Nikkei +3.25%. Asian bourses also enjoyed the positive sentiment from Wall Street – ASX +0.04%, Shanghai +0.41%, Hang Seng +0.45%.

 

In London, the main index added 23 points to 7671. NEXT grabbed most of the positive headlines with great directory sales – shares up 6.8%. Carillion was under the cosh this morning in losing 5% on news of a regulatory investigation, despite the order book looing stronger. The Pound came off its best levels which allowed oil and drug stocks to show a bit of form.

 

Poundland seems to have secured £180 million of finance not associated with Steinhoff so the future of 3000 jobs looks to have been secured. RBS have sold their Channel Island assets to Investec and Shawbrook for about £150m. This is further evidence of RBS tidying up its balance sheet ready for a sale in 2019.

 

CityAM’S Lucy White told us that Germany’s financial watchdog, the Federal Financial Supervisory Authority (Bafin), made a decision with regards to Eurex Clearing, ultimately owned by Deutsche Boerse. The German exchange had cited the uncertainty caused by Brexit as a reason for wanting the extension.

The decision is a setback for the London Stock Exchange (LSE), which has been a fierce advocate of open access. It said that Mifid II would cause a “revolution” in European derivatives trading and clearing, making financial markets more “fair and transparent”. I interpret these actions as discriminatory and set a very bad tone for the future. Why threaten to break a system that isn’t broken. The markets have always had the option of dealing with either Eurex or the LSE.  On the whole the LSE has been the preferred option.

 

Finally Debenhams, the markets most ‘shorted’ share posted a profits warning with dire post-holiday sales – down 1.3% for 17 weeks to 30th December. Unfortunately Debenhams makes 90% of its profits in the first half so the heavy discounting will affect profits significantly.  It is feared that profits will be between £55-65 million and not the originally forecasted £83 million. The shares initially fell 20.9% but are now down 17% to 29.6p. They are down 35% since October to today. Debenhams shares have been on a downward spiral for 5 years from 120p, despite Mike Ashley owning 20% of the retail emporium.

 

UK Companies posting results this week – Thursday – MJ Gleeson

 

US companies posting results this week – Thursday – Walgreen, Boots Alliance, Monsanto, Price-Smart, Sonic, Friday – Constellation Brands

 

Economic data posted this week – Thursday – Nationwide House price index, UK Mortgage applications, UK PMI Services sector, UK Consumer credit, Friday – BRC Shop Prices, UK New Car Registrations, US Durable Goods, US Factory Orders, US Non-farm Payrolls and employment data.

 

 

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 ​

MARKET UPDATE

Initially Cable looked strong this morning at around $1.36 and a bit of change. London’s senior index opened up near enough flat and it looked as if it might be a painfully quiet session. However NEXT’s better than expected trading statement with the Directory posting a 13.6% increase in sales sent the shares in to orbit – up 8.5% and they are now up 6.8% at circa £48.  These are good numbers but they may be seasonal rather than a trend.  M&S hung on to NEXT coattails in adding 1.5% but these shares were also given some momentum by selling assets in HK and Macau to the Middle East.

 

Then Cable started to give ground to $1.35 and Dollar related stocks apart from miners (-0.5% on average) perked up. Oil stocks BP and Shell +1.5% and drugs in the form of Astra +1% and Glaxo +1.8% put a bit of colour on investors’ cheeks. Banks were dull – the sector was virtually unchanged. Gold was weak – -1.5%. Carillion seems to have an investigation on its hands – shares were down 5.4% to 16.99p. The main index stood up 34 points at 7682 at 3.45pm. The DOW was up 80 points just short of 2500 and the S&P was through 2700.

TODAY’S FAYRE

TODAY’S FAYRE – Wednesday, 3rd January 2018

 

 

“Men of England, wherefore plough
For the lords who lay ye low?
Wherefore weave with toil and care
The rich robes your tyrants wear?

Wherefore feed and clothe and save,
From the cradle to the grave,
Those ungrateful drones who would
Drain your sweat — nay, drink your blood?

Wherefore, Bees of England, forge
Many a weapon, chain, and scourge,
That these stingless drones may spoil
The forced produce of your toil?

Have ye leisure, comfort, calm,
Shelter, food, love’s gentle balm?
Or what is it ye buy so dear
With your pain and with your fear?

The seed ye sow another reaps;
The wealth ye find another keeps;
The robes ye weave another wears;
The arms ye forge another bears.

Sow seed, — but let no tyrant reap;
Find wealth, — let no imposter heap;
Weave robes, — let not the idle wear;
Forge arms, in your defence to bear.

Shrink to your cellars, holes, and cells;
In halls ye deck another dwells.
Why shake the chains ye wrought? Ye see
The steel ye tempered glance on ye.

With plough and spade and hoe and loom,
Trace your grave, and build your tomb,
And weave your winding-sheet, till fair
England be your sepulchre!” 

 

 

Percy Bysshe Shelley – poet – 1792-1822

 

 

As we set off full of hope for 2018 it is as well to remember how robust M&A activity was last year. $3 trillion of global M&A activity was executed for the 4th year in succession. The final month of 2017 was capped by three blockbuster transactions. Faced with the prospect of Amazon’s entry into the pharmacy business, the US’s biggest drugstore chain CVS Health agreed to acquire healthcare insurer Aetna for about $69bn. Meanwhile, Amazon’s effect on retail worldwide prompted Australia’s Lowy family to sell its global shopping centre business Westfield to France’s Unibail-Rodamco for $24.7bn.  Further encroachment by Facebook and Netflix into sports rights, media and film production led Rupert Murdoch to sell much of his 21st Century Fox assets to Disney in a $66bn deal.  The total of M&A activity actually hit $3.5tn in 2017.

 

The LSE was also rampant, raising $15bn from 106 IPOs in 2017, a 63% increase compared to last year and the highest level for three years. Money raised from the exchange’s listings was up 164% compared to 5.7 billion pounds in 2016.  The LSE added that 20 North American companies chose London for their listing, including Dallas-based oil and gas company Kosmos Energy.

 

Bankers on the Street of Dreams will be handed bonuses 15-20pc higher than those at European rivals this year, or 10-15pc more for those working at a US bank based in Europe. M&A activity bankers are in for the biggest windfall after the number of US-targeted deals reached a record high of 12,891 during 2017. Goldman Sachs, JP Morgan, Bank of America Merrill Lynch and Morgan Stanley as the top four advisers by market share on both sides of the Atlantic. Not even the post-Brexit drop in the value of the pound has convinced foreign predators to look at UK operations. Having done their penance Deutsche Bank managers and traders having by their standards only received parsimonious bonuses in 2016, hope to return to the big league for 2017, when they are dished out in the first quarter this year.

 

MIFID 2 will be introduced today – The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded. The idea is that the retail investor will be better protected by tighter regulation. The quality and availability of research will be more closely guarded and brokers will have to be on approved lists of fund managers.

 

The Dollar came under duress yesterday against most currencies. However this did not deter investors, with their bellies still full of Yuletide and New Year fayre, putting their best foot forward at the start of 2018, resulting in the DOW adding 0.48%, with the S&P 500 eclipsing that effort +0.83%. But the yellow jersey went to the NASDAQ which not only breached the 7kj barrier but hit a new record in adding 1.5%. Amongst the star performers were AMD +6.8%, Micron Technology +6.2%, Biogen +4.9% and Netflix +4.7%. There were wild rumours floating about that Apple might be happy to put its surplus $250 billion to buy Netflix. Even the senior tech citizens which have had quite mixed press in recent weeks girded up their loins yesterday with Apple +18%, Alphabet +1.7% and Facebook +2.8%, joined in all the fun of the fair. Amazon not surprisingly was not left in the starting gate +1.6%. Through all the euphoria, there was a bit of negativity thanks to US protectionism Money transfer firm MoneyGram says its planned sale to a company owned by Alibaba’s founder Jack Ma has been called off after regulators blocked the deal. This will not be the first or last time this kind of protectionism will happen under a Trump administration.

 

Initially Asia showed signs of ebullience again on the back of a weak Dollar, but the enthusiasm seems to have waned as the session heads to the close. The ASX closed +0.15%, with the Shanghai Composite up 0.65% and the Hang Seng just 0.16% to the good. Tencent, Baidu and Alibaba will be 3 Chinese stocks to keep an eye on.  All three moved up by 5% plus or minus in the last day or so.

 

 

Yesterday the FTSE 100 eased by 39 points to 7648, thanks in part to the strength of Sterling. However there were a few bright sparks. IAG bought Air Berlin and the market gave the shares a fillip on that news – up 2.5%. There were also some good noises made in the direction of online retailers such as Boohoo, ASOS and B&M. This morning NEXT’S trading statement took the wind out of the market’s sails. Based on recent down beat press comment and very low expectations, Lord Wolfson’s empire posted a trading statement that put a smile on investors’ faces. Sales for 54 days to 24th December were up 1.5% against a sales drop of 0.3% in November. The Directory’s sales were up 13.6%, despite shop sales being down 6.1% in the same period. Shares rallied by 8.9% at the opening and M&S, having sold their HK and Macau operations and hanging on to NEXT’S coattails added 1.77%! at the time of writing 8.30am the FTSE was up 2 points at 7650.

 

In closing there were some interesting comparisons on women’s pay posted in the Daily Mail. There appears to be a 40% gap in many quarters – easyJet 45.5% despite Dame Carolyn McCall’s stewardship. She moves soon to ITV. Church of England 41%, Virgin Money 38.4% even though Jayne-Anne Gadhia being CEO, Bank of England 24%, FSA 20.9%. What we don’t know is – Are we comparing apples with pears ie the same jobs? Nonetheless this seems a massive discrepancy.

 

UK Companies posting results this week – Wednesday – NEXT, Thursday – MJ Gleeson

 

US companies posting results this week – Thursday – Walgreen, Boots Alliance, Monsanto, Price-Smart, Sonic, Friday – Constellation Brands

 

Economic data posted this week – Wednesday – UK PMI Construction, US Mortgage applications, US Construction Spending, FOMC Minutes, Vehicle sales, Thursday – Nationwide House price index, UK Mortgage applications, UK PMI Services sector, UK Consumer credit, Friday – BRC Shop Prices, UK New Car Registrations, US Durable Goods, US Factory Orders, US Non-farm Payrolls and employment data.

 

 

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 ​

TODAY’S FAYRE – HAPPY NEW YEAR!

 

TODAY’S FAYRE – Monday, 1st January 2018

 

 

Good-night? ah! no; the hour is ill
Which severs those it should unite;
Let us remain together still,
Then it will be good night.

How can I call the lone night good,
Though thy sweet wishes wing its flight?
Be it not said, thought, understood —
Then it will be — good night.

To hearts which near each other move
From evening close to morning light,
The night is good; because, my love,
They never say good-night.” 

 

Percy Bysshe Shelley – poet – 1792-1822

 

How awful to hear that Richard Cousins, the successful CEO of Compass Group, his two sons, fiancé and her 11 year old daughter were the victims in that terrible sea plane crash near Sydney! RIP

England’s performance at the MCG was a big improvement.  However, how the team relied on Alistair Cook, whose came back from the dead to make an unbeaten 244, when many cricketing acolytes had written him off.  Well bowled Anderson and Broad, but the supporting cast of bowlers were hardly fit to assume the role of spear-carrier! Sadly, Moeen Ali has to date, been but a shadow of his former self.  He did not turn the ball and seemed incapable of ‘flighting’ it or bowling any kind of a controlled length. Maybe the ‘legger’ – Crane – a much more aggressive spinner, should be given the chance of setting down his stall in Sydney. There is normally some turn and a bit of bounce on the SCG.

So now we are into the crystal-ball-gazing season!  This is often a bizarre and unrewarding occupational hazard at the best of times. What a year 2017 proved to be for global equity markets when one takes in to account the unorthodox vagaries of the Trump Administration, which apart from cutting regulation and finally implementing tax cuts this month, which could drive infrastructure spending, achieved very little.  Add to that othe threat of North Korea as a nuclear hazard, the uncertainty created over BREXIT exacerbated by a plethora of economic scribblers, unrest in Iran, Putin’s sabre-rattling from Russia and from a UK perspective the rise of a potentially profligate and dangerously left-wing Corbyn-led Labour party, these issues all add up to a pretty toxic cocktail of volatility.  Not a bit of it!

Against all the odds global equities have enjoyed their best year for 8 years! In 2017 the DOW added 25% and nearly 40% since Donald Trump became President in November 2016, with the S&P 500 20% to the good and the NASDAQ +29%. The Shanghai Composite closed+21%, the Hang Seng +35% and the NIKKEI 19% (touching its highest level for 25 years). The DAX is 13% to the good and the CAC is up only 9%. Closer to home the FTSE added 7.3% (Dollar related +17%). The FTSE 100 has been a foreign exchange play with Sterling adding nearly 10% in value this year.  The FTSE is not a great barometer of the UK economy. Not only do 60% of the constituent companies post earnings in Dollars, but also the likes of GSK, BP, M&S, NEXT and utility companies have underperformed the market.  Considering the negative stance adopted by many economists towards BREXIT in 2018, despite GDP growing at 1.7% in 2017, the FTSE 250 added 14.5% last year and there is no doubt that this index is a decent barometer for UK companies.  The growth outlook for the UK is not encouraging considering that the World growth is expected to come in at 3.7%. The estimates for the UK vary from 1.5% to as little as 1.1% from the British Chamber of Commerce. The world thinks France’s President Macron walks on water.  Estimates for French GDP come in at 1.8% and unemployment is still 9.2%!  I suppose when you are on a roll in the eyes of the world, you can do no wrong even though the end product looks little better than moderate.

Looking forward, what can we expect here in Old Blighty?  The picture looks mixed to me.  Most economists seem happy and comfortable putting the boot in attempting to bury the UK economy and if not quite that far, certainly giving it metaphorically a good clip around the year with BREXIT as its cudgel.  We are not yet out of the EU and the economy may perform better than we think. However inflation will need to come off the bridle as I think it will if Sterling/Cable starts to power towards $1.40.  However the real cumuli-nimbus cloud is wage inflation languishing at 2.2% to 2.4%.  Less disposable income means that retail can and may well be hit. Away from on-line retail such as Amazon (much of it heavily discounted), the outlook is murky, with NEXT, posting the market on Wednesday, M&S, Kingfisher, Morrison, Debenhams and others looking severely under the cosh.  It will probably be left to Primark (AB Foods), Boohoo, ASOS and Quiz to fly the flag, whilst the consumer continues to discriminate. The rest of the service sector from which the UK economy derives most of its benefit looks moderately rosy.  The threat of hundreds of thousands of jobs from banking going to Frankfurt, Paris and Dublin seems to have abated pro-tem, but I suspect Lloyd Blankfein, Jamie Dimon and others will be cracking the whip to move as many as they can, until they realise that it is very hard to break-up an infrastructure that has worked so well for 70 years plus.  

How will equities fair in 2018?  GDP estimates suggest there is still more gas in the tank. Investors seem enthusiastic about Japan and China (hoping that the banking sector will not implode and that GDP does not drop below 6.5%)). Many analysts are very keen on France, Germany and Spain (recovery pattern). The US seems to go from strength to strength. The market seems to have absorbed a few small rate increases. Whether a further scheduled four hikes can be digested remains to be seen.  Many expect the US and the EU to taper QE.  Will the UK?  The BOE and many economists suggest that the imponderables from BREXIT make the UK’s economy look vulnerable.  The MPC may be forced to keep rates on hold all year unless inflation becomes rampant.  It is possible that we may see a healthy pull-back by most bourses in the first quarter. However unless there is a clear sign that rates globally are on the move up, further gains look likely. I have my doubts about the FTSE 100 as it is not a barometer of the UK economy, but the future for the FTSE 250 looks positive.  Many SMES have great expansion plans covering debt management to private equity assistance to M&A activity, which could give this index and AIM plenty to do. I think you will find Panmure Gordon in the thick of it! Two sectors the market may be negative about are BIG tech and the auto sector. The likes of Facebook with 2 billion users, Twitter, Apple, Alphabet and Snap need to make their peace with regulators and governments over their perceived damaging influence towards children and crime – not insurmountable but it will take time. As for the auto sector, political uncertainty, the fall is sales of diesel cars, the rise in importance of electric cars have thrown a spanner in the works for manufacturers.  This may be a sector to give a wide berth to.  Finally Bitcoin and other crypto-currencies like Ripple has grabbed so many headlines in recent weeks with a meteoric rise from $234 18 months ago to a high of $19k and significant volatility. It currently stands at $13,400. Japan seems keen to adopt Bitcoin and together with futures support, it will continue to grow in stature as a financial product.  We shall see!

HAPPY NEW YEAR TO ONE AND ALL!   

UK Companies posting results this week – Tuesday – Playtech, Wednesday – NEXT, Thursday – MJ Gleeson

US companies posting results this week – Thursday – Walgreen, Boots Alliance, Monsanto, Price-Smart, Sonic, Friday – Constellation Brands

Economic data posted this week – Tuesday – UK PMI Manufacturing, US PMI Manufacturing, Wednesday – UK PMI Construction, US Mortgage applications, US Construction Spending, FPMC Minutes, Vehicle sales, Thursday – Nationwide House price index, UK Mortgage applications, UK PMI Services sector, UK Consumer credit, Friday – BRC Shop Prices, UK New Car Registrations, US Durable Goods, US Factory Orders, US Non-farm Payrolls and employment data.

 

 

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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