“Once more unto the breach, dear friends, once more;

Or close the wall up with our English dead.

In peace there's nothing so becomes a man

As modest stillness and humility:

But when the blast of war blows in our ears,

Then imitate the action of the tiger;

Stiffen the sinews, summon up the blood,

Disguise fair nature with hard-favour'd rage;

Then lend the eye a terrible aspect;

Let pry through the portage of the head

Like the brass cannon; let the brow o'erwhelm it

As fearfully as doth a galled rock

O'erhang and jutty his confounded base,

Swill'd with the wild and wasteful ocean.

Now set the teeth and stretch the nostril wide,

Hold hard the breath and bend up every spirit

To his full height. On, on, you noblest English.

Whose blood is fet from fathers of war-proof!

Fathers that, like so many Alexanders,

Have in these parts from morn till even fought

And sheathed their swords for lack of argument:

Dishonour not your mothers; now attest

That those whom you call'd fathers did beget you.

Be copy now to men of grosser blood,

And teach them how to war. And you, good yeoman,

Whose limbs were made in England, show us here

The mettle of your pasture; let us swear

That you are worth your breeding; which I doubt not;

For there is none of you so mean and base,

That hath not noble lustre in your eyes.

I see you stand like greyhounds in the slips,

Straining upon the start. The game's afoot:

Follow your spirit, and upon this charge

Cry 'God for Harry, England, and Saint George!'”

 

William Shakespeare – poet & playwright – 1564-1616

 

Last week’s investment agenda has been unsurprisingly dominated by the bellicose war of attrition and words between Russian and the US and its allies towards the inhuman and barbaric chemical attack against defenceless civilians in Syria. A very diligent and focused military track on Syria, which would not cause the loss of civilian lives, seemed inevitable last Tuesday. But as the week moved on, there has been a degree of prevarication by the Trump administration as to what form the retaliation would look like. It appears that the Pentagon and the State Department encouraged a more cautious approach than perhaps President Trump might have adopted.  Though the support was there from France and U.K, there still seemed to be a lack of crystal clear evidence to totally satisfy the public at large as to where the chemical attacks originated from to justify an immediate military strike.

 

There were also other major issues to take in to the mix for formulating last week’s investment plans. The trade tariff spat between the US and China looked ugly initially, but the threats seemed to have abated for the time being, but this saga has plenty of momentum left in its tank. Trade tariffs will be at the top of the agenda at meetings of the IMF and World Bank this week.  Then, on the US domestic front the FED posted its FOMC minutes, which suggested that the economy was robust enough to cope with further modest rate hikes, which was endorsed by rising inflation in the US, especially wage inflation, which reached 2.7% at its last reading. And finally, the vibes for the second quarter US earnings season, which started in earnest on Friday are by all accounts very encouraging. As the week progressed confidence slowly returned with most global indices gaining between 1% and 2%.

 

Then, low and behold in the small hours of Saturday morning, the US with the help of UK and France bombed chemical weapon development sights and factories, east of Damascus and in Homs. Russia was outraged, and the world waits for reprisals, though it seems unlikely that Russia would want to engage in all-out war with the US. Is that it, we are all asking? We may well ask. One suspects the dirty trick department in Moscow will be flat to the boards with sophisticated and brutal cyber retaliation. Putin is not a man to be trifled with and markets may react with a further degree of excessive volatility in the early part of next week, despite the fact equity markets have the desire to crack on.

 

Looking at the global indices performances collated below, again one could be forgiven for thinking it was a decent week of steady progress, but it wasn’t.  What this table should have expressed was the high degree of volatility and underlying uncertainty. The fact that the world’s economy appears to be in good shape, is not being fully reflected, due to high-octane geopolitical uncertainty.

 

 

INDEX

9/4/18

13/4/18

% gain/loss

FTSE 100

7183

7264

+1.1%

XETRA-DAX

12311

12442

+1.1%

CAC40

5271

5315

+0.8%

DJIA

24037

24360

+1.2%

S&P 500

2617

2656

+1.5%

NASDAQ

6971

7106

+1.9%

Hang Seng

30104

30808

+2.3%

Nikkei

21534

21778

+1.1%

Shanghai Comp

3125

3159

+1.1%

 

The US earnings season kicked off in earnest last Friday with Citigroup, Wells Fargo and JP Morgan Chase all posting their numbers. In the past year, thanks to promised tax changes and the attractiveness of proposed higher interest rates, bank shares have enjoyed stellar gains – JP Morgan +28% and Citigroup +20%, Bank of America +30%, Goldman Sachs only 13%, thanks to poor trading revenues, Morgan Stanley +27%, though Wells Fargo, thanks to scandals and write-downs, has seen its shares ease by 2%.   On Friday Wells Fargo’s numbers indicated a 10% drop in revenues in the past year, whilst JP Morgan’s income rose by 35%. Bank tax rates fell from 23% to 17%. Expectations were high for bank earnings. Though these numbers were solid, it was a case of having ‘travelled and arrived!’ – JPM -2.7% on the Friday, Citigroup -1.5% and Wells -1.8%. Analysts and investors are expecting quite a lift in earnings this coming quarter and few analysts are being sucked in to the age-old game of beating unrealistically low earnings estimations. These may not wash anymore. Facebook never left the headlines and it appears that CEO Mark Zuckerberg has much to do to placate Congress and investors that he is on top of corporate governance and security issues.

 

Here in Old Blighty a few FTSE 250 companies posted greatly improved numbers last week – Dunelm, Greene King, Man Group and Saga particularly come to mind; all gaining over 6% in value on Thursday. On Friday Sage posted poor numbers, resulting in the shares falling by 17%. De La Rue will need to be on their metal to avoid being taken over, with its shares having fallen 50% in the past 4 years.  Corporate raider Ed Bramson may raise his game to see Barclays Bank revitalised with perhaps a break-up of the bank, easing out of investment banking.  That would be bad for London as a leading financial centre. Bramson owns 5.2% of Barclays. Hedge Fund investors with Elliott to the fore will be making demands to have Whitbread broken up, with a view to achieving greater shareholder value, hoping that Costa Coffee will be hived off.

 

Three big personalities hit the business front pages this week. John Cryan CEO of Deutsche Bank was relieved of his duties on Monday. He did not have the Vorstadt’s support to balance Deutsche’s affairs, with decent joint stock banking coupled with a major role in investment banking.  In terms of derivative trading Deutsche global influence was always considered to have been too great! Also, the DOJ’s $7.2 billion fine for market abuse on mortgage backed securities was probably the straw that broke the camel’s back. Deutsche’s shares have been in the doldrums in recent times falling by 60% in 3 years to €11.70.

 

News broke last night that after 32 years Sir Martin Sorrell will step down as CEO of WPP – an amazing compendium of marketing, advertising and PR companies in 120 countries employing over 205k people.  He did an amazing job and often courted controversy with the huge bonuses he earned.  I hasten to add that Sir Martin was an entrepreneur and not a manager; so much of his remuneration was justified in comparison to the huge disproportionate amounts paid to managers of businesses. WPP rather lost its way in the last year. WPP seemed to miss the change in emphasis in its business, with digital advertising being miles more important than TV and newspapers with the likes of Google, Apple, Amazon and Microsoft possibly responsible for 40% of advertising revenues. WPP’s shares have fallen 30% in the last year. There were allegation of exaggerated expenses claims, vigorously denied – all very sad after such a brilliant career. 

 

After an unpleasant and dangerous spat between LSE Chairman Donald Brydon and CEO Xavier Rolet, Europe’s premier exchange has witnessed the departure of the brilliant Frenchman, who distinguished himself over the past 9 years of his stewardship – shares up from 400p to 4270p.  He is being replaced by the relatively unknown Goldman Sachs director David Schwimmer – not the actor. Mr Schwimmer (49), an US Ivy League product form Yale has been at Goldman for 20 years.  He has big boots to fill.  He must make it clear from the start - no deal with Deutsche Boerse. He must reassure markets that BREXIT is not a disaster. He must ensure that most of LCH’s business remains in London. Finally, if there is going to be an alliance one with an international flavour – US or Far East - is infinitely preferable. 

 

Sanctions against Russian oligarchs saw shares in Deripaska’s Rusal and EN+ fall by nearly 50% last week. Many believe that this will be not good news for London as a financial centre.  We shall see.

 

UK companies posting results this week – Tuesday – , JD Sports, AA, AB Foods, Ashmore, Rio Tinto, Wednesday – BHP Billiton, Countryside, Hochschild Mining, Relx, Bunzl, Moneysupermarket, Polymetal, Jupiter, Thursday – Sky, Debenhams, Acacia Mining, Unilever, Rentokil, Essentra, Pentair, Segro, Domino Pizza, Friday – Reckitt Benckiser

 

US companies posting results this week – Monday – Netflix, M&T Bank, Bank of America Merrill Lynch, Tuesday – Goldman, UnitedHealth, Comerica, Omnicom, Johnson & Johnson, CSX, Wednesday – Morgan Stanley, Abbott Labs, Fred’s, American Express, Alcoa, US Bancorp Thursday – Bank of New York Mellon, Philip Morris, Friday – Baker Hughes, Honeywell, Schlumberger, Proctor & Gamble, GE

 

Economic data posted this week – Monday – US Retail Sales, Tuesday – Germany’s ZEW, UK Labour figures, US Housing data, Wednesday – UK Inflation data, House prices, FED Beige Book, Thursday – UK Retail sales

 

David Buik  

Core Spreads

Core Spreads is financial trading as it should be. No noise – just tight spreads on thousands of markets..

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