“Now is the winter of our discontent

Made glorious summer by this sun of York;

And all the clouds that lour'd upon our house

In the deep bosom of the ocean buried.

Now are our brows bound with victorious wreaths;

Our bruised arms hung up for monuments;

Our stern alarums changed to merry meetings,

Our dreadful marches to delightful measures.

Grim-visaged war hath smooth'd his wrinkled front;

And now, instead of mounting barded steeds

To fright the souls of fearful adversaries,

He capers nimbly in a lady's chamber

To the lascivious pleasing of a lute.

But I, that am not shaped for sportive tricks,

Nor made to court an amorous looking-glass;

I, that am rudely stamp'd, and want love's majesty

To strut before a wanton ambling nymph;

I, that am curtail'd of this fair proportion,

Cheated of feature by dissembling nature,

Deformed, unfinish'd, sent before my time

Into this breathing world, scarce half made up,

And that so lamely and unfashionable

That dogs bark at me as I halt by them;

Why, I, in this weak piping time of peace,

Have no delight to pass away the time,

Unless to spy my shadow in the sun

And descant on mine own deformity:

And therefore, since I cannot prove a lover,

To entertain these fair well-spoken days,

I am determined to prove a villain.”

William Shakespeare – poet & playwright – 1564-1616

 

I must have seen RC Sherriff’s play ‘Journey’s End’ at least three times and always found this WW1 drama set in the trenches on the Somme over 3 days in March 1918 both harrowing, terrifying with a totally futile outcome.  The horrendous loss of life through dogged patriotism and stupidity coupled wholly inadequate preparations made this recently released Saul Dibb’s film adaptation extremely moving and very traumatic. There are some outstanding performance from Paul Bettany (Osborne), whom I haven’t seen since ‘Wimbledon’ and ‘Master & Commander’, Sam Claflin (Captain Stanhope), Asa Butterfield (Raleigh), Toby Jones (Mason the quartermaster) and that brilliant scouse actor Stephen Graham (Trotter). This is one not to be missed – brilliant cinematography and fine acting!

The intensity of the England v Wales at Twickenham was there for all to see - the passion and fierce/brutal level of contact was inspirational, but I am not sure that international rugby is the visual spectacle it once was! I suspect I will receive a tirade of disagreement! England ground out their 12-6 victory but should have killed the match off early in the second half, though Wales will feel aggrieved at having Hanscomb’s try disallowed. The better side won!

All financial market practitioners, if they are truly honest with themselves, must have expected last week’s sharp, volatile and measurable correction to global equity markets - and if not last week, surely imminently? The 40% rally in the DOW in 14 months since the start of the Trump dynasty, exacerbated by January’s unprecedented massive crescendo of frothy gains, triggered by the President’s much vaunted taxation cuts, surely meant that we investors were in ‘La-La-Land!’ The fact that fund managers put $102 billion in to the market in January beggared belief in the circumstances, considering the lofty valuations that prevailed. Even I saw a ‘retrenchment’ coming and flagged it up in December. Company valuations were just too rich when measured against growth prospects, despite the upbeat outlook for the world’s economy. Perhaps we all needed to ‘wake up and smell the coffee!’ Set out below is a table as to how each major index faired since 26th January, when traders started to fall out of love with their bloated positions by taking some risk off the table.

 

INDEX

26/1/18

9/12/18

% loss

% loss last week

DJIA

26616

24190

-9.1%

-7.8%

S&P 500

2872

2619

-8.8%

-7.5%

NASDAQ

7505

6874

-8.4%

-5.1%

FTSE 100

7665

7092

-7.5%

-4.7%

XETRADAX

13298

12107

-8.9%

-5.3%

CAC40

5529

5079

-8.1%

-5.3%

HANG SENG

33154

29507

-11.0%

-7%

NIKKEI

23631

21382

-9.5%

-8.1%

SHANGHAI COMP

3558

3129

-12.1%

-8.3%

 

I think what puzzled us all more than anything else was the manner of the pull-back and the extreme volatility that accompanied it.  We should not be that surprised really.  After all, market business is transacted by way of technology.  There are so many exchanges now, that it is impossible to monitor flows.  The best part of 40% of trades in shares executed are programme trades geared to algorithm trading or emanating from futures and derivative operation. So, no one should be remotely surprised that the spivs and vagabonds more than got in on the act, triggering seismic daily volatility.  Having seen what happened in stock market crashes,1987, 1996, 1998, 2000 and 2008/9, the daily volatility never reached the intensity that we have seen in the last two weeks. This time there was one other factor to take note of – There were variable annuities – a popular tax-advantaged insurance company product, offering guaranteed revenue that helped exacerbate the level of volatility according to the FT.

There are two other ingredients that were not prevalent in yesteryear.  Firstly, quantitative easing has been in situ for a decade, possibly supplying a soft belly for investors, who have understandably filled their boots and very beneficial it has been too.   The US and Japan have started to taper QE, but the EU was 5 years behind the curve and is just about at the zenith of its enjoyment – hence its economy is rather more robust than the UK’S at present. We await news from the BOE’S £475 billion QE facility, though its small beer in comparison to the US’S $4.5 trillion fund. Part of my beef about what appears to have been the disorderly behaviour of the market place is the role played by the Central banks. Though they find themselves in an invidious position, their adoption of forward guidance is surely flawed.  Take the case of BOE’S Mark Carney.  He has been consistently, as have many of the world’s economic luminaries, telling us that the UK economy is going to ‘hell and a hand cart’ in so many words; yet last week the BOE upgraded growth for the UK from 1.5% to 1.7% for 2018 and consequently rates may have to rise twice this year. Maybe I am being naïve, but I find all this very misleading. However much ‘huffing and puffing’ there is over inflation and the threat of rate increases the dangerous level of debt both national, international, corporate and consumer is at breaking point, as pointed out last week by Lord Mervyn King. So, we have had near enough a 10% correction.  It should be enough, but the day trader element may not have had enough bites at the cherry! It was interesting to note that last week U.S. stock funds saw a record $23.9 billion withdrawn by investors in the last week, according to Thomson Reuters data.

Last week was an important week for earnings on both sides of the pond – Here in Old Blighty BP did well, Glaxo was encouraging, Rio was satisfactory. Tesco may have problems with equal pay which could cost another £4 billion in back pay. Finally the government may come to GKN’S  rescue over the Melrose hostile £7.4 billion bid on security grounds.  In the US, Twitter rose by 12%, with Walt Disney and Viacom satisfying their acolytes.  Earnings? Pha! They almost went unnoticed in the rubble of the daily turmoil.  The next wo weeks will be fascinating.  The fundamentals have not changed for the world’s economy.  However, do investors believe it or will they be allowed to?

UK companies posting results this week – Monday – Acacia Mining, Tuesday – Tui Travel, Wednesday -  Relx, Coca-Cola EP, Galliford Try. Shire, Thursday – Aveva, Friday - Segro

US companies posting interim results – Monday – Loew’s. Tuesday – PepsiCo, Metlife, Wednesday – Hyatt Hotels, Cisco systems, Marathon Oil, Marriott, Thursday – Omnicom, Friday – Kraft Heinz, Campbells Soups, Coca-Cola, Deere & Co

Economic data posted this week – Tuesday – UK inflation Data, Wednesday – US CPI & Retail Sales, Thursday – US PPI, Industrial Production and Car Registrations, Friday – UK Retail Sales and US Housing data.

 

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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