Now the leaves are falling fast,
Nurse's flowers will not last;
Nurses to the graves are gone,
And the prams go rolling on.

Whispering neighbours, left and right,
Pluck us from the real delight;
And the active hands must freeze
Lonely on the separate knees.

Dead in hundreds at the back
Follow wooden in our track,
Arms raised stiffly to reprove
In false attitudes of love.

Starving through the leafless wood
Trolls run scolding for their food;
And the nightingale is dumb,
And the angel will not come.

Cold, impossible, ahead
Lifts the mountain's lovely head
Whose white waterfall could bless
Travellers in their last distress.”


WH Auden – Poet – 1907-1973


‘Parasite’ – I’ve never witnessed such euphoria over a film winning Oscars in two major categories – best film and best director – in fifty years of watching the Academy Awards. So, I rushed out to see it on Monday. I just did not get it. It was beautifully filmed. I understood the rift between the upper-class and those in poverty and the resentment. Nonetheless, the plot was highly improbable and for me it was so far too ‘over the top’, lacking in credibility. I remain in a huge minority in terms of my adverse reaction to the film. I will probably go and see it again, to see whether I can be won over. I doubt it

The demise of Sajid Javid as Chancellor of the Exchequer and his subsequent resignation must have been very painful for him. It was a lifetime's ambition. I salute Sajid Javid for his honesty, integrity, loyalty and great dignity, However, Dominic Cummings insisted from the outset that he had total control of advisers and those civil servants associated with No. 10 before taking the job, so a shock it may have been to the public, but hardly a surprise. As Panmure Gordon’s Simon French pointed this out in his Times article a couple of months ago – ‘Sajid Javid was in office but would probably have limited power.’

Special advisors, ever since the days Margaret Thatcher, have wielded far too much power. From what I could see Charles Powell ran No. 10 in the ‘80s. Alastair Campbell certainly did in the Blair years, as did Steve Hilton for David Cameron. Nick Timothy and Fiona Hill certainly left their footprint in No:10 – so we should not be remotely surprised at the immense influence Dominic Cummings brings to bear to the Johnson Premiership, regrettable though it may be.



10th February 2019

14th February 2020

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Investors had a compendium of issues to contend with last week. The threat of the coronavirus has been at the top of their agenda – 1700 deaths and 70,000 cases of infection. How damaging could it be to global growth? The market’s reaction suggests that it may eventually be contained. However, has China been economical with the truth? It has been noticed by business and industry that spare parts are not leaving Chinese ports for the auto industry, initially flagged up by Fiat Chrysler. JCB are feeling similar effects over the manufacture of their diggers, resulting in the workforce going on shorter hours. Companies such as Burberry, Starbucks and McDonald’s have also not been immune to this disease. The outlook seems murky. Add to those imponderables, Germany just missing heading into recession with no growth in the final quarter of 2019, with the outlook for the first quarter of 2020 not looking any more encouraging and observers have the right to consider raising alarm bells. The service sector bailed the UK in the final quarter of last year (+0.3%) from a similar plight.

Investors kept their nerve last week apart from the FTSE 100, where a combination of the banking, mineral and energy sectors took London’s main index below the Plimsoll line, aided by the uncertainty created by jingoistic behaviour from the EU/UK trade talks, which may still result in no deal. Chancellor Javid’s resignation was treated with dismay by equity geeks, though the Pound rallied by almost a cent to $1.3043. Why? Solid support by the Cabinet for Johnson’s policies re BREXIT and increasingly robust plans for infrastructure spending. Market observers are also concerned that President Trump may not be as sweet on a trade deal with the UK due to differences on Huawei.

New York’s main indices were clearly buoyed by the Street of Dreams attempting to convince themselves that President Trump would be returned for a second term, so unimpressed were they with the performances of the Democrat candidates - Messrs Sanders, Warren, Biden et all in Iowa and New Hampshire. Unless Michael Bloomberg rises like the ‘phoenix from the ashes’ in the next few weeks it’s hard to believe the Democrats have a credible candidate. Some believe that Bloomberg has left it too late. The upbeat mood on Wall Street was also given some impetus by consumer spending in the U.S. picking up slightly in January after a weak holiday season. However, manufacturing started the year on a decline, suggesting forces that slowed 2019 growth continued at the start of this year.

The general quality of the earnings season in the US has tended to be good. To date 69% of S&P 500 companies have reported a positive EPS surprise and 65% of S&P 500 companies have reported a positive revenue surprise. Tesla has priced its secondary common stock offering at $767, a 4.6% discount from Thursday’s share price close. The company sold 2.65 million shares at that discounted price to raise more than $2 billion. Lead underwriters Goldman Sachs and Morgan Stanley have the option to buy an additional 397,500 shares in the offering. In the past year Tesla’s stock has risen from $304 to $802 – up a staggering 163%.

Recently, Viacom has been one of the least successful media operations and it has seen its share price fall from $34 to $25 in the last year – down 26%. Conversely, Beyond Meat, which also posted earnings has seen a meteoric rise in its value since its IPO – up 78%. Alibaba has started to feel the adverse effects of coronavirus – down 2.5% on Thursday, but in the last year it has rallied by 53%! Cisco Systems’ earnings were marginally dispiriting, with shareholders taking the stock down by 6% on Wednesday. Lyft, another IPO in 2019, similar though smaller than Uber, posted sales that seemed short of expectations. Shares were down 4.98% on Friday and since March 2019 their value has been lowered by 43%. Sprint and T-Mobile completed their complicated $26 billion merger.

Amazon temporarily won a battle in court against Microsoft. A federal judge on Thursday ordered a temporary block on the JEDI cloud contract in response to a lawsuit filed by Amazon. Last month, Amazon’s cloud-computing arm, Amazon Web Services, filed a motion asking the court to pause Microsoft’s work on the $10 billion cloud contract. Part of the JEDI cloud contract was awarded to Microsoft last October.

Here in Old Blighty last week, BP’s numbers posted last Monday were better than expected but CEO Bernard Looney concentrated on the oil magnate’s decarbonising plans; so essential to maintain broad shareholder support. Ocado posted solid numbers with sales for the last quarter up 10.3%, despite a loss that quadrupled on the previous number. This was down to a £600m investment. Dunelm also excelled with the house upholstery titan pushing on with its sales, which saw its share price rally by 8% on Friday. Astra Zeneca’s efforts on Friday were affected by a drop in business in China, on whom it is hugely reliant – one suspects and hopes only temporarily – shares down 4.27%. Segro’s profits were down 18% in the last quarter – marginally better than had been expected. Centrica, the owner of British Gas, posted disastrous numbers – a loss of £1.1 billion, which saw its shares clattered down 17% last Thursday. The market hopes that Ian Conn’s successor as CEO can implement a decent business plan quickly. Tui Travel posted encouraging sales, which saw its shares rally 11% on Tuesday, though the rest of the week saw some of their glister removed.

And so, to the banks - It was certainly an eventful week. Credit Suisse posted its best results for some years - reporting a net profit of $3.5 billion, up 69% from the $2 billion net profit reported in the financial year 2018. However, its CEO Tidjane Thiam resigned over the internal espionage scandal, which won’t go away. This was met with Chairman Urs Rohner’s surprising blessing. Two years ago, Thiam and Rohner were inseparable.

Barclays posted decent numbers on Thursday, but CEO Jes Staley grabbed a few unwanted headlines over the forthcoming investigation of his former relationship with the disgraced financier Jeffrey Epstein. Mr Staley has a habit of courting controversy and is behaving like a cat with nine lives. The market hopes he can put this matter behind him very quickly to help the continuing progress of the ‘Bald Eagle,’ Alison Rose posted her first set of numbers for RBS on Friday. Pre-tax profits were up 26% to £4.2 billion. However, clarification over the sale of the taxpayer’s 62% stake is fundamental. RBS is changing its name to NatWest Group. That might help, but only peripherally. Also, I refer again to salient comments made by PMH Capital on Friday: “Given the restrictive ratios and high cost base, will UK banks ever again make a sustainable return on capital, above their cost of capital (say at a nominal 10%?). If not valuations of banks like RBS will remain stuck in a rut.”

The Sunday Telegraph tells us that when Mark Tucker Chairman and temporary CEO Noel Quinn set down HSBC’s stall on Tuesday, expect large redundancies with many big hitters to lose their jobs. Morale at HSBC is dreadful. The management has a huge job on its hands, in pulling it around. It also tells us that Anglo-American will have to sweeten its offer to placate the North Yorkshire folk in its quest to take over the potash operator Sirius. The Sunday Times informs us that Jupiter may be close to taking over Merian for £500 million. The two fund managers would have £67 billion under management. Finally, we hear from the ST that Unilever is having an in depth look at its healthcare and beauty products. The company is suffering poor growth. Should these outfits be hived off? We shall know in about nine months.

UK companies posting results this week – Tuesday – HSBC Holdings, Intercontinental Hotels Group, BHP Billiton, Glencore, Wednesday – Intu, Laura Ashley, Hochschild Mining, Thursday – Anglo America, BAE Systems, Go-Ahead, Hays, Kaz Minerals, Lloyds Banking Group, McBride, Morgan Siddall, Rathbone Bros, Serco, Moneysupermarket, Smith & Nephew, Aveva, Friday - Pearson

US companies posting results this week – Tuesday – Baker Hughes, Walmart, Wednesday – Agilent, Jack-in-the-Box, Thursday – BJ Restaurants, Caesar’s Entertainment, Domino’s Pizza, Hewlett-Packard, Newmont Mining, Wendy’s

Economic data to be posted this week – Monday – New York Closed President’s Day – Tuesday – UK Employment data & Average Earnings, Germany’s ZEW, Wednesday – UK CPI, US Building Permits, US FOMC, Thursday – CBI Industrial Trends, EU Consumer Confidence, US Jobless Claims, Friday – UK, EU, US PMI Manufacturing & Services activity

 David Buik

Core Spreads

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