Now sleeps the crimson petal, now the white;

Nor waves the cypress in the palace walk;

Nor winks the gold fin in the porphyry font.

The firefly wakens; waken thou with me.

 

Now droops the milk-white peacock like a ghost,

And like a ghost she glimmers on to me.

 

Now lies the Earth all Danaë to the stars,

And all thy heart lies open unto me.

 

Now slides the silent meteor on, and leaves

A shining furrow, as thy thoughts in me.

 

Now folds the lily all her sweetness up,

And slips into the bosom of the lake.

So fold thyself, my dearest, thou, and slip

Into my bosom and be lost in me.”

 

 

Alfred, Lord Tennyson – Poet Laureate – 1809-1892

 

Liverpool FC’S achievements under Jurgen Klopp have been amazing. 16 points ahead of Manchester City with a game in hand, with over one third of the season to go is a masterful achievement and this great club is still very much ‘alive and kicking’ in the Champions league and the FA Cup. Liverpool know how to win ‘ugly’, when only firing off three cylinders. Though Manchester City is well short of last season’s superb standards, I would still rather watch them when they are ‘on song’ than any other Premiership side. The precision of their passing and the individual skill know no boundaries. 

The decision on whether Huawei technology should be adopted by the Government for 5G purposes is likely to be decided on Tuesday, when Baroness Morgan announces the decision. The US is very unhappy at the possibility of this happening. They believe there are severe security risks. There may be repercussions on trade negotiations, if the UK decides to go through with using it.

INDEX

20th January 2019

24th January 2020

% loss/profit

FTSE 100

7674

7585

-1.45%

DAX

13526

13576

+0.40%

CAC40

6100

6024

-1.08%

DJIA

29348

28989

-1.22%

S&P 500

3329

3295

-1.02%

NASDAQ

9388

9314

-0.79%

SHANGHAI

3075

2976

-3.22%

HANG SENG

29056

27949

-3.47%

NIKKEI 225

24041

23827

-0.89%

 

No one would challenge the deadly Coronavirus’ right to be at the top of this week’s economic and business agendas. Initially, it put the fear of God into investors, who were inclined to take some risk off the table across the spectrum and head for assets that represented a flight to quality. Gold did not rally as much as I thought it might – only 1.2% last week to $1571 and ounce though it has increased in value by 12.9% from $1392 since July 2019. As for Brent Crude oil, it slipped by 5.4% to $60.69 a barrel, but it has also dropped sharply in value from $70 a barrel in January. Why? There is some concern about contagion for this virus as, there is no known cure or vaccine. If Coronavirus spreads, it could damage global GDP by as much as 0.5%. Global GDP is already dispiritingly benign.  However, there is something to be said for a totalitarian government in helping to contain movement. People in China tend to do as they are told and so won’t move around so much as they would like to. The death toll is increasing, but not yet alarmingly.

7000 people were killed by Asian flu in 1957 and in 2003, 700 people out of 8,000 who were officially diagnosed died from SARS. Health control is much more disciplined today, so hope springs eternal.  That is what markets think. Otherwise equities would have fallen away more virulently. As it was, most of the main global indices eased, as can be seen from the above table. In yesteryear the damage would have been far greater. The exception was Germany. The Xetra Dax, which finished the week, marginally in positive territory, thanks in the main to improving economic data on the manufacturing and service sector fronts. The world will be eagerly watching to see if this debilitating virus can be contained. The situation would not have to deteriorate very much for some risk to be taken off the table, thus sending equities further South!

The US economy showed little sign of weakness last week, though it was preoccupied by the impeachment of President Trump. Many would be surprised if the Democrats had the votes in the Senate to achieve their goal of having him removed from office.  The other economic and business distraction last week was the WEF in Davos. It did not get good press for its ‘Climate Change’ packed agenda. Greta Thunberg, the Darling of this movement, and the Prince of Wales gave hard-hitting and impassioned speeches respectively, but the US was in no mood to be trifled with. So, without the tacit support and appearance in unison at a conference of this so-called importance and magnitude of Messrs Trump, Xi, Putin and Modi, this ‘Call to Arms’ will appear to have limited influence. This gathering of the ‘good and the great’ is a total waste of space, with the media excluded. What an opportunity it had to get copy from so many business moguls in one week.

Just before Christmas Governor Mark Carney seem to have the support from 4 other members of the MPC to cut rates by 0.25% at the next meeting to 0.5%, as the economy was starting to look rather feeble, after dire retail and manufacturing data was posted in December. However, the green shoots of recovery are starting to appear. Last week the IMF lowered its estimate for global growth to 3%. Notwithstanding that prognosis, it upgraded the UK GDP for 2020 to 1.5%, ahead of some of its European peers, In recent years the IMF has been no fan of the UK, so it was encouraging to see some global support, even though the IMF’s forecasts have been far from faultless. The ONS also helped with news that the outlook for the last month for UK PMI (52.4) was the best in living memory. I am no economist, but I think it is far too early to cut rates. If the recovery is coming, then it makes a mockery of ‘forward guidance.’ Certainly, since these nuggets of data were posted, the possibility of a cut is receding. It was also encouraging that despite retail having lost 57,000 jobs in 2019, official employment data showed that 208k people had found work leaving the unemployment rate at 3.8%.

Finally, on the economic front, a note of caution was being implored. The global economy has not been in worse shape from a trade perspective for several years. Despite progress in the SINO/US trade war, global trade continued to drop in the past couple of months and was down over 1% from its 2018 level in November. Of most concern was the evidence that the ‘drop’ in activity was broad-based, with the Eurozone, the US, Latin America, and emerging Asia all seeing falls in trade.

Last week was a huge one for fourth quarter earnings. In the US, earnings were generally quite decent with Johnson & Johnson, Procter & Gamble and Intel blazing the trail. Texas Instruments came up slightly short, as did Halliburton. Comcast were grateful to Sky, for whom they paid $30 billion at the end of 2018, for a solid performance. Starbucks semi pleased their acolytes, but it would be as well to keep a watching brief on Beyond Meat which has rallied 80% in recent months on deal speculations. Some commentators are suggesting that Starbucks could be in the frame – pure conjecture.  Netflix posted better than expected revenue and increased their global subscribers by 8.33 million in the last quarter but analysts were disappointed with the increase in the US.

Goldman Sachs’s CEO David Solomon has let it be known that the US leading investment bank will not advise any company on its IPO unless it displays significant diversity at senior management level. Amazon’s Jeff Bezos is alleged to have had his mobile hacked by Saudi Arabia’s Crown Prince Mohammed Bin Salman. Amazon owns the Washington Post, which has been very critical of ‘the Khashoggi murder.’ This story might run for a bit! JPM Morgan’s Jamie Dimon, who has been stewarding the US’s largest bank, which has seen its shares rise from $15 in 2009 to $133 on Friday, will receive a bonus of $30 million plus for his efforts.

Here in Old Blighty easyJet pleased the market with the last quarter’s performance. Whitbread disappointed, thanks to sales in Premier Inn Hotels having dropped. Pets at Home, JD Wetherspoon and WH Smith all delivered upbeat outlooks. However, despite great sales at PC World and Curry’s, Dixon Carphone’s mobile phones sales dropped. Initially the company posted an increase in overall sales of 2% but changed the number later in the morning to down 2%. Shares still rallied by 7% on the day. I think the market needs an explanation. Fever-Tree’s results were way short of expectations with shares falling by 27%. Dave Lewis the outgoing CEO of Tesco announced that the plastic wrapping of tins and other goods will cease, by removing 67 million pieces from its shelves by March 2020. Some cynics say it is a drop in the Ocean, but it’s a decent start.

Sergi Ermotti, CEO of UBS posted an improvement in the final quarter earnings, but investors were unimpressed by the year’s results and they took the shares down 5% last Tuesday. Talking of Bonuses, Jes Staley CEO of Barclays has put staff on notice that bonuses for the past year will be cut.  We have not heard the last of the Huawei controversy between the US and the U.K. The US’s insistence that there is a security risk may cost the UK, which is opposed to the idea, a trade deal.

In closing the Sunday Times tells us that the Government may nationalise the Northern Rail franchise, which is in such a parlous state. RBS is to cut thousands of jobs at NatWest branches and Mike Ashley is considering a £340 million bid for Newcastle United. I wonder if Amanda Staveley may rue that decision?

UK companies posting results – Monday – ITM Power, SThree, Tuesday – Crest Nicholson, Filtronic, McCarthy & Stone, PZ Cussons, AG Barr, Saga, Virgin Money, Wednesday – Brewin Dolphin, Fresnillio, SCS Group, Thursday – BY Group, Diageo, Rank Group, Santander UK, Unilever, Haynes Publishing, Renishaw, 3i, Centamin, Evraz, Fuller, Smith & Turner, Kaz Minerals, Mitie, Paragon, St James’s Place, Friday – Aon, TSB Banking Group, Hargreaves Lansdown, TalkTalk, Britvic, SSE

US companies posting results – Monday – Caterpillar, Rambus, Whirlpool, Tuesday – 3Ms, Allergan, Amgen, Apple, Corning, eBay, Harley-Davidson, HCA Healthcare, Lockheed Martin, Pfizer, Pulte, Verizon Communications, Wednesday – AT&T, Boeing, CIT Group, Dolby, Facebook, KLA Corp, McDonald’s, PayPal, Qualcomm, Sprint, Tesla, US Steel Corp, Visa, Wynn Resorts, Thursday – Altria, Amazon, Blackstone, Conoco-Phillips, Dow Chemical, DuPont, GE, Hershey, International Paper, Mastercard, Microsoft, Northrop Grumman, Raytheon, UPS, Valero Energy, Friday – Chevron, Cigna, Exxon Mobil, Honeywell, Merck, Weyerheuser, Zimmer 

Economic data to be posted this week – Monday – US New Home Sales, Tuesday – CBI Distributive Trade Survey, US Goods Trade Balance, Wednesday – FOMC Meeting, Thursday – MPC Meeting, US GDP, Friday – UK Mortgages & Consumer Credit, EU GDP, US Personal Spending

 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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