WEEKLY FAYRE – Monday, 19th July 2021

July 19, 2021

“Room after room,

I hunt the house through

We inhabit together.

Heart, fear nothing, for, heart, thou shalt find her—

Next time, herself!—not the trouble behind her

Left in the curtain, the couch's perfume!

As she brushed it, the cornice-wreath blossomed anew:

Yon looking-glass gleamed at the wave of her feather.

 

 

Yet the day wears,

And door succeeds door;

I try the fresh fortune—

Range the wide house from the wing to the centre.

Still the same chance! she goes out as I enter.

Spend my whole day in the quest,—who cares?

But 'tis twilight, you see,—with such suites to explore,

Such closets to search, such alcoves to importune!”

 

 

Robert Browning – poet – 1812-1889

 

I cannot ever imagine going on holiday in June or July. There is too much top-class sport to take in. This week we saw the British & Irish Lions returning to winning ways beating the Stormers 49-3, ahead of this week’s first test of three against South Africa in Cape Town. Good to see Alun Wynn-Jones making a miraculous recovery from a dislocated shoulder and Marcus Smith setting down his stall to be included as a sub on the bench as a replacement fly-half.

We have had two sensational T-20 matches between England and Pakistan, with Pakistan winning the first at Trent Bridge by 31 runs. Liam Livingstone plundered the fastest ever T-20 hundred (103) by an England Player. However, Pakistan deserved their victory thanks to a great partnership between Barbar and Rizwan. England won the second match at Headingly by 45 runs yesterday with one game to go at Old Trafford next Tuesday.

Sir Lewis Hamilton won his eighth British Grand Prix at Silverstone, overtaking Ferrari’s Charles Leclerc on the penultimate lap in an exciting race after Max Verstappen was forced to retire. Collin Morikawa won the 149th Open at Royal St George’s by two shots (15 under par) from Jordan Spieth with Jon Rahm in third place in glorious weather. Amazing golf was played over the three days on a testing course that took no prisoners. This is 24-year-old rookie Morikawa’s second major in a year having won the US PGA in May 2020.

 

 

INDEX

12th July 2021

16th July 2021

% Loss/Gain

FTSE

7121

7008

-1.45%

DAX

15675

15540

-0.86%

CAC40

6525

6460

-0.99%

DJIA

34836

34687

-0.43%

S&P 500

4372

4327

-1.03%

NASDAQ

14743

14427

-2.14%

SHANGHAI

3545

3539

-0.02%

HANG SENG

27672

28004

+1.20%

NIKKEI 225

28412

28003

-1.44%

 

 

Last week equity aficionados on both sides of the pond concerned themselves with the threat of inflation, but with different perspectives. A rate of 5.4% for CPI was posted for the month of May in the US. Nonetheless, the Federal Reserve is adamant that this spike in inflation is temporary and will be ironed out once the supply chain starts to flow freely again. Fed chairman Powell has made his reluctance to raise interest rates before next year as clear as he can. Powell is concerned that any precipitous hikes in rates could damage the recovery process; so why be tempted to’ throw the baby out with the bath water?’ If all goes to plan, there will be two modest hikes next year - one in February and possibly one in November.


A rate of 2.5% for CPI for May in the UK seemed relatively mild by comparison, but nonetheless measurement of inflation will be different from the US. Nerves in Threadneedle Street appear more frayed than in Washington, with MPC member Michael Saunders predicting 4% inflation by the end of the year with deputy governor Sir Dave Ramsden flagging up his preference for a hike sooner rather than later, will add credence to the MPC’s concern, following in the wake of valedictory comments made by the outgoing chief economist, Andy Haldane. It appears that Governor Bailey is in no hurry to acquiesce until he sees more adverse data. Many believe that tapering quantitative easing may be a preferred option to start dealing with inflationary issues. U.K. employment data posted on Wednesday was in many respects benign (4.8%). However hourly earnings at +7.3% certainly added fuel to the inflationary fire.


The University of Michigan’s consumer sentiment index, which fell to 80.8 from a reading of 85.5 in the previous month, took the shine off data released earlier on Friday showing a rebound in retail sales during June (+0.6%), propelled by strong demand at electronics stores, apparel outlets and restaurants. The British Retail Consortium said the UK recorded its fastest quarterly growth on record – 13.1% higher in June than the corresponding month two years ago. Hopes of a holiday and warm weather provided the impetus. We must just hope PM Johnson does not lose his resolve in ‘opening up’ the economy coupled with the negative reaction to visiting France and reintroduction of a quarantine period does not do irreparable damage to the economic recovery process. It is rumoured that Chancellor Sunak is considering postponing the Budget until 2022. The OBR requires three months’ notice to produce acceptable forecasts. Receipts are patchy and growth looks a little suspect from previous forecasts due to the threat of increased toxicity for this variant.

It is interesting to note that China’s GDP increased by 7.9% in the 2ndquarter from a year ago, the National Bureau of Statistics said last Thursday. That fell short of Reuters’ estimate of 8.1% growth. However, retail sales rose 12.1% in June from a year ago, more than the expected 11% level forecast by Reuters. Industrial production grew by 8.3% above expectations of 7.8%.

The Shanghai Composite, despite China missing a few economic targets, was the only major index to close in positive territory last week, even though the S&P 500 and the NASDAQ Composite briefly touched fresh records earlier in the week. Moderna entered the S&P 500 and immediately added 8% in value. Most indices surrendered some value due to inflation worries, a drop in crude oil prices, and valuation concerns on the tech sector. The start of the 3rd quarter earnings season was dominated by the US banking sector, which apart from a rather neutral effort from Bank of America, exceeded expectations, especially Goldman, Morgan Stanley, and JP Morgan, who found the alarming increase in global M&A activity and investment banking very much to their liking. Trading income from equities and fixed income largely fell away sharply, with markets less volatile than they had been six months ago.

There were strong trading statements in the UK from ASOS, Dunelm, Burberry, Just Eat, DS Smith and Barratt Development. However, there was a price to pay for indicating that sales growth in the cases of ASOS and Just Eat were likely to fall way. Shares in this retailer and delivery operator fell by 18% and 10% respectively last week. Burberry received notice from its CEO Marco Gobbetti that he was off to Salvatore Feragamo at the end of the year. The fashion icon was also struggling with sales in China, resulting in its shares dipping by 5.2% in the same period. Conversely, Hugo Boss has seen a significant upturn in the sale of men’s suits, Sales were up 133% in the second quarter. Whether that growth rate can be maintained remans to be seen.

M&A activity continued to blaze the trail on both sides of the Atlantic. The government and observers are starting to feel that UK companies are falling too easily to predators from private equity and from the US. It is thought that regulators should be more protective of our companies, as the US, France and Germany are and not allow them to fall into the hands of asset strippers. Many shareholders believe that Morrison is being sold to the wrong counter party at the wrong price. Philip Morris is in poll position to have landed the respiratory titan, Vectura. The cyber security group, Avast, saw its shares bounce by 18%, as it was announced that it was in advanced takeover talks with Norton Life Lock’s software operation. Tate & Lyle is planning an auction of its sweetening and sugar operation, which may end up in the hands of KPS Capital for £940 million. Astra Zeneca won the all-clear to purchase US Alexion, the rare disease biotech for £28 billion. Not to be left out GSK, announced that it was launching a development plan that is set to create up to 5,000 new skilled jobs.The company is looking to extend its facility in Stevenage, Hertfordshire, where it currently conducts research and development.

The most exciting corporate news to transpire last week came from Revolut. Fintech is on a roll in the UK and this banking app operation, which was developed by Nikolay Storonsky and Vlad Tatsenko here in London in 2015, is valued at £24 billion, more than NatWest at £23.6 billion. It is not yet profitable but declared revenues of £222 million in 2020. It closed out on a successful fund-raising operation of £577 million with Softbank and Tiger Global last week and intends to go public, once a valuation of £28 billion has been reached.

John Lewis and Waitrose intend to cut its workforce – mainly middle management – by 1,000 jobs. This makes a total of 4,423 jobs lost in the last two years, leaving the partnership with 34 stores and 331 Waitrose units, as the company grapples with the need to change the emphasis of its operation to on-line trading. Dame Sharon White, the chairman recently announced that JLP had plans to build 10,000 rental homes in the next few years. Once Cazoo, 20% owned by DMGT, has agreed a public quotation in New York and the proceeds from the sale of RMS have been distributed, the Rothermere family have expressed their intentions of taking the news group private. Sir Richard Branson enjoyed the inaugural flight into space for ninety minutes of his Virgin Galactic rocket, ‘Unity’, beating Jeff Bezos and Elon Musk to the punch. Consequently, VG’s shares dipped by 39% last week! While the successful launch was great marketing for space tourism, on Wall Street the enthusiasm quickly faded when Virgin Galactic followed it up with plans for a dilutive capital raise.

The Sunday Times tells us that Mike Ashley, CEO of Frasers (Sports Direct) ‘will be coming off his long run’ in court, revving up his legal onslaught against the former directors and administrators of Debenhams after losing at £150 million in the retailer’s collapse, and also for refusing to open Debenham’s books to him for takeover considerations.

UK companies posting interim results this week – Tuesday – Anglo-American, BHP Billiton, Wednesday – Antofagasta, Close Bros, Euromoney, Petra Diamonds, Royal Mail Group, Thursday – Unilever, Mulberry, Centrica, AJ Bell, DMGT, SSE, Friday – Beazley, Brewin Dolphin

US companies posting interim results this week – Monday – IBM, Tuesday – United Airlines, Halliburton, Travelers, Omnicom, HCA Healthcare, Netflix. Philip Morris, Lockheed Martin, Wednesday – Baker Hughes, Coca-Cola, Tenet Healthcare, Whirlpool, CSX Corp, Comerica, Harley-Davidson, Verizon, Alcoa, Johnson & Johnson, Thursday – American Airlines, Abbotts Labs, AT&T, Biogen, Intel, Newmont Mining, Dow, DR Horton, Snap, Twitter, Friday – American Express, Honeywell, Schlumberger

Economic data to be posted this coming week – Tuesday – US Housing starts, US Building permits, Wednesday – UK PSBR, US MBA Mortgage Applications, US Crude Oil Inventories, Thursday – ECB Meeting, US Initial Jobless Claims, US Existing Home Sales, Friday – UK Gfk Consumer Confidence, UK Retail Sales