“Just A Week Into 2020 - Indulge Me! Let Me Ruminate!”
The year is only a week old; so, I am reluctant to get into any areas of prognosis for global stocks, foreign exchange picks or the paths oil and gold will take this month – let alone the year. There are much cleverer people around than me. So, I give them the floor….
With Donald Trump ‘in situ’ as POTUS, nothing should surprise any of us. However, he still has the capacity to deliver the ‘outrageous.’ – and so he did last Friday, when his drone took out Iran’s General Qasem Soleimani in a heart-beat outside Baghdad airport, without, I hasten to add, consultation with or warnings for its allies.
The reaction by the markets has been remarkably somnolent, if not philosophical, in response to this act of aggression. Equities have all but kept their poise. Oil, unsurprisingly bounced by 5% to $70+ for Brent crude, but has fallen back by about 3.5%. The flight to quality merchants bought gold and took it to its record price in 7 years to $1590 an ounce. However, the cream has now been skimmed off the top. Many will recall the bombing of Saudi oilfields, attributed to Iranian terrorism last August. Oil prices surged then, but soon returned to normality.
I think it is important to try and understand that the demographics from geopolitical issues in making investment decisions seem to have changed radically. These days investors, analysts and economist rarely respond with knee-jerk reactions. If they do it tends to be temporarily. As Panmure Gordon’s Simon French put it to me today so succinctly - “No strategist is going to permanently change their entire view on a whim. Any reprisals or escalation of military activity in the Middle East is not going to sort this issue out in a week. This troubled arena is likely to pose problems for decades!” – hence the rather muted and laid-back approach by investors to equity markets. The fundamentals for equities look decent. Central banks seem to have little appetite for raising interest rates. In fact, we hear that there could be a further expansion of quantitative easing, certainly in Europe and more infrastructure spending globally to prevent the any likelihood of a recession. There is also the need to let the three cuts in rates in the US last year to filter through to the corporate world for it to feel the real benefit.
Post elections, there seems to be some clarity with regard to BREXIT though the economic road will remain bumpy for some months. The EU clearly want BREXIT to fail and who can blame them, as success would mean other countries will follow. Most people think GDP in the UK will pootle along at about 1.1% - the weakest since 2009. Again, Simon French of Panmure feels that if the UK government can agree the basis of a trade agreement with the EU, 1.5% growth is not an outrageous possibility. There is a bucket load of money waiting to hit exciting UK business opportunities, with tech in the vanguard. Last year was a truly awful one for IPOS in the UK. The number of deals dropped by 62%. There were only 34 floats, with only two being valued at £1 billion – Trainline and Network International. This year it is possible that the following will come to the altar on consecration – 02, Dangote Cement, Asda, SDIC Power, Deliveroo, McLaren, Jaguar Land Rover and Vue International, as well as copious other smaller and medium sized SMES.
This week all the UK supermarkets posts their holiday trading statements. Morrison stepped up this morning with like-for-like sales down 1.1% for the holiday period at down 1.7% for the first 22 months of the year. These numbers are slightly less awful than expected. Morrison’s share price is down 19% since February 2019 to 198p. CEO Dave Potts is under increasing competition from the likes of Aldi, whose sales breached £1 billion this year – up 7.9% in the four weeks leading to Christmas Eve. Sainsbury follows tomorrow and I fear their numbers may not turn the world on its axis. Tesco should be agreeable, and M&S may see a 1.1% increase in food sales to compensate a possible 0.8% drop in general merchandise sales.
Across the pond Alphabet’s stock reached a record ‘high’ of $1397.81, valuing the company at $963 billion. The appointment of Sundar Pichai as CEO to replace Messrs Brin and Page has met with approval with analysts. Tesla's share price rallied to an all-time ‘high.’ Its market capitalisation ($83 billion) is not a million miles of General Motors and Ford combined.
There was an excellent piece in the Daily Mail by Hugo Duncan today about the great exodus of FTSE 100 bosses. Last year we saw BP (Bob Dudley), Tesco (Dave Lewis), Auto Trader (Trevor Mather), HSBC John Flint), Kingfisher (Veronique Laury), RBS (Ross McEwan) and Aviva (Mark Wilson), IMPS (Alison Pearson), Pearson (John Fallon) and Andrew McKenzie (BHP) have all left their positions as CEOS or have served notice to go. There may be more to follow for an array of reasons – Barclays (Jes Staley), IAG (Willie Walsh), and Lloyds Banking Group (Antonio Horta-Osario) are amongst those who may want to go or who are vulnerable. CEOS can stay in situ too long. Changes should be considered after 5 years to breathe fresh life into companies. Remuneration is gargantuan with the average FTSE 100 CEO salary standing at £3.4 million.
David Buik
