Markets Live chat transcript for the chat ending at 11:25 on 9 Apr 2010. Participants in this chat were: Bryce Elder Izabella Kaminska, FT
BE
Good morning
BE
And welcome to Markets Live
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FT Alphaville’s daily wander around the markets.
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Sunny out today.
BE
So it’s time to invest in one of these
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So we can take ML on the road.
IK
IK
Hello all
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Izzy’s here of course
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Hello Iz.
IK
Can we take ML outside into the sunshine then?
IK
Like when you did lessons in the park at school?
BE
We’ve always talked about doing a session from Cheltenham or Wimbledon or something.
BE
But it never comes together, partly because we’re all stuck at our desks and partly because the FT has about 3 corporate laptops
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Which need to be booked about a decade ahead.
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And are the size of suitcases.
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ROTR note the Grand National this weekend
BE
I’ll email Shrewdette for her advice
BE
But in the meantime, should we push on to the market?
IK
yes please
11:09AM
IK
Risk appetite seems to be back, thanks to the americans completely ignoring the situation in Greece yesterday
BE
Yup
IK
I use Dennis Gartman’s daily note as a good indicator of American awareness of non-US stories
IK
And a quick look today mentions not a word about Greece
BE
You’re suggesting our transatlantic cousins are somehow insular?
BE
That’s quite an accusation.
IK
Isn’t it a fair comment?
BE
Well, the rabble is welcome to share its thoughts.
IK
Anyway, it looks like things could be heating up again if UBS analysts know what they’re talking about
IK
Tracy’s done a post on their latest note
IK
In which they write
IK
We think an intervention over the week end is a distinct possibility.
IK
JP Morgan’s equally concerned
IK
Getting close to the activation of the Greek support mechanism
IK
is what they say on Friday
IK
Here’s some more from the note
IK
With government bond yields having risen sharply over the past week, and concerns about market liquidity and deposit outflows from the banks mounting, we are likely getting close to the point when the Greek government will ask for the EU/IMF support mechanism outlined two weeks ago to be activated.
The support mechanism has two objectives. First, to give Greece some breathing room to achieve the necessary fiscal consolidation away from the pressure of the financial markets. And, second, to limit contagion risk both to other sovereign debt markets and to the financial system across the region.
IK
Activation essentially means bailout
IK
That said, greek bonds are a little stronger today
IK
but by no means out of the woods yet
BE
Indeed – although there’s now unconventional intervention
BE
Namely
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Target: £100,000,000.00
Raised so far: £100.00
Raised so far: £100.00
IK
ha ha
BE
£100! It was £30 when I last checked.
IK
Although the National of Bank of Greece has it’s own fund
IK
Stacy flagged it up yesterday
IK
IK
So do please give generously
IK
Bryce?
BE
Um. I’m a bit short this week. Sorry.
BE
Anyway, what’s the current score for the FTSE?
IK
Up 37.85 pts at 5750
BE
So – pretty much flat on a two-day view.
IK
it would seem so
IK
any corporate news though?
BE
Well, it follows the strong retail sales from the likes of Macy’s, Nordstrom and Gap
BE
And we’ve had the usual 30%-type gain from John Lewis today, although that’s distorted by Easter
BE
Other than that, not much on the corporate side.
11:18AM
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ROTR seem very excited about James Caan’s Newsnight appearance last night
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Here’s the link for those who missed it
BE
And here’s the summary for those only mildly interested
IK
I lurrv James Caan
IK
But i missed newsnight, what did he say/do?
IK
In silky dulcit tones…
IK
And pinstripe suit no doubt
BE
Well, he was brought in on the assumption that he’d tear a strip off a Treasury bod about their NI tax rise
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Then said something along the lines of “this’ll only cost businesses £15 a week to employ someone, which is an irrelevant cost.”
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Leaving Paxo stuffed and the Treasury person grinning
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It was marvellous television, and will probably get a Newsnight runner sacked.
IK
I will have to watch it
BE
Anyway, much as I’d like to do a session of TV reviews, we should return to the market I guess.
11:22AM
IK
So what’s moving today?
BE
Same things that were yesterday.
BE
Just in the opposite direction.
Cairn Energy PLC (CNE:LSE): Last: 430.40, up 6.7 (+1.58%), High: 434.70, Low: 427.80, Volume: 724.26k
Fresnillo Plc (FRES:LSE): Last: 879.00, up 25 (+2.93%), High: 881.00, Low: 859.50, Volume: 123.17k
Kazakhmys PLC (KAZ:LSE): Last: 1,579, up 22 (+1.41%), High: 1,600, Low: 1,575, Volume: 590.83k
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And the big story among the miners is that Xstrata is sniffing around Macarthur Coal
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(Monkey – office lols. Well done.)
Xstrata Plc (XTA:LSE): Last: 1,289, up 26 (+2.06%), High: 1,296, Low: 1,265, Volume: 3.78m
IK
Oh yeah, there’s more on Macarthur isn’t there
BE
Yup – the bid story that just keeps running
IK
Whicih keeps making me think of Macarthur Park
IK
and cakes getting wet in the rain
IK
So what’s the latest? Did someone leave the cake out in the rain?
BE
Um …..
BE
Ignoring that theme, it seems the Xstrata’s henchmen at Macquarie have talked to Macarthur shareholders Posco and ArcelorMittal about launching a bid
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And Macarthur today stuck out a statement that it “understands that this discussion was ‘preliminary and highly conceptual’.
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“Macarthur has no further information about the context or content of that discussion, nor whether Xstrata has any substantive interest in Macarthur or any of its assets.”
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That came shortly after it rejected a $3.7bn bid from New Hope
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Having knocked back a bid from Peabody Energy earlier this week.
IK
In other words, it doesn’t think it can take it
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Well, it’s playing hard to get certainly.
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Now, it makes obvious sense for Xstrata to take a look at Macarthur
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Although I’d imagine the assortment of competition regulators would take a very close look at the deal
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Doubt the Chinese would like it much either.
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Just checking if we have any comment on this yet
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Nothing from the Xstrata side
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But plenty on Macarthur
IK
oh yeah?
BE
Here’s Deutsche’s valuation work
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Which’ll be interesting largely to our merger arb audience I suspect
BE
Macarthur (MCC) has received a competing takeover bid from New Hope
Corporation (NHC). In contrast to Peabody Energy’s all cash offer of $14.00/
sh, NHC is offering a 2.7 for 1 all scrip deal. On the 7-April closing prices,
when offer was made, this is an implied price of $14.50/sh; broadly in line
with the then MCC share price. We view the NHC bid is an alternative as
opposed to a over bid. While it is possible that subsequent bids may eventuate
we retain our view that at the current market price (~$15.50/sh) MCC
is already reflecting strong coal price assumption, US$170/t for PCI coal for
8 years. Accordingly we retain our sell rating as the downside revolves
around the MCC bid for Gloucester Coal (GCL) proceeding and the market
price for retracing.
Corporation (NHC). In contrast to Peabody Energy’s all cash offer of $14.00/
sh, NHC is offering a 2.7 for 1 all scrip deal. On the 7-April closing prices,
when offer was made, this is an implied price of $14.50/sh; broadly in line
with the then MCC share price. We view the NHC bid is an alternative as
opposed to a over bid. While it is possible that subsequent bids may eventuate
we retain our view that at the current market price (~$15.50/sh) MCC
is already reflecting strong coal price assumption, US$170/t for PCI coal for
8 years. Accordingly we retain our sell rating as the downside revolves
around the MCC bid for Gloucester Coal (GCL) proceeding and the market
price for retracing.
BE
The Takeovers Panel has declined to make an order to postpone MCC’s
planned Shareholder meeting on Monday 12 April which will enable its
shareholders to vote on the proposed GCL acquisition. The interim order
had been sought by Peabody. Not proceeding with the GCL transaction is
a condition of both the Peabody and NHC offers.
planned Shareholder meeting on Monday 12 April which will enable its
shareholders to vote on the proposed GCL acquisition. The interim order
had been sought by Peabody. Not proceeding with the GCL transaction is
a condition of both the Peabody and NHC offers.
BE
We find the NHC offer dilutive to MCC on a simple earnings and cashflow
measures (see table below). However we note that NHC, through Queensland
Bulk Handling, owns the Port of Brisbane coal terminal (expanding to
10Mtpa capacity through 2010). It also has $1.4Bn in short term investments
following recent asset sales. If we assume the port is worth $200mn
and back its value out of the NHC market capitalisation then the offer remains
dilutive to MCC in terms of earnings and cashflow. Perhaps the cash
position could be used to boost the offer.
measures (see table below). However we note that NHC, through Queensland
Bulk Handling, owns the Port of Brisbane coal terminal (expanding to
10Mtpa capacity through 2010). It also has $1.4Bn in short term investments
following recent asset sales. If we assume the port is worth $200mn
and back its value out of the NHC market capitalisation then the offer remains
dilutive to MCC in terms of earnings and cashflow. Perhaps the cash
position could be used to boost the offer.
BE
‘kay. The ROTR don’t seem thrilled by this theme.
IK
no they’re still obsessively discussing dragons
BE
Lajor Lazer – the Anglo zinc mine story rings a vague bell, but it looks like you might know more than us. Feel free to share.
IK
(BTW James Caan is the best dragon, end of)
BE
I liked the baldie tech guy who appeared for a couple of series.
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Can’t remember his name though.
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And Rachel Elnaugh, who they had to drop after her business went down the toilet.
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Anyway, we’re drifting away from the subject again, which is always the danger on Fridays.
11:33AM
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So – where now?
IK
There were a few questions about mortgage rates
IK
Which seem to have zoomed higher in the last week
IK
Especially on the long end
BE
Okay.
IK
Bloomberg says
IK
Rates for 30-year fixed loans rose to 5.21 percent for the week ended today from 5.08 percent, mortgage finance company Freddie Mac said in a statement. That’s the highest rate since the week ended Aug. 13. The average 15-year rate was 4.52 percent, according to the McLean, Virginia-based company.
IK
Which is obviously going to be a burden for the still recovering housing market in the US
IK
Just as other government support is being pulled
IK
It’s definitely one to watch, I would say.
BE
Right – cheers for that.
IK
BTW swap rates seem to have calmed down a bit though
IK
Still negative on 30 last time i looked, but 10y was back in positive territory
IK
I’m talking about US government swaps
BE
While on the subject of the US
BE
What’s the dollar doing on the back of Geithner’s surprise soujourn to Beijing yesterday?
IK
Ah, well last i looked the euro was a bit stronger today
IK
Eur/usd 1.3402
IK
Euro’s higher against the yen as well
BE
The upshot was that Geithner and Wang Qishan may or may not have discussed anything, and perhaps nothing. Is that correct?
IK
Yes, but analysts are still excited about it because the whole was unscheduled
IK
That said, it’s worth noting the Chinese knocked up a trade deficit
IK
On the higher cost of importing commodities
BE
China take
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
IK
which means they don’t have the same need to manipulate their currency anymore
BE
Hm.
IK
No surplus, less need for Treasury buying too
IK
Also worth mentioning, their attempt to sell yuan bills the other day failed rather spectacularly too
BE
It did, yes.
IK
BTW the trade deficit isn’t offically reported yet – just much expected
IK
Here’s Reuters
IK
Ministers have flagged that China will record its first
monthly trade deficit since April 2004, although the forecasts
of economists polled by Reuters still span quite a wide range.
monthly trade deficit since April 2004, although the forecasts
of economists polled by Reuters still span quite a wide range.
BE
Ok – ta for all that.
BE
We can and will return to the macro themes in a bit, but there are a few stocks stories to mention first.
11:44AM
IK
Starting with…?
BE
Um… how about Premier Oil
Premier Oil PLC (PMO:LSE): Last: 1,321, up 36 (+2.80%), High: 1,342, Low: 1,312, Volume: 165.60k
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Which is getting a push from Phil Corbett at RBS
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Who I think is the sector’s top-rated analyst
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He’s stuck out his full-year results round up
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Which says this
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We have updated our investment views post the recent results season and made
a number of changes to our price deck, particularly a move in our FX assumption
following recent GBP weakness. We upgrade Premier Oil from Hold to Buy, and it
joins Tullow, Gulfsands and BowLeven as our top sector picks.
a number of changes to our price deck, particularly a move in our FX assumption
following recent GBP weakness. We upgrade Premier Oil from Hold to Buy, and it
joins Tullow, Gulfsands and BowLeven as our top sector picks.
BE
Sector up 10% ytd, outperforming the wider UK market
The UK E&P sector is up 10% ytd, continuing its positive 2009 performance, albeit the gains
are more modest. The significant moves have come at the junior end of our coverage
universe, with BowLeven (+38%) continuing its recovery from depressed 2009 levels ahead
of a potentially transformational 2010 drilling campaign, while Gulfsands (+39%) has been
the subject of a rejected bid. SOCO has been the notable mid-cap performer as a
strengthening balance sheet refocused attention on this year.s DRC and Vietnam drilling.
Among the large-caps, Cairn.s textbook example of how to build momentum around an
frontier exploration programme has continued the share price gains of late 2009.
The UK E&P sector is up 10% ytd, continuing its positive 2009 performance, albeit the gains
are more modest. The significant moves have come at the junior end of our coverage
universe, with BowLeven (+38%) continuing its recovery from depressed 2009 levels ahead
of a potentially transformational 2010 drilling campaign, while Gulfsands (+39%) has been
the subject of a rejected bid. SOCO has been the notable mid-cap performer as a
strengthening balance sheet refocused attention on this year.s DRC and Vietnam drilling.
Among the large-caps, Cairn.s textbook example of how to build momentum around an
frontier exploration programme has continued the share price gains of late 2009.
BE
Performance will remain heavily geared towards the oil price
Despite a number of notable stock-specific events, sector performance still exhibits a close
correlation with the oil price, the near-term direction of which is becoming more divorced from
fundamentals. Given 1Q10 strength, we are increasing our 2009 oil price assumption to
US$78/bbl (from US$75/bbl), although we downgrade our UK gas price assumptions. The
major move is a reduction in our £:S assumption from 1.61 to 1.51, which is generally
positive for valuations and for those companies reporting in £.
Despite a number of notable stock-specific events, sector performance still exhibits a close
correlation with the oil price, the near-term direction of which is becoming more divorced from
fundamentals. Given 1Q10 strength, we are increasing our 2009 oil price assumption to
US$78/bbl (from US$75/bbl), although we downgrade our UK gas price assumptions. The
major move is a reduction in our £:S assumption from 1.61 to 1.51, which is generally
positive for valuations and for those companies reporting in £.
BE
Tullow, Premier, Gulfsands and BowLeven are our top picks
Our only recommendation change is upgrading Premier to Buy from Hold. We still believe
management will be under pressure to deliver clear-cut exploration success in 2010, although
we like the balance of the exploration programme and believe that recent oil price moves are
making the company.s valuation discount even more untenable. We are still positive on Tullow
and Cairn, but we believe the former has the edge given its broader spread of high-impact
drilling over the balance of 2010. We reiterate our Buy on Gulfsands . whether or not a revised
bid is forthcoming, we think the initial offer highlighted the attractions of the Syria resource
base. Finally, we believe that BowLeven.s shares have further to go before they fairly reflect the
Etinde upside ahead of drilling commencing later in 2Q10.
Our only recommendation change is upgrading Premier to Buy from Hold. We still believe
management will be under pressure to deliver clear-cut exploration success in 2010, although
we like the balance of the exploration programme and believe that recent oil price moves are
making the company.s valuation discount even more untenable. We are still positive on Tullow
and Cairn, but we believe the former has the edge given its broader spread of high-impact
drilling over the balance of 2010. We reiterate our Buy on Gulfsands . whether or not a revised
bid is forthcoming, we think the initial offer highlighted the attractions of the Syria resource
base. Finally, we believe that BowLeven.s shares have further to go before they fairly reflect the
Etinde upside ahead of drilling commencing later in 2Q10.
Tullow Oil PLC (TLW:LSE): Last: 1,315, up 24 (+1.86%), High: 1,319, Low: 1,299, Volume: 251.14k
BE
And, while on the subject of midcap prospectors
BE
The unpronounceable gold company is having a decent run
Petropavlovsk PLC (POG:LSE): Last: 1,336, up 31 (+2.38%), High: 1,346, Low: 1,304, Volume: 576.99k
IK
Speak for yourself …
BE
Russian vowel groups don’t fit well with my accent
BE
Anyway, this seems to be on the back of the US / Russian nuclear arms pact
BE
Peter Hambro’s apparently out doing the investor tour this morning arguing that it’s a positive
BE
And POG has always carried a “Russian discount,” of course, so he might be right.
11:50AM
BE
Time for a bit of smallcap corner?
IK
go on
BE
I see GCM remains an obsession among some
GCM Resources PLC (GCM:LSE): Last: 284.00, up 44 (+18.33%), High: 310.00, Low: 270.00, Volume: 1.17m
BE
Now, I don’t know what the retail shareholder base’s contacts are like in the Bangladesh power industry ….
BE
But …. well …. caveat emptor.
11:52AM
BE
Fitz asks for Libor
BE
Happy to provide
IK
Yeah pretty stable. Only dollar libor edging higher
BE
Apr10 RTRS-LIBOR THREE-MONTH DOLLAR RATES FIX AT 0.29781 PCT VS 0.29400 PCT ON THURSDAY -BBA
11:49 09Apr10 RTRS-LIBOR THREE-MONTH EURO RATES FIX AT 0.58063 PCT VS 0.58063 PCT ON THURSDAY -BBA
11:49 09Apr10 RTRS-LIBOR THREE-MONTH STERLING RATES FIX AT 0.64844 PCT VS 0.64844 PCT ON THURSDAY -BBA
11:49 09Apr10 RTRS-THREE-MONTH DOLLAR LIBOR/OIS SPREAD AT 7 BPS VS 7 BPS – REUTERS DATA
11:49 09Apr10 RTRS-THREE-MONTH EURO LIBOR/OIS SPREAD AT 20 BPS VS 20 BPS – REUTERS DATA
11:49 09Apr10 RTRS-THREE-MONTH STG LIBOR/OIS SPREAD AT 14 BPS VS 14 BPS – REUTERS DATA
11:49 09Apr10 RTRS-LIBOR THREE-MONTH EURO RATES
11:49 09Apr10 RTRS-LIBOR THREE-MONTH STERLING RATES
11:49 09Apr10 RTRS-THREE-MONTH DOLLAR LIBOR/OIS SPREAD AT 7 BPS VS 7 BPS – REUTERS DATA
11:49 09Apr10 RTRS-THREE-MONTH EURO LIBOR/OIS SPREAD AT 20 BPS VS 20 BPS – REUTERS DATA
11:49 09Apr10 RTRS-THREE-MONTH STG LIBOR/OIS SPREAD AT 14 BPS VS 14 BPS – REUTERS DATA
IK
Although we have some news on Greek CDS
IK
Widening out again according to Markit
IK
now at 450 bps
BE
(Good luck, fjp73. I hope it all works out. The gain alone makes me very worried indeed, but fingers crossed eh?)
11:55AM
BE
Still in smallcap corner
BE
Healthcare Locums has confirmed a bid
BE
as shaken out by Geoff in the Daily Mail this morning
IK
What;s Healthcare Locums?
BE
Well, as the name suggests, this thing supplies temp nurses and social workers
IK
Rent-a-doctors?
BE
Yup.
BE
Bidder’s apparently Equinox Partners, which yesterday said it raised its stake from 11% to 16%
Healthcare Locums Plc (HLO:LSE): Last: 235.00, up 36 (+18.09%), High: 255.75, Low: 200.00, Volume: 3.82m
BE
The background here is that Healthcare Locums management shredded its credibility last month by posting results late, missing forecasts and changing its recenue recognition policy
BE
Plus there was a disconnect between the board guidance that everything was fine and the detail of the statement
BE
So, needless to say, the shares were hammered
BE
But cashflow has remained strong, so it’s an obvious PE target.
BE
Collins Stewart has recently stuck out a 305p price target based on this. Here’s their working.
BE
Conversion of operating profit into operating cash flow (post capex) was 72% in
2008 and 78% in 2009. Conversion of profit after tax into Free Cash Flow was
86% in 2008 and 91% in 2009, though flattered by low cash tax paid. Even
assuming a normal cash tax charge, we expect conversion of profit after tax into
FCF to average c.100% (2010-12). We forecast that the company will have
c.£2m of net debt by the end of 2010 and will double the dividend to 10p in 2010.
2008 and 78% in 2009. Conversion of profit after tax into Free Cash Flow was
86% in 2008 and 91% in 2009, though flattered by low cash tax paid. Even
assuming a normal cash tax charge, we expect conversion of profit after tax into
FCF to average c.100% (2010-12). We forecast that the company will have
c.£2m of net debt by the end of 2010 and will double the dividend to 10p in 2010.
11:57AM
IK
Some breaking FX news
IK
11:55 09Apr10 RTRS-POLISH C.BANK INTERVENES ON FX MARKET DEALERS SAY
IK
This is interesting, I think
IK
Polish officials have been trying to talk down the zloty for a while
IK
And rumour has it they now have unlimited access to Euro swap lines at the ECB
BE
Interesting. Do we have a live quote for the zloty?
IK
Not a live one i’m afraid
IK
But last quoted by Reuters at 3.8455 to the euro
IK
Poland’s obviously scared of the Swiss effect now
IK
Worrying that too strong a currency will hinder their own recovery
IK
And this obviously comes in the context of the Swiss National Bank also interevning to weaken the swiss franc
BE
Am I right in saying that Poland was the only European Union member to avoid recession?
IK
It was indeed. There was a nice map presented by the government reflecting just that. All of Europe red, and Poland nicely green
12:02PM
BE
Ok, we’re through midday already.
BE
Just checking the notepad for things I meant to mention.
IK
Can’t I just flag something up
IK
Very interesting article in the WSJ today
IK
Whiffs of Repo 105
IK
Basically claiming all the big US banks have been masking their risk ahead of results
IK
Via the canny use of the repo-market
IK
Did you see it Bryce?
BE
Yup – good piece of work that.
IK
My question is, is this really that much of a surprise?
BE
Well, there’s suspicions and there’s confirmation.
BE
This does read like smoking gun stuff.
BE
And, since we’re sending props to competitors, we should also big up our own.
BE
Tracy did an outsanding post this morning on the Maiden Lane portfolio
IK
Tracy’s mega analysis!
IK
Please do read, she spent hours in front of an excel sheet to get you the breakdown
BE
Yes – it’s well worth half an hour of anyone’s time.
12:07PM
IK
Regarding Poland, remittances and immigration…
BE
I haven’t had to zap anyone at all this week, and I was rather hoping to keep it that way.
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
IK
I think it’s fair to say though that the Poles are still here, and are settling.
IK
But remittances are still a big concern for the polish government. And a weak pound/strong zloty scenario is going to be pretty painful
IK
There’s a massive squabble going on there currently too
IK
Namely a big fight between the National Bank of Poland and the government over what to do with the central bank profits
IK
and it’s coming up to election time too.
IK
I did a couple of posts on it last week, if you guys are interested
BE
Insider insight. Cheers Iz.
12:09PM
BE
Okay – just to cover all the bases, there were a few things I meant to cut and paste today.
BE
First, we’ve had yet another election preview
BE
This time from Morgan Stanley.
IK
Who are they backing?
IK
The greenback party?
IK
(yellow card for me)
BE
Well, they come to the rather refreshing conclusion of “who gives a stuff?”
BE
Here’s the upshot.
BE
Polls currently imply a change in government: A
change in government looks likely after the election on
May 6, but a hung parliament is a distinct possibility.
The election and the UK economy: The market
reaction and what emerges in a post-election budget (if
there is one) will ultimately play a big role (if not the
biggest role) in determining what the election outcome
means for the economy. The economic implications in
terms of spending cuts and deficit reduction may not be
that different no matter who wins the election. We think
that some investors worry too much about a lack of fiscal
tightening in a ‘hung parliament’.
change in government looks likely after the election on
May 6, but a hung parliament is a distinct possibility.
The election and the UK economy: The market
reaction and what emerges in a post-election budget (if
there is one) will ultimately play a big role (if not the
biggest role) in determining what the election outcome
means for the economy. The economic implications in
terms of spending cuts and deficit reduction may not be
that different no matter who wins the election. We think
that some investors worry too much about a lack of fiscal
tightening in a ‘hung parliament’.
BE
The election and UK equities: Some areas of the stock
market will be directly affected by political decisions,
while others will be subsequently impacted by any
changes to the currency or bond market outlook. For
example, we would expect Real Estate to outperform in
the short term if a Conservative victory led to a strong
bounce in GBP. A rise in ‘sin taxes’ would likely hit the
pubs and bookmakers hardest.
The election and GBP: The election weighs heavily on
international investors’ minds. At present, the FX
market is pricing for continued uncertainty, as seen in
valuation and positioning data. It is not pricing for our
central scenario of fiscal consolidation, the
appeasement of investor concerns and economic
recovery, albeit modest. We recommend long GBP/JPY
and long GBP/AUD positions.
market will be directly affected by political decisions,
while others will be subsequently impacted by any
changes to the currency or bond market outlook. For
example, we would expect Real Estate to outperform in
the short term if a Conservative victory led to a strong
bounce in GBP. A rise in ‘sin taxes’ would likely hit the
pubs and bookmakers hardest.
The election and GBP: The election weighs heavily on
international investors’ minds. At present, the FX
market is pricing for continued uncertainty, as seen in
valuation and positioning data. It is not pricing for our
central scenario of fiscal consolidation, the
appeasement of investor concerns and economic
recovery, albeit modest. We recommend long GBP/JPY
and long GBP/AUD positions.
BE
The election and rates: The UK election is a risk event
for the rates market for sure, but the fundamental
concerns over a credible plan to reduce the deficit
should remain thereafter. The rates market is already
pricing a more aggressive reduction in the deficit over
the next five years than our central case. Thus, the risk
of a steeper forward curve in the months following the
election is skewed to the upside.
for the rates market for sure, but the fundamental
concerns over a credible plan to reduce the deficit
should remain thereafter. The rates market is already
pricing a more aggressive reduction in the deficit over
the next five years than our central case. Thus, the risk
of a steeper forward curve in the months following the
election is skewed to the upside.
BE
There’s about 25 pages of this, and the theme’s already developed in the Usual Place
BE
And, while on strategy, there’s a big note out of Citigroup this morning
BE
Staying bullish
BE
But Euro real estate and financial services are downgraded
BE
As are food and bevs
BE
Oil & Gas and Chemicals upped to compensate
BE
Here we go
BE
Depression fears in 2009. Recovery hopes in 2010. What a difference one year
makes. Economic, corporate and market repair continue to gather pace. In
recent months, our economists raised GDP growth forecasts further and our
analysts nudged earnings estimates higher too. Despite macro concerns over
fiscal deficits and exit strategies, European equities posted a respectable 4-5%
return in 1Q10. Overall, risk assets continue to lead risk-free assets and overcautious
investors continue to be left behind. Our economists’ mantra remains
“sustained but uneven” global economic recovery. Our analysts back a robust
profit rebound in 2010-11. We stay bullish and back double-digit European
equity returns over the coming 12-18 months. Near-term, equities have rallied
strongly from the February lows and we would not chase aggressively. Within
the market, stock-specific factors are becoming more important. At a sector
level, we back international exposure and strong earnings trends.
makes. Economic, corporate and market repair continue to gather pace. In
recent months, our economists raised GDP growth forecasts further and our
analysts nudged earnings estimates higher too. Despite macro concerns over
fiscal deficits and exit strategies, European equities posted a respectable 4-5%
return in 1Q10. Overall, risk assets continue to lead risk-free assets and overcautious
investors continue to be left behind. Our economists’ mantra remains
“sustained but uneven” global economic recovery. Our analysts back a robust
profit rebound in 2010-11. We stay bullish and back double-digit European
equity returns over the coming 12-18 months. Near-term, equities have rallied
strongly from the February lows and we would not chase aggressively. Within
the market, stock-specific factors are becoming more important. At a sector
level, we back international exposure and strong earnings trends.
BE
Macro — sustained but uneven
Our economists stick to their guns. They expect Asia and North America to lead
a “sustained but uneven” global GDP recovery in 2010; Europe is likely to lag.
Rates — looking for the exit
We expect a gradual and progressive unwind of loose monetary conditions. Fed
likely to hike by year-end, ECB not. Some already there. Yield curves to flatten.
Government — political risk
Politicians have more “skin in the game”, e.g. high fiscal deficits and rising
public debt burdens. Brings both economic & political risk. EM better placed.
Profits — rebounding
Strengthening recovery and positive operational leverage are driving a robust
rebound in profits. Expect 2010 & 2011 European earnings growth of 20%+.
Our economists stick to their guns. They expect Asia and North America to lead
a “sustained but uneven” global GDP recovery in 2010; Europe is likely to lag.
Rates — looking for the exit
We expect a gradual and progressive unwind of loose monetary conditions. Fed
likely to hike by year-end, ECB not. Some already there. Yield curves to flatten.
Government — political risk
Politicians have more “skin in the game”, e.g. high fiscal deficits and rising
public debt burdens. Brings both economic & political risk. EM better placed.
Profits — rebounding
Strengthening recovery and positive operational leverage are driving a robust
rebound in profits. Expect 2010 & 2011 European earnings growth of 20%+.
BE
Valuation — not cheap but not expensive
European equities trade near long-term average price/book levels and on just a
10x 2011e P/E. Not expensive. Look good value versus cash and bonds.
Themes — regime change, earnings mo & corporate action
Macro forces led share prices in 2008-09. Stock-specific factors fighting back
in 2010. This is regime change. Earnings momentum strategies now working.
Risks — fiscal deficits and exit strategies
Risks remain elevated. Equities climb a wall of worry. Watch fiscal risks and
exit strategies closely. Jobless recovery fears could recede in coming months.
Sectors — EM & earnings mo focus; Food down, Oils up
We back international over domestic exposure. Overweight Basic Resources,
Tech and Personal & H/hold Goods. Underweight Telecoms, Utilities & Autos.
Stocks — analyst top picks in Overweight sectors
Akzo Nobel, Autonomy, BBVA, BHP Billiton, BNP, Credit Suisse, ENRC,
Givaudan, GSK, Imperial Tobacco, Logica, Nokia, Novartis, Richemont.
European equities trade near long-term average price/book levels and on just a
10x 2011e P/E. Not expensive. Look good value versus cash and bonds.
Themes — regime change, earnings mo & corporate action
Macro forces led share prices in 2008-09. Stock-specific factors fighting back
in 2010. This is regime change. Earnings momentum strategies now working.
Risks — fiscal deficits and exit strategies
Risks remain elevated. Equities climb a wall of worry. Watch fiscal risks and
exit strategies closely. Jobless recovery fears could recede in coming months.
Sectors — EM & earnings mo focus; Food down, Oils up
We back international over domestic exposure. Overweight Basic Resources,
Tech and Personal & H/hold Goods. Underweight Telecoms, Utilities & Autos.
Stocks — analyst top picks in Overweight sectors
Akzo Nobel, Autonomy, BBVA, BHP Billiton, BNP, Credit Suisse, ENRC,
Givaudan, GSK, Imperial Tobacco, Logica, Nokia, Novartis, Richemont.
12:15PM
BE
And – before we close
BE
The Shrewdette has come through with her Aintree tips
BE
For those of you still brave enough to follow me! Haven’t looked past today’s Aintree but months ago I bet ante-post COMPLY OR DIE at 25/1 in the National. Confess bit of an emotional bet because he returned for me in 2008 (winner) and last year second. But I should add that I am seriously thinking of abandoning the glitzy Hunt meetings as every fancy nag I followed yesterday couldn’t seem to stand up under the weight of my dosh! Had to rely on 2 good winners at Taunton to come out even.
BE
These are what I’m looking at today:
2:00 ESCORT’MEN 5/2 to beat Menorah who undid a good punt of mine at chelters by beating Get me Out of Here!
2:35 OGEE 4/1 Grade 1 Novice Hurdle winner
3:10 FORPADYDEPLASTERER 4/1 fine 2nd in the Champion at Chelters
3:45 OFFSHORE ACCOUNT 8/1 ran well in 09 National and again at Chelters. Also like the look of QHILIMAR 16/1 EW in form 6yr old with good experience.
4:20 DOUBLE EXPRESSO 16/1 worth an EW flutter – unbeaten in bumpers and impressive start to hurdling.
4:55 ALDERLUCK 14/1 Lost the plot a bit recently but still on a fair mark and suited by ground and distance – another EW flutter.
2:00 ESCORT’MEN 5/2 to beat Menorah who undid a good punt of mine at chelters by beating Get me Out of Here!
2:35 OGEE 4/1 Grade 1 Novice Hurdle winner
3:10 FORPADYDEPLASTERER 4/1 fine 2nd in the Champion at Chelters
3:45 OFFSHORE ACCOUNT 8/1 ran well in 09 National and again at Chelters. Also like the look of QHILIMAR 16/1 EW in form 6yr old with good experience.
4:20 DOUBLE EXPRESSO 16/1 worth an EW flutter – unbeaten in bumpers and impressive start to hurdling.
4:55 ALDERLUCK 14/1 Lost the plot a bit recently but still on a fair mark and suited by ground and distance – another EW flutter.
BE
Good Luck
- Shrewdette
IK
Aintree is not a chocolate maker right?
BE
Don’t ask me. Nags not my thing.
IK
Nor me.
IK
I like the sound of OFFSHORE ACCOUNT
BE
Forpadydeplasterer sounds like a Sigur Ross album.
IK
Bryce…
IK
If you had a horse. What would you name it?
BE
Oh, that’s not the kind of question your should spring on a friday afternoon.
BE
Airfix, perhaps.
IK
You could call it Neil
BE
Hm. I’m not sure “Neil the horse” would be fitting with the crossword-clue type naming style.
BE
Anyway, we should end this soon.
BE
I’m going to have to find something to write about in what is, in short, a very dull market.
IK
You could call it Gulf Keystone, or Muppet Investor
IK
Sorry after thought.
BE
“Muppetpunter” – that’s pretty good.
BE
Like that.
IK
We could have an entire stable!
BE
Except we’re all hacks so are, by definition, broke.
BE
(City – zap.)
IK
Red Card! Cityunslicker
BE
(First of the week. Hope you’re ashamed of yourself.)
BE
(You’ve let yourself down, you’ve let your classmates down ….)
BE
Right …. the end.
BE
Thanks for all your comments, both today and this week.
BE
And thanks to Izabella for covering in Neil’s absence.
IK
No problemo
BE
Mr Fume is back next week
BE
And, hopefully, raw might be as well.
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
BE
Until then, goodbye.
IK
Bye all
BE
Oh -hang on, sorry, late postscript
BE
Had an email from the Healthcare Locums PR
BE
Sorry to be a bore,,,but Healthcare Locums does not and has never been involved in recruiting nurses….it’s a big part of their investment case as their recruitment is far more specialist – allied health professionals to consultant surgeons. Any opportunity to point this out?
BE
Which, of course, we are happy to do.
BE
Right – that really is it. Thanks and goodbye.
IK
(@Izzy’s priest – Will be there)