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Rathbone Weekly Commentary

Market Commentary
Commentary By: Rathbone Unit Trust Management Limited
Commentary Date: April 24, 2017

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Top Gun

What does a communist do for fun? It can’t be goose-stepping, uranium enrichment and rocket testing every day. They are human, after all.

Volleyball seems a fair pass-time, albeit one that bemused professional North Korea watchers at Johns Hopkins University. Satellite imagery from north of the 38th Parallel appeared to show workers had downed tools at several nuclear sites across the country last week. And if you zoomed in enough, and squinted just so, you could make out the classic W formation for receiving a serve. Maverick, Goose, Ice Man and the rest of the naval aviators aboard the US carriers in the Sea of Japan would probably approve…

Obviously, they were sending a message to the Western Imperialist satellites above. Because if you’re told to stop work, you usually go and sit in a corner someplace, waiting for the next shift, right? Who would play sport with their friends in their downtime?

Either way, the North Korean workers are back on their tools this week. The material shortage or message or delay – whatever it was – seems to be over. Another test may be imminent. Meanwhile, another fleet of American warriors steams toward the Sea of Japan.

It’s not all fun and games out there.

En Marche!

Centrist Emmanuel Macron and anti-EU champion Marine Le Pen will go through to the second round of the French presidential election after a tight four-way campaign (and a socialist limping in with single digits to make it five).

Mr Macron’s tally was just 2.5 percentage points higher than Ms Le Pen, but commentators and markets believe he will waltz into the top job if pitted head-to-head against the divisive National Front leader. The CAC stock market leapt 3% this morning, French government bonds rallied and the euro ticked higher. The next round of voting is on 7 May.

The pivotal question of this election is whether the almost 20% of French voters who plumbed for hard-left candidate Jean-Luc Mélenchon have more in common with the centre than the extreme right. You would expect the fifth of citizens who cast for disgraced former Republican President Francois Fillon to gravitate to the centre, but politics is a grubby cup of tea leaves at the moment.

Roll on round two.

Index 1 week 3 months 6 months 1 year
FTSE ALL-Share -2.4% 1.4% 4.5% 16.3%
FTSE 100 -2.9% 0.1% 3.3% 15.9%
FTSE 250 -0.7% 7.4% 9.2% 17.3%
FTSE Small-cap -0.5% 4.6% 10.3% 20.5%
S&P 500 -1.2% 0.1% 5.5% 27.9%
Euro Stoxx -1.6% 1.6% 5.4% 21.7%
Topix 0.1% -0.3% 0.1% 22.9%
Shanghai SE -4.2% -2.1% -3.8% 13.5%
FTSE Emerging Index -2.2% 3.9% 1.0% 30.3%
Source: FE Analytics, data local currency (£) total return to 21 April


Property, taxes

The US services PMI fell again last week, the third consecutive drop taking it to 52.5 (greater than 50 is still expansionary). Still, the S&P 500 posted its first weekly rise in dollar terms since March.

Whether this upward momentum will be sustained will be driven by company results and how the reality of Donald Trump’s tax reform measures up to market hopes. Several tech sector big hitters will be announcing results this week, including Amazon.com, Google and Microsoft. Mr Trump is expected to give details of a “massive tax cut” on Wednesday. Tax reform has been on the backburner following the administration’s failure to overturn Obamacare and a running battle over improper ties between Mr Trump’s campaign team/Cabinet and the Russian government.

On the other side of the Atlantic, the European Central Bank is expected to hold its course when it meets on Thursday. The Bank of Japan meets the day before and will issue its outlook report on Thursday.

In the UK, earnings season grinds on with plenty of substantial enterprises releasing numbers, including BHP Billiton, GlaxoSmithKline, Whitbread, WPP and Brown (N) Group. Housebuilder Taylor Wimpey will realise trading updates on Thursday, which may help give some colour about the shape of the property market. The average house price in London slumped almost £10,000 in April compared with a year ago. It was the largest annual fall in the capital’s property market since 2009 – but given that was just 1.5%, it shows what a one-way market it has become. Rental yields have been falling in London and the south west recently; however, they are still growing strongly in the regions.

If some air is coming out of the luxury London housing market, that’s not necessarily a bad thing.

Bonds

UK 10-Year yield @ 1.04%
US 10-Year yield @ 2.25%
Germany 10-Year yield @ 0.25%
Italy 10-Year yield @ 2.25%
Spain 10-Year yield @ 1.67%

Economic data and companies reporting for week commencing 24 April

Monday 24 April

US: Chicago Fed National Activity Index (Mar), Dallas Fed Manufacturing Activity (Apr
EU: Govt Debt/GDP Ratio (2016); GER: IFO Business Climate/Expectations/Current Assessment (Apr), Import Price Index (Mar)

Production results: Anglo American

Tuesday 25 April

UK: PSNCR/PSNB (Mar)
US: New Home Sales (Mar), Richmond Fed Manufacturing Index (Apr)
EU: ECB Bank Lending Survey; FRA: Business Confidence (Apr), Manufacturing Confidence (Apr), Own-Company Production Outlook (Apr); SPA: PPI (Mar)

Quarterly results: St James’s Place
Trading update: Elementis Equiniti

Wednesday 26 April

EU: FRA: Consumer Confidence (Apr)

Quarterly results: BHP Billiton, British American Tobacco, Croda International, GlaxoSmithKline
Trading update: Jupiter Fund Management
Interim management statement: London Stock Exchange, Standard Chartered

Thursday 27 April

US: Wholesale Inventories (Mar), Durables Goods/Ex Transportation (Mar), Initial Jobless Claims (22 Apr), Pending Home Sales (Mar)
EU: Business Climate Indicator (Apr), Industrial/Services/Consumer/Economic Confidence (Apr), ECB Main Refinancing Rate; GER: GfK Consumer Confidence (May), CPI (Apr), Retail Sales (Mar); SPA: CPI (Apr); ITA: Economic Sentiment (Apr), Manufacturing/Consumer Confidence (Apr)

Full-year results: Allied Minds, Brown (N) Group,
Quarterly results: AstraZeneca,
Trading update: Aggreko, Berendsen, Persimmon, Taylor Wimpey, Travis Perkins
Interim management statement: Schroders

Friday 28 April

UK: GDP (Q1)
US: Chicago Purchasing Manager Index (Apr), University of Michigan Sentiment (Apr), Fed’s Harker speaks in Washington
EU: M3 Money Supply (Mar), CPI (Apr), GDP (Q1); FRA: GDP (Q1), CPI (Apr)

Quarterly results: Barclays, Royal Bank of Scotland

 

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