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April 16 Newsletter

CSS Investments Newsletter April Monthly Commentary

Themes from the month

*US President Barack Obama said an independent UK would be “at the back of the queue” when it came to negotiating US trade access.
*Whitbread reported 2016 profits of £387.65m on revenues up 12%. The board hiked the dividend 10% to 90.35p.
*Anglo American has sold its niobium & phosphates business for $1.5bn to China Molybdenum helping cut debt.
*Sterling jumped to $1.46 after touching lows at $1.38 on February 28th, 2016
*A group of McCarthy & Stone shareholders sold 85m shares via a private placing at 235p per share.
*Restaurant Group announced weaker trading with 2016 pre-tax profit expected between £74m-£80m.
*Deutsche Bank reported net profit dropped 58% to €236m on revenues down 22% to €8.1bn.
*RBS reported a Q1 2016 pre-tax profit of £421m against £37m in Q1 2015.
*HSBC Chairman Flint commented the board is “ever more conscious” of the importance of the dividend. HSBC is “poised to be one of the winners” in the event of a US rate hike.

Forthcoming Economic Data

2nd May Halifax House Price Index
3rd May Markit/CIPS Manufacturing PMI
4th May UK Construction PMI
5th May London Mayor/Scottish Parliament Election
10th May UK Balance of Trade
11th May UK Industrial Production/GDP Estimate
12th May BoE Interest Rate Decision
13th May UK Construction Output
17th May UK Core Inflation/ Retail Price Index
18th May UK Unemployment/ UK Average Earnings

Companies Recommended

*Dunelm (BUY) 07/04/2016
*ICAP (BUY) 25/4/2016
*JPM Japanese IT (BUY) 25/4/2016
*SSE (BUY) 25/4/2016

Performance of World Markets

29 Apr 2016

North American

Indices

Dow Jones Close

S&P 500 Close

NASDAQ Close

 

 

 

Value

17,775.30

2,081.43

4,775.33

 

 

 

Change 

98.41

8.65

96.95

 

 

 

+/- (1M)%

0.55

0.42

-1.97

 

 

 

+/- (1YR)%

-0.74

-1.27

-3.75

Europe/UK

Index

UK 100 Index

CAC 40 Index

EUROSTOXX 50

 

Value

6,226.05

4,435.15

3,028.21

 

Change

99.86

-105.82

23.28

 

+/- (1M)%

1.61

2.70

0.07

 

+/- (1YR)%

-9.63

-11.94

-17.72

Asia/Far-East

Index

Shanghai Composite

Nikkei-225

ASX 200

Hang Seng

 

Value

2,938.82

16,666.05

5,252.20

21,067.05

 

Change

18.45

-437.48

247.80

696.66

 

+/- (1M)%

0.63

-2.56

4.95

3.42

 

+/- (1YR) %

-33.12

-16.75

-11.48

-24.94

Source: Fidessa/Saxo Bank

United Kingdom

UK blue chips have swung around at the behest of two factors. The primary mover has been oil prices, which shrugged off the collapse of OPEC/ Russia talks in Doha which did not freeze oil production. The oil price surprisingly moved up post-Doha due to strikes in Kuwait and more robust Chinese economic data. The second factor has been the gyrating June 23rd EU Referendum polls which mid-April showed both sides level, by the end of April the poll had moved up to 53% Remain and 47% Leave. This led to sterling and gilts strengthening.

A slew of positive UK earnings reports from Whitbread, Lloyds, Standard Chartered and RBS. Even BP despite a Q1 loss moved up on the view that it would hold its 40 cent dividend. Elsewhere HSBC, ahead of Q1 next week reiterated its dividend commitment. IAG reported Q1 profits of €104m an improvement of Q1 2015 loss of €26m.

China/Japan

The People’s Bank of China has allowed the Yuan to move up against the USD. The central bank fixed the Yuan rate at 6.4589 a 0.56% overnight jump the largest increase in 11 years. The decision suggests the central bank is seeing recent large capital outflows from China reverse. The move is also a response to gains in the Japanese Yen after the Bank of Japan declined to increase its bond purchase programme.

Since introducing a -0.1% interest rate on excess bank reserves in January, the Bank of Japan has become more cautious despite Japan’s GDP growth slowing from 1.1% in Q4 2015 to around 0% so far in 2016. The core consumer price index was -0.3% in March. There is concern that “Abenomics” measures are cosmetics and Japan’s structural problems, ageing population, high debt, public deficits, and low-income growth have not changed.

Europe

EU GDP rose 0.6% in the Eurozone and 0.5% in the EU28 during Q1 whilst the unemployment rate declined to 10.2% (the lowest rate since August 2011). Eurostat estimated the annual rate of inflation at -0.2% in April 2016. The data broadly supports the ECB’s monetary objectives and policy with official rates at -0.4%. Munich Re warned of a tough start to 2016 after posting a Q1 net profit of €790m. The CEO commented the 2016 profit target of €2.3bn-€2.8bn was “very ambitious”. The shares fell 6%.

United States

Apple Inc announced its share buyback will resume immediately and a further $35bn of additional cash has been allocated to the buyback programme. This follows a plunge in Apple’s share price to $94 on concerns over iPhone sales and new products. In previous quarters, Apple has purchased its own shares in the $109 to $128 range. Separately Carl Icahn said he has sold his Apple stake on concerns over the global slowdown. Some commentators have said Apple should let the share price find its level and spend the cash on new products.

 

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