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February CSS Newsletter

Monthly Commentary – 29th February 2016


*The UK lobbied for wording changes in the G20 communique to include a reference to the potential shock to the world economy of a UK “Brexit” vote.

*Russian warplanes hit numerous targets in Syria in apparent violation of the US brokered two week ceasefire.

*Sterling has slumped on concerns over the risks of the EU vote declining to $1.38 its lowest point since the 2008 financial crisis.

*RBS reported its eighth consecutive year of losses, net loss for 2015 was £1.98bn v £3.47bn in 2014. The CEO pushed back on expectations of dividends to beyond Q1 2017.

*OPEC Secretary General Salem El Badri blamed US and Canadian oil companies for the global glut commenting in Houston that it was wrong to expect OPEC to cut production at the same time as they raise production.

*Barclays new CEO is reviewing its African operations, specifically its 62.3% stake in ABSA. Barclays reported tangible net assets per share of 275p, down 10p and will cut the 2016 dividend to 3p per share from 6.5p in 2015.

*Publisher Trinity Mirror reported pre-tax profit of £107.5m or EPS of 33.9p despite a £29m provision relating to claims from phone hacking and ongoing investigations into subsidiary Mirror Group newspapers.

*February Eurozone inflation at -0.2% suggests continued deflationary pressures due to commodity price weaknesses and low wage growth.

*Home Retail has sold Homebase and will return £200m to shareholders equating to 25p per share. The board will now focus on the Steinhoff offer.

Forthcoming UK Events

1st March Nationwide Housing Prices/ CIPS Manufacturing PMI

3rd March Halifax House Price Index/ CIPS UK Services PMI

4th March Consumer Inflation Expectations

9th March UK Manufacturing Production

11th March UK Balance of Trade

16th March UK Unemployment Rate/ UK Average Earnings

17th March BoE Interest Rate Decision/ MPC Minutes

22nd March Public Sector Net Borrowing


*Lloyds Banking Group 15/2/2016

*SPDR Gold ETF (BUY) 26/2/2016

*Hochschild Mining (BUY) 26/2/2016


Performance of World Markets

29 Feb 2016

North American


Dow Jones CLOSE

S&P 500




























UK 100 Index

DAX 30 Index






















Asia/Far East

Shanghai Composite


ASX 200

Hang Seng





















Source: Fidessa/Saxo Bank

United Kingdom

“To leave or not to leave” that question will dominate investor thinking in the run up to June 23rd. We expect respective campaigns will get cracking soon, intensifying pressure on the exchange rate and capital markets. At the moment it is about personalities with little in the way of hard facts.

February saw broad gyrations in blue chip stocks that have not decoupled from weak oil prices. BG Group was acquired by RD Shell, and former BG spin-off Centrica reported adjusted earnings of £863m.

UK banks are concerned about leaving the EU. An exit would amount to unwelcome disruption ahead of the 2019 deadline for retail bank ring fencing. If Barclays does exit its African business, its objective will be to cut its risk weighted assets and boost its core tier 1 equity ratio to almost 12%. This would avoid the need for painful measures on the dividend or worse, more equity capital.


The People’s Bank of China cut reserve ratio by 0.5% helping boost the Yuan to CNY6.11/US$. The Shanghai composite index closed 2.86% lower at 2687.98 as investor nervousness persisted.

HSBC has negotiated a joint venture deal in Chinese securities trading which on final approval will be a landmark event. HSBC is a leading bank in offshore yuan financial transactions. The deal could open up Chinese domestic stocks for overseas investors.

Bank of Japan has pushed back its goal of 2% inflation to H1 2017. In the first month since the January move to negative rates (-0.1%) the Yen has strengthened to ¥113 v ¥121 v US dollar, somewhat counterintuitively.


Across the EU, negative interest rates are unsettling investors. Denmark, Switzerland, Sweden and the Eurozone central banks have negative official rates. The market expects the ECB to cut by a further 0.1% in March 2016 with a further 0.1% cut over 2016. Warren Buffet, chairman of Berkshire Hathaway lamented his euro deposits are no longer paying a return, “we do not know how this movie plays out”.

United States

The US Q4 earnings season has closed, and the scorecard was ok. According to FactSet 96% of S&P 500 companies have now reported and of these 69% were above the mean profit estimate, with 48% above the revenue estimate. The Telecoms sector reported the highest earnings growth rate at 80.7% but the Energy sector earnings fell 72.8% due to the US crude oil price (40% lower at $42.25/bbl).

Q4 2015 US GDP was revised upwards from 0.7% to 1% a big revision due to US companies holding onto inventory and 0.5% growth in consumer spending. The US presidential election has so far not had much effect.

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