US President Donald Trump attacked Republican senators for not backing his healthcare reforms claiming they “look like fools”. The dismissal of Reince Priebus, White House chief of staff was a surprise. Priebus had the shortest tenure in US history of non-interim holders of that office. The dismissal of Antonio Scaramucci, Communications Director was also quick, just ten days.
BAT completed its acquisition of Reynolds American, the US manufacturer of Camel and Pall Mall for US$49.4bn. The deal involved BAT drawing on a $25bn banking facility.
US Food & Drug Administration set out plans to reduce cigarette nicotine content to non-addictive levels by August 2021. This news which was out of the blue hit the cigarette sector as it would result in declining sales.
Sterling picked up modestly against the US dollar to US$1.3110 but declined to €1.1175.
HSBC reported adjusted PBT of $11.97bn up 12% and launched a US$2bn share buyback. The board was confident about maintaining its 51 cent dividend commenting that the core HK business is improving.
Provident Financial interim PBT declined 22.6% to £115.3m as a result of disruption from the migration of the home credit business resulting in a £40m impairment charge.
Countrywide announced maiden interim losses of £284,000 and a cancelled dividend as the estate agent worked to cut debt via internally generated cash. Total revenues fell to £333m from £370.3m.
|1 August||Nationwide PMI / 10 YR Treasury gilt auction|
|2 August||Construction PMI|
|3 August||BoE Inflation Report / BoE Interest Rate Decision/ Services PMI|
|4 August||CFTC STG speculative net positions|
|7 August||Halifax House Price Index|
|8 August||BRC Retail Sales Monitor|
|10 August||RICS House Price Balance/ UK Industrial Output/ UK Trade Balance|
|15 August||Core PPI Output/ UK Consumer Price Inflation|
|16 August||UK Unemployment / UK Average Earnings|
|17 August||UK Core Retail Sales|
|21 August||UK Public Sector Net Borrowing|
|DOW JONES (Close)||21,891.12||541.49||2.54||18.77|
|S&P 500 (Close)||2,470.30||46.89||1.93||13.65|
|UK 100 INDEX (Close)||7,372.00||-140.72||-1.90||9.63|
|CAC 40 INDEX (Close)||5,093.77||-26.91||-0.53||14.73|
|EUROSTOXX 50 (Close)||3,449.36||7.48||0.22||15.33|
|SHANGHAI COMPOSITE (Close)||3,273.03||81.55||2.55||9.89|
|ASX 200 (Close)||5,720.60||5.20||0.09||2.95|
|HANG SENG (Close)||27,323.99||1508.20||5.85||24.58|
The reporting season is a “curate’s egg” with very mixed banking interims a good example. HSBC H1 confirmed the HK franchise and lifted its tangible net assets per share to $8.30 up $0.39 whilst both Lloyds (52.4p down 2.4p) and Barclays’ equity fell (284p – 6p). Even more surprising was the sell-off that greeted Virgin Money’s decent report.
November 2017 could see a hike in the base rate to 0.5%. Given inflation levels a hike is long overdue. The rate “turn” talk has helped sterling recover against the US dollar, ostensibly bad for UK blue chips.
The Hong Kong equity market surged over July helped by jumps in banking and insurance sectors with top gainers, Ping An Insurance, China Life, China Pacific Insurance & New China Life. The Caixin-Markit manufacturing purchasing managers index pointed to a robust improvement at Chinese factories in July. Recent data suggests China’s GDP is ahead of forecast.
Hong Kong listed shares spent c. $3.2bn (HK$25bn) in share repurchases in the year to 25th July 2017 (according to the Financial Times) – this is around five times the 2011 repurchase amount.
However most of the share repurchases c. HK$15bn is from local property companies that owing to the sky high prices for local real estate prefer to increase shareholder returns instead rather than invest. Shares in Cheung Kong Property, the largest HK property company are up 32% in the last year.
Others point to the Hang Seng’s valuation at just 12.4x P.E. only slightly above its decade average, as attractive relative to global valuations and in particular US equities.
ECB chief Mario Draghi insisted that inflation is not “where we want it to be, and where it should be” dialing back on previous suggestions that quantitative easing measures would be scaled back. This suggested that the ECB will keep negative interest rates and a €60bn monthly bond purchase order in place for sometime.
The Euro took off helped by ECB commentary, and improving Eurozone GDP growth. The single currency has been viewed as a safe haven and the main beneficiary of USD weakness.
The Trump Administration lurched over July with resignations and departures of senior staff. The impression has been of significant infighting within the White House. This did not prevent the S&P 500 reaching a new record high over July.
The lack of response in US equities from the impasse between the executive branch and the US Congress over “Obamacare” reform, suggests investors are sanguine but also complacent. The weaker US dollar suggests outflows have started in earnest.
Few would argue a dichotomy exists between equity valuations in the US tech area and in the broader market. Few would argue US stocks seem expensively valued – the current S&P rating at 24.63x compared to a mean S&P P/E rating of 15.66x since inception.
The US Food & Drug Administration has moved to change the regulation of the tobacco industry with a plan to lower nicotine levels by 8th August 2021. This is intended to cut the 480k deaths per annum from lung cancer and associated $300bn annual productivity and healthcare costs. If this proceeds to plan this is will represent a profound change for the US tobacco industry and possibly elsewhere.
Please be aware that the following disclosures of Material Interests are relevant to this research note:
Company Name – Relevant disclosures: (2)
The report’s author certifies that this research report accurately states his personal views about the subject securities, which is reflected in the ratings as well as the substance of the reports.
Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only.CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.
No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.
This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.18.
Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.