Sunday, 24 July 2016

Stories we should be thinking about

Ahead of the new working week here are a few finance and related stories to be thinking about.

Macro matters:

So what did the G20 in China tell us?

Well the inevitable: "The global economic recovery continues but remains weaker than desirable" was mentioned. Yes, I would agree on that sentiment.  The chart below might suggest current global growth rates are about the average for the last 35 years or so...but given the amount of recent stimulus action / low interest rates etc. let's face it this is a bit disappointing.  

And the communique was rather interesting as noted at this Bloomberg article: 

"Underscoring the essential role of structural reforms, we emphasize that our fiscal strategies are equally important to support our common growth objectives," the group said, in slightly modified language from its last communique, issued in April. Three months ago, the group didn’t use the term "essential" for reform, nor the word "emphasize" for its fiscal policy. The April document also didn’t refer to fiscal strategies being "equally" important.

So basically now even more emphasis on stimulus.  Kind of interesting that (as highlighted by @Callum_Thomas) that blogger sentiment is at a multi-year high. 

Final point on the G20.  Here is how Christine Lagarde saw the meeting: 

UK data on Friday was pretty shabby with the composite PMI at its lowest level since the depths of the Lehman crisis...

...which is reflected too in other economic insights like clothing sales:  

Still, at least real wages are growing finally again for a sustained period in the UK: 

So much of course depends on any future trade deals for the UK.  The trouble is historically (let's use the US as an example) it takes time: 

And given - as made in the point below by the new UK Chancellor Hammond - how important the reaction by other partners in the EU (and of course elsewhere) could be: 

Meanwhile fund management house outflows have been material: 

Brexit blues: fund houses with largest outflows
June redemptions from open-ended funds and ETFs in Europe (€bn)
Franklin Templeton
Source: Morningstar

So all of this means the UK is the cheapest equity market by valuation?  Well not exactly: 

Emerging markets  are among many of the cheaper markets above.  I came across the below chart on the pick up yield potential in emerging market debt in the Financial Times...

...and big inflows too:

I like emerging market equities more than debt personally and I think stock picking opportunities are clear.  I could say the same about European equities...where the big difference is that for this zone it is all about outflows:

Of course we need to have a think about the capability for policy-makers to progress the Italian non-performing loans financial sector challenge.  

As per the Financial Times: 'Pier Carlo Padoan, the Italian finance minister, has denied that Italy’s banks are suffering from systemic problems and rejected a “bail-in” of private investors as he sought to reassure global markets over the state of Italy’s financial institutions'

I think progress will be apparent here - akin to the flexibility shown by influential policy-makers like the Germans on matters like lower interest rates, QE and the Greek bail-out.  Of course what Europe also needs is more flexibility.  Funny how that lack of labour market flexibility means fewer job losses when a recession hits...but fewer job gains in any recovery...which is why change needs to occur:
 Of course this does not mean that the more flexible American economy has all the answers.  I was shocked by this pension fund today:

Sector and companies: 

Remember that big ARM/Softbank deal? A lot of rationale is centred on the Internet of Things which I thought was nicely summarised by this:

On Apple I saw this on Seeking Alpha:

'According to prominent mobile phone leaker Evan Blass (a.k.a @evleaks), the world may be just under two months away from the iPhone 7..."iPhone 2016 release: week of September 12th," he wrote on Twitter. "Just to clarify, this refers to the retail release, not the launch event. To be even more specific, it should happen on Friday, Sept. 16th." Rumors are also swirling about whether Apple (NASDAQ:AAPL) will offer a three model line-up for the first time, including a so-called iPhone 7 Pro'

Wow Twitter have spent a lot on stock based compensation as a proportion of revenues: 

A few stories from today's Sunday Times:

'SAB Miller takeover on knife edge' - trouble with the Pound going down and hence the bid value...

'Currency turmoil and tough trading conditions have dragged Rolls Royce to its first loss in six years' - the Pound has not helped here too

'Lloyds Bank is poised to dash investor hopes of a bit increase in its dividend payouts' - why?  Because of the UK economy new fears...

'Thomas Cook is set to unveil a new profits warning this week'.  Brexit...

'One of London's best -known developers is to slash the value of a luxury homes scheme in Earls Court in the wake of the EU referendum...Capital & Counties is expected to mark down the southwest London project by as much as 15%'.  Brexit #2

'Casino operator Rank Group and online gambling operator 888 Holdings are in talks to create a £2bn gambling giant' .  More consolidation in that space...

Have a good week 

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