The shareholder spring makes it to Canada

April 22-26, 2013

AMERICAS 

Market comments: US GDP was lower than expected (2.5%), resulting in a negative attitude by American investors. However, the S&P ended the week up 1.49% and the S&P 500 came very close to its high on Thursday. While GDP was down, consumer spending had risen.

With regards to Gold: The metal has experienced two other significant dips since 1999 (the end of the last bear market for gold); one of 22% and another of 30%.  Meaning, the recent price fall of 29% does not necessarily mean the end of the bull-run. Gold may continue to rise, particularly if austerity eases.

The S&P released a report arguing Canada will have problems recovering, a result of weak commodity prices and restrained consumer spending. The S&P believes “U.S. and Chinese growth won’t be strong enough to lift the global economy and drive commodity prices higher.” Remember, the TSX is a commodity heavy market place, representing about half of the index by weight. 

Company news:  Apple reported a drop in Q1 profits – its first fall in quarterly profits in a decade. Apple also announced it will return $100 bn to investors through share buy backs and dividends in the next two years. Analysts are questioning whether Apple is more like Netflix or Microsoft. Speaking of computers, Blackstone has decided not to pursue the purchase of Dell after a report showed the sharpest decline in PC sales of the last 20 years.

The Shareholder spring came to Canada in the form of a shareholder vote at Barrick Gold. Shareholders voted against the pay package (an $11.9-million signing bonus paid to co-chairman John Thornton) at the AGM. It was a largely symbolic vote, as Thornton has already received the bonus.

Earnings season continues. While earnings are, on the whole, beating analyst expectations, it may not be the bull market sign people think it is. “More than 70 per cent of companies within the S&P 500 have cleared the bar set by analysts so far this reporting season, by an average of 7 per cent… [but] Earnings growth is slowing, dramatically.” Bloomberg News reveals earnings are up just 3.5 per cent over last year and sales are worse. “Without robust revenue growth, it is not easy to see where bigger earnings are going to come from… and without earnings, it is not easy to see where stock market gains are going to come from, especially with the S&P 500 up more than 130 per cent over the past four years, to near-record levels.” As expectations are lowered, beating them becomes less meaningful.

International News:  Italy has a new Prime Minister in Enrico Letta, after President Napolitano asked him to form a government. Letta intends to ease Europe’s austerity policies and bond yields fell significantly (to about 4%) after Letta’s appointment. Remember, Italy is in the midst of its longest recession since WWII.

Also, "the Bank of Japan on Friday set 2015 or early 2016 as the target period by which it hopes to achieve its goal of generating 2% annual inflation in the domestic economy, with governor Haruhiko Kuroda citing “various indicators” to claim that expectations of price rises are “heightening as a trend”.

Otherwise: Once again the influence of social media was seen by markets. A tweet was sent from the hacked AP account saying the White House had been attacked and President Obama was injured. Approximately US $136 billion was taken from the market, before markets rebounded and ended up for the day. Twitter is now implementing a new authentication programme.

UK/EMEA

Britain avoided triple dip recession, gaining 0.3% in Q1 2013. It was a political necessity  for Osborne, who was facing difficulty in light of Fitch’s downgrade of British debt and anti austerity urgings from the International Monetary Fund (IMF).

BoE seeks to extend the funding for lending scheme (FLS). Unfortunately, difficult to know whether the scheme helps small businesses or buy-to-let landlords. Consider:

RBS wants to make money and can only do so by lending, but it is under instruction from the Treasury and a welter of new banking rules to be risk averse. A risk averse strategy turns away pleas from risky SMEs in favour of safer borrowers – which in this case are big business and high loan-to-value homeowners.

Speaking of banks, the Archbishop of Canterbury argues the City has a “culture of entitlement” that must be tamed. He suggests Bankers should be required to pass exams and a professional standards body must be developed.

Bangladesh factory disaster has led to better safety standards and a wake up call to international clothing companies with factories in the area. Particularly potent to companies like Primark.

Sibling rivalry strikes again, and the first brother in Downing Street was not Boris, but his brother.  Also of political note: Jesse Norman recently suggested Eton breeds so many people in government because other institutions do not have the same commitment to public service.  Mike Griffiths, headteacher of Northampton School for Boys and president of the Association of School and College Leaders responded: "I have not heard of many old Etonians becoming social workers because they are so wedded to the idea of public service, have you?”

And a funny one: It is the second anniversary of @EdBallsMP tweeting "Ed Balls", which has now become a Meme on twitter.  

Upcoming: local elections in Britain. Some estimates suggest the Tories might lose up to 500 seats in local councils. Stay tuned.