The US beat Europe in the Ryder Cup of golf over the weekend, the first time since September 2008 – which also happens to be when a US-prompted financial crisis last engulfed Europe. Is the DOJ’s $14bn fine for Deutsche Bank the start of history repeating itself?
Deutsche Bank’s travails dominated market news last week and resulted in significant volatility for banking stocks, with RBS leading the charge down 9% over the last month, and Lloyds and Barclays nursing slightly less damage. It appears Lehman might have got away with a lower fine, but it could still be the death knell for a business struggling to make money. The German government insists they won’t bail out the bank and it still looks unlikely that DB will go under since it has access to liquidity, but once the piranhas start swarming, rational assessment often goes out of the window.
Speaking of rational assessment, you might have noticed that Theresa May basically destroyed the UK bargaining position by announcing that Article 50 will be triggered in the spring of next year. Was it a coincidence the announcement was made on the day before the Tory party conference? It wouldn’t be the first time a nakedly political decision on timing is put before the UK’s national interest.
But at least we have reassurances from the three amigos that we’ll be a beacon of free trade, albeit a beacon of free trade that walks away from its free trading partner to whom go 44% of its exports. Don’t worry, they have much more to lose than we do, apart from the fact that only 14% of Europe’s exports come to the UK. On the plus side, at least it is a timetable; whether or not it’s achievable is another question.
Philip Hammond warned that markets will be volatile and they already are. Our currency is shrinking! No, literally. Even without those crazy cats on social media, the value of the pound vs the dollar is down and very close to a 31-year low after Theresa May’s announcement. If you were a CEO and dealing with this kind of uncertainty, what would you do? Look no further than the CEO of Nissan, Carlos Ghosn.
Nissan has stated they want compensation for any tax barriers it may incur as a result of leaving the EU and that they would not make any investment decisions until Ghosn had assurances. The irony is that the manufacturer is in Sunderland, the city that was a key to how the nation might vote.
Shares in Capita, the outsourcing company, crashed by 28% on Thursday last week after it issued a surprise profit warning for 2016, blaming Brexit jitters as customers delayed making big investment decisions. This should be no surprise and with Mark Carney’s recent statement on a slowdown in inward investment into the UK, Philip Hammond is no doubt right there will be volatility.
But it’s not all doom and gloom. Britain’s factory sector has just posted its strongest growth in more than two years, according to Markit, and also employment jumped for the second month in a row, benefiting from the weak pound. Although Markit also points out that the weaker pound increases the cost of imports and raw materials, which will hurt firms in the pocket.
Linked to this is the FTSE 100 closing at its highest level since May 2015 with outward-looking firms leading the charge. The FTSE 250 is also buoyant, helped by Henderson and its merger talks with Janus, another mega asset manager. I’ve said it before – asset managers investing in asset managers always seems odd. What we need is more retail investors investing in real operating companies… over to you!