Langton Capital – 2015-08-20 – Daily Wrap: Inflation, interest rates, China, forthcoming figures & other:
Leisure Wrap & Other:
So the trading day is grinding to a close. We’re another day older but are we any wiser? After a day of intensive head-scratching, pen flipping and gossip, we have been considering the following. As always, contact us if you’d like further details:
• Trying to establish a glide path from GDP growth of 10% via 7% to perhaps 4% for the longer term (20yrs or so) is tricky to say the least.
• Because, like a pilot landing a plane, if you end up on the runway but spend a period of time ten feet below it, you’ll be in a bit of a mess.
• Hence China has to try to avoid growth going from 7% to minus 4% to plus 5% to minus 2% etc. etc. and that’s easier said than done
• I mean ask Mr Greenspan
• He tried to gently deflate the dot.com asset boom via 6 rate rises in 1999 and 2000 and this led to the NASDAQ collapsing etc. etc.
• Markets can read the history books & have been spooked accordingly.
Inflation, deflation, no-flation…
• Both the US Fed and the Bank of England appear to be preparing their respective audiences for interest rate rises, perhaps in September/October in the US and in the New Year in the UK.
• And, as various members of the MPC have suggested, that’s as it should be.
• Higher rates are a sign of a healthier economy but, when fighting inflation is at the top of the agenda for central banks, it is likely to be some kind of concern re rising prices that prompts action.
• And, when it comes to rising prices, there’s little sign of any action on the horizon.
• China seems to be slowing and commodity prices, metals, oil and foodstuffs in particular, are extremely lower.
• And in some cases, oil, for example, they may be going lower still suggesting that deflation could still be more of a near term problem than inflation.
• Of course the Living Wage may put paid to that – and therein lies a problem.
• Because there’s a difference between inflation (such as there is any) caused by commodity price increases (this should be transitory) and inflation caused or perpetuated by wage increases (because this is ‘baked in’)
• Hence there is real potential for the Bank and its political masters to deal with deflation in such a way as to cause inflation, and the latter of the least pleasant sort
UK interest rates:
• Markit is suggesting that 78% of UK households expect rates to go up at some point in the next 12mths
• What it doesn’t say is how many said they were actually doing anything about it
• When rates rise they are still likely to impact spending as there is little sign that spending is being held back in order to provide for a rainy day
• The grey market could benefit but, overall, higher interest rates tend to be associated with lower spending levels overall
Random information, hopefully not all of it useless (re most leisure operators etc.):
• All markets down yesterday, not looking a lot better today.
• Note that the gold price is blipping up.
• Other commodities extremely low, copper etc. at 6yr lows, soybean prices lost all of their recent gains, sugar flat out unconscious.
• Interesting but true, iron miner Century Iron Mines (of Canada) has moved from mining to dining. It is to export eggs from Australia to China – here
• Interesting also to see milk prices beginning to firm up in the Southern Hemisphere – here
• Crude inventories said to be higher than anticipated, traders say low prices could persist. Such bold comments would often presage a rise in prices – but they may not this time, particularly if China slows further.
• Note that WH Smith says its travel business has benefitted from increased footfall. Interestingly its high street operation has also performed well, it’s even selling more books!
• Looks like Greece III is being put to bed; any bets on when Greece IV is likely to kick off?
We’re so 21st Century, this morning’s Tweets (diff. font size denotes importance):
1. Stock Spirits H1 numbers. Revenues €108m v €138m last year. Operating profit €5.2m v €23.2m. Basic EPS down to 0.125c v 8.4c last year
a. Stock Spirits says ‘ongoing market disruption in Poland [led] to very poor Q1’ but group is seeing ‘much improved Q2’.
b. Stock Spirits says due to ‘continuing aggressive competitor pricing + erratic customer ordering patterns’ sees FY EBITDA of €60m to €68m
2. Customers, where are they? Still quiet in The City. Pubs pretty empty, plenty of room in the restaurants. Presumably the beaches are packed
3. Report from Public Health England has concluded that e-cigs are 95% safer, presumably cause 5% of the damage, of ordinary cigs
4. Kirin reported to be set to buy 55% stake in Myanmar Brewery from Singapore-based co Fraser + Neave for $560m.
5. Survey by Open Table suggests average Briton spends £4,100 on eating out per annum, goes out 1.5x per week
6. HMG will ‘robustly enforce’ the new living wage and the HMRC will have an extra £13.2m to investigate offenders, reports the PMA.
7. Shares in Carlsberg have fallen after the Danish brewer lowered its full year forecasts due to continuing ‘market decline in Eastern Europe.’
8. Thomas Cook and Brand USA have extended their partnership with the launch of a new campaign to drive visitors to the US
9. Rank reports FY numbers, says that ‘strong progress [has been] made in 2014/15’. Revenues +4% at £738m, PBT +19% at £74m.
a. Rank reports EPS +18% at 14.6p, full year dividend +24% at 5.6p. Operating profits +16% ‘with all brands in growth’.
b. Rank CEO says is ‘particularly pleased that the strong digital growth we reported at our interims continues’
c. Rank’s current trading ‘has continued in line with the trends seen in 2014/15 and is in line with management’s expectations’
10. Ladbrokes has reported a part of Gala Coral’s Q3 results saying Coral Retail EBITDA was down 2%, OTC was 1% lower + machines +2%
11. US Fed says conditions for rate rise “were approaching” when they met last month, minutes suggest. The Fed nonetheless held off.
12. Markit has 78% of UK households expecting rate rise in 12 months. Whether they are doing anything about it or not remains to be seen.
13. Oil price down a little further, Brent trading at $46.90 per barrel, West Texas Intermediate fell more
14. German MPs have voted heavily in favour of a third bailout deal for Greece
Leisure – The Week Ahead
It’s a big week for gaming next week with interim results from Paddy Power (26th), Playtech (27th), 888 and B-win (both 28th). Last year’s World Cup will likely skew first half numbers from many of the betting companies and recent tax changes will have impacted cost bases.
The Restaurant Group produces its interim results on the 28th. The group’s shares have been strong over the past month or so, rising from c660p to c710p, though the recent downturn in the markets has seen the shares off their peak. Last week saw the Coffer Peach Tracker report that restaurants have had another strong period of growth in June, with LfLs up 4.3% in restaurants and 4.9% outside of London. RTN has a strong provincial presence and so investors will be looking for the group to have performed well recently.
PPHE Hotel Group, the operator of full service upscale hotels, reports its interim results on the 27th. The group updated on trading on the 13th august, in which it predicts revenue is up 12% and EBITDA up 10% for the first half of the year. The group has also recently promoted several people to the board this month.
Will Brumby – email@example.com