FTSE 100 best of a sluggish bunch
The FTSE 100 erased earlier losses yesterday to close marginally higher on Monday but Britain’s benchmark index is struggling for gains beyond the 7000 mark. UK stocks were best of a sluggish bunch with European indices paring back some of the big gains from the last fortnight. German stocks seem to be running out of steam as well yesterday after DAX futures broke above the previous day’s high for 10-days running, the longest such bullish streak since March 2002.
Barclays (LON:BARC) clients from ‘Flight Deck’ to ejection seat
Barclay’s shares dropped over 2% after it announced yesterday it could drop as many as 7,000 business clients if they don’t do more trading. It’s all part of Barclays effort to streamline and focus on its most profitable business lines. The process has seen Barclays cut 17,000 clients since 2014 and withdraw from multiple countries. Cost-cutting is a necessary evil in the low rates environment, but where clients are concerned, future revenue growth is at risk if it is too heavy handed.
Barclays would do well to remember that in the world of clients, today’s minnow can be tomorrow’s whale. Other banking shares including the UK’s HSBC Holdings (LON:HSBA) and Germany’s Deutsche Bank (DE:DBKGn) fell in sympathy with Barclays because they are streamlining client lists too. The clients dropped by Barclays are unlikely to be greeted with open arms by the other money centre banks. The news will be welcomed by the typically privately held boutique investment firms where presumably many of Barclays’ ejected clients will end up.
Apple displays lawyer firepower
Apple shares (NASDAQ:AAPL) gained ground on Monday after the tech behemoth unleashed its legal firepower with a lengthy response to the European Commission’s Irish tax ruling. Apple is trying to avoid paying Ireland $13bn in back-taxes that would amount to a quarter of all its profit in 2015. Apple has criticised the ruling saying that being the “biggest taxpayer in the world” makes it a “convenient target”. Ireland is also defending its tax treatment of Apple, saying the European Commission “misunderstood” the situation.
Apple’s legal response to the EU comes at a time when its shares have been up for four of the last five weeks and are within 1% of their 2016 peak. The battle with the EU is expected to be a drawn out process, limiting the short-term financial impact. The improved odds of US corporate tax reform and an overseas tax holiday under President-elect Donald Trump reduces the importance of the ruling for Apple. If The Donald’s promises on tax policy come true, Apple will be paying a lot less tax in the years ahead, even if its appeal to the EU fails. On Apple’s tax roadmap, the EU’s $13bn is merely a possible speedbump in smooth driving ahead.
Japanese yen gains before BOJ meeting
The Japanese yen gained on Monday, sending USD/JPY to a 3-day low. Helped by higher interest rates in the US and the tapering of QE in the Eurozone, the Bank of Japan’s policy shift towards “yield curve control” is proving quite successful. The Bank of Japan wants to keep short term interest rates low to encourage borrowing but lift longer term rates to ease the pressure on its banks and lift inflation expectations.
Again, helped by Federal Reserve and European Central Bank recent policy moves, the BOJ has now, simultaneously overcome its credibility problem and overseen the Japanese yen fall to its lowest in 10 months against the dollar. The yen weakness in concert with improved Japanese economic data would suggest the BOJ is unlikely to ease policy at its December meeting. On Monday, data showed the slowdown in exports/imports eased and the flash PMI reading for Japanese manufacturing for November rose to it’s a highest in almost a year in data released last week. If the yen is to continue weakening, it will likely be because of aggressive tightening from the Fed and tapering at the ECB rather than changes at the BOJ.
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