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Liontrust Dealer's Blog - 28/02/2013

“The best way to have a good idea is to have a lot of ideas.” – Linus Pauling, winner of Nobel prizes for Chemistry & Peace, born 19th Feb 1901 -  Aug 19th 1994




  • US markets continued to move north post our departure with the Dow adding another 0.6% to close at a 5-year high!
  • All worries over Italian election soothed by a decent looking bond auction (apparently) & testimony from Bernanke
  • ..which did a lot to calm fears that had surfaced in last week’s FOMC minutes. Hopes were also raised of an alternative
  • ..to the upcoming $85bn sequester, though the sell-side did field a lot of questions asking “why the strength?!”
  • Asian markets followed the US lead & were also helped by some better corporate results in the region
  • Japan +2.7% ripped as  ADB’s Kuroda (Abe’s top picked) is confirmed as next BOJ governor  with hope of dovish headlines to come
  • Europe opens better with today being the busiest corporate results days of the quarter, so not a fun start, made worse as
  • Bloomberg (which 90% of the city use) had a technical glitch which delayed all the newswires till after 8am.
  • Some winners included: IAG +7.9%, Telefonica +2%, Telekom Austria +4%, Bayer +2.7%, Aixtron +10%, Prosieben +7% & Essilor +6%
  • While loser were: RBS -6.6%, Deutsche Tel -0.02%, Arkema -4%, Kazakhmys -8.5%, Hochtief -7%
  • Macro wise Draghi echo’s Bernanke by saying ECB has no intention of tightening monetary policy
  • As inflation is to “significantly” undershoot their 2% target in the next year. A while later E-Z inflation data prints
  • Coming in at exactly 2% as forecast, though the MoM number for Jan prints at -1% (f/c -1%)
  • By midday markets have gained c 0.4% & we’ve traded in a relatively tight range (c 0.4%) with plenty of results to digest
  • 13:30 US Q4 GDP prints at 0.1%, revised up from -0.1% first reading, but less than the +0.5% forecast
  • So not much change though inventory levels dropped so should be +ve for current quarter (more below)
  • Jobless data also drops into the screen, looking slightly better; Weekly claims +344k vs f/c +360k & Continuing claims +3074k vs f/c +3143k
  • Mid afternoon Chicago PMI prints at the highest level since last March
  • Setting the US up for another +ve start..Dow now 62 points from it’s all time record
  • Elsewhere the EU’s Rehn says “Euro Zone 2.0 will be very different from Euro Zone 1.0”
  • It’ll have a better camera, faster processor & be Skype enabled apparently.
  • Very busy close as the MSCI index rebalanced its constituents..EADs get ramped 5.5% as it goes in
  • So another strong month draws to a close, with today FTSE +0.55%, SXXP +1% & S&P +0.2% so far
  • Feb scores on the doors: FTSE +1.3%, SXXP + 1.7%, S&P currently +1.4%.

Liontrust Dealer's Blog - 27/02/13

“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, assistance to foreign lands should be curtailed lest Rome become bankrupt, the mobs should be forced to work and not depend on government for subsistence.” – Marcus Tullius Cicero, Roman statesman, born 106BC – died 43BC


  • Despite the gloom surrounding the Italian election & our weak close, US markets perked up as soon we’d left with the S&P adding 0.59% (@ 1496.94 so short of 1500)
  • Thoughts developed that some kind of grand coalition may be cobbled together as Berlusconi’s right reached out to Bersani’s centre left,
  • Though the headline from Il Messaggero (Rome newspaper), lead with “The winner is: ingovernability”. Elsewhere Bernanke smoothed a few nerves..
  • ..post the FOMC minutes last week as his bi-annual monetary policy testimony was on the dovish side. US house price data also looked good helping that sector.
  • Of note Pimco’s El Erain  warns us all to expect more socio-political fragility in 2013 (talking to fortune magazine:)
  • Asian markets responded to the US move in their usual fashion with the region generally posting +ve closes, though
  • The Nikkei underperformed (down 1.3%) as the Yen continued to bounce post the comments yesterday.
  • Notable data in Hong Kong (+0.25%) where Q4 GDP printed at 1.2% (vs f/c 1.4%)..how the EEA would love a number that big.
  • Europe opens up c0.35%, attempting to bounce post yesterdays selling “though not terribly convincing” was the comment
  • Pretty busy results day as we continue to wade through Q4 numbers,
  • Winners included; EADS +6%, Swiss Life +5.6%, Restaurant Group +5%, UCB +4%, Weir +3%, Ipsen +3.8% & Bouyeges +7%
  • Losers included; Imtech -11%, Jeronimo Martins -5%, Henderson -5%, Petrofac -4%, D’Ietern -3% & Holcim -1.3%
  • Mid-morning Italian Bond auction keenly watched. The sovereign sold €6.5bn as targeted but yields were predictably higher
  • Still it was a decent effort to get the full amount away and the 4.86% yield on the 10 year wasn’t too bad
  • Elsewhere UK GDP for Q4 falls 0.3% in line with provisional figure, though the strongest growth came from Gov. consumption (not great)
  • & Italian Business Confidence for Feb printed at 88.5 vs f/c 88.4 – though this will be a pre-election survey.
  • Mid-morning Eurozone Consumer Confidence comes in at -23.6 bang in line with forecast &
  • M3 money supply data for Jan showed a modest expansion over December (though private sector & Southern states weak)
  • By midday markets are up c 0.4% in relatively choppy trading.
  • Afternoon kicks off with US durable goods data for Jan. Headlines look works -5.2% vs f/c -4.7% but
  • Underneath signs of encouragement as Capital Goods +6.3% vs f/c 0%.
  • Pending Home Sales also surprise to the upside +4.5% vs f/c 1.8%
  • Data points appeared to kick-start a small rally, though also heard rumour of a large program hitting the market...
  • ..whatever the reason, we had a very strong move into the close, with markets up c1% in last 2 hours of trading.
  • On the day FTSE +0.88%, Eurostoxx +0.9%. FTSE is now flat on the week, Italy who cares.

James Inglis-Jones, Cashflow Solution: Income Fund – European diversification benefits

When selecting investments for the Liontrust Income Fund, we seek companies that not only fulfil our cash flow criteria but also offer investors an attractive and sustainable dividend yield. While the application of these two filters enables us to identify companies with particularly robust cash generation, the flipside of the same coin is that – when considering only the UK market – the potential investment universe is reduced, as is the opportunity for diversification. Our ability to invest up to 20% of the Fund outside of the UK is therefore key to maintaining diversification.

By investing in a selection of continental European companies, we have been able not only to identify investment opportunities which we believe have greater return potential than if we restricted ourselves to the UK market, but also have the ability to select from a wider opportunity set, accessing sectors which are under-represented on the UK market and achieving greater diversification.

Liontrust Dealer's Blog - 26/02/2013

“I won the Scoop 6 on Saturday..............of course, you know I have stopped gambling!” Eddie Benson, British sales trader extraordinaire, born February 26th 1963...........Happy 50th, Mr B!!


  • As the nightmare that is the Italian election unfolded, risk assets took a caning across the globe....
  • ....Probably fair to say that the outcome of the election points to an electorate who do not want austerity
  • ....and quote of the day from Berlusconi, who describes the reaction of markets as “a bit crazy”
  • The S&P fell by almost 2% post the European close as the full extent of the Italian woes became clear
  • The perception of safe haven helped US treasuries.......10 year yield fell 10bos to 1.87%....
  • ....while the VIX index leapt by no less than 34%!
  • Asia was weak across the board, led down by Japan which fell by 2.3%, as the Yens safe haven perception saw a decent rally
  • Japanese 10 year bond yields hit their lowest level since June 2003, whilst the 5 year yield has never been lower....
  • ....whilst European peripheral yields headed significantly in the opposite direction
  • Italy opened lower by about 4%, led by the banks which were all down by more than 5%
  • ....which prompted the authorities to reintroduce a short sale ban on certain financial stocks
  • Other European markets were lower in sympathy, but were relatively stable post the initial markdown
  • The latest bond auction in Italy passes off without any undue cause for concern
  • Amidst a raft of relatively unimportant US macro data today was a very strong new home sales number (437k v 380k expected)....
  • ....and that was followed by an extremely bullish consumer confidence number (69.6 against expected 62.0)
  • Fed chief Ben Bernanke’s testimony is interpreted as dovish (see below)...
  • ....all of which was enough to see Wall Street open higher and go better
  • FTSE ended the day broadly where it started the day, post the initial markdown, with a fall of 1.34%
  • European markets were weaker, with Italy lower by just under 5%
  • The S&P was up a fraction as we called it a day........but heading south

Jamie Clark, Macro-Thematic: Downgrade no surprise and we are prepared for further Sterling weakness

It came as no surprise that Moody’s stripped the UK of its triple A credit rating, although the execution of the downgrade appears to be rather late in our opinion. Sterling had already fallen in excess of 6% against the Dollar during 2013 and the perceived "safe haven" status that was attached to the Pound throughout 2012 has now diminished. All the negative factors contributing to the recent weakness were present during 2012 and yet the majority of investors and speculators choose to ignore these signals. In our minds, a weak Pound will perhaps make the UK more competitive but it will add to the inflationary pressures already present in our fragile economy. As investors, we remain committed to companies which derive the majority of their earnings overseas and, as Sterling falls against our major trading partners, these earnings and subsequent dividends will be enhanced in Sterling terms.

Although the magnitude and pace of this year’s Sterling depreciation suggests to us that the trend’s momentum is unlikely to be sustained in the short term, our belief remains that its medium term trajectory is downwards.

Liontrust Dealer's Blog - 25/02/2013

“Every dogma has its day.” Anthony Burgess, English writer, February 25th
1917 - November 22nd 1993


  • Wall Street rallied post our close, with the S&P rising by the best part of 0.5% on average volume
  • Corporate earnings releases perceived to be the primary driver, with Hewlett Packard higher by 12.3% and Texas Instruments up by 5.2%
  • Late on Friday, Moody’s cut the UK’s credit rating by one notch, which impacted £ immediately (see below)
  • Now only Canada and Germany hold AAA ratings from all 3 agencies
  • Asian markets strong, led by Japan (+2.4%) as the Yen fell to a 30 month low against the $, fuelled by speculation that Kuroda will be nominated as the new Governor of the Bank of Japan....
  • ....and his comments earlier in the month that the BoJ has “substantial room” for monetary easing was the trigger for the Yen fall
  • China shrugged off a light HSBC Flash PMI number, showing the slowest expansion in four months (see below)
  • European markets open better, with attention fixed on the Italian election, with exit polls expected before European markets close today
  • Italian bond auction passed off ok, given inevitable caution on election day and there were no points of concern in the French or German auctions either
  • £ inevitably weaker against the $ and Euro, but had rallied somewhat by midday
  • Leaders in European markets driven by potential M&A, with Vivendi to the fore on speculation that GVT sale may happen within weeks....
  • ....and BP strong on reports that the US is considering a $16bn offer to settle the Gulf of Mexico damages
  • Pearson weak on disappointing numbers and Reckitt Benckiser hit as the US FDA approve two versions of generic Suboxone
  • Despite many traders awaiting the Italian election result, volumes by midday were almost in line with the average of the past month
  • Market upward momentum helped by significant drop in peripheral bond yields
  • At 2pm the first Italian exit polls began to surface, with initial indications suggesting a Bersani led coalition victory, but possibly not requiring Monti’s support
  • The initial reaction of equity and markets was favourable....
  • ....the FTSE MIB jumping by almost 1.5% in fifteen minutes post the first exit poll....
  • ....and the yield on 10 year Italian bonds fell by  more than 25bps, with other European peripherals following the lead
  • But further consideration concluded that Monti’s exclusion was interpreted poorly and markets sold off
  • ....and the sell-off accelerated as polls pointed to Berlusconi leading in the Senate!
  • ....and sentiment was further hit by an official from the centre-left saying that projections would suggest that the next parliament would be ungovernable and that a new election will be required
  • At the end of a fiendishly volatile day, FTSE closed up 0.31%, with most of Europe also higher on the day....
  • ....but just twenty minutes after the close the FTSE future was pointing to a  50 point fall and the MIB was also heading south....
  • ....all as a result of one of Bersani’s aides also suggesting that a fresh election was likely
  • Meanwhile, the S&P was a fraction higher....but heading south
  • Final thought of the day from Nomura : the possibility of the comedian (Grillo) forming a coalition with Bunga-Bunga (Berlusconi) is very real........only in Italy!!!

Liontrust Dealer's Blog - 22/02/2013

“Some day, following the example of the United States of America, there will be a United States of Europe.” George Washington, First President of the United States, born 22nd Feb 1732 – died 14th Dec 1799


  • Post the fireworks on Wednesday US markets continued to fall yesterday (-0.6%), with a mid-afternoon stab at a rally petering out into the close
  • From our departure the S&P added 6bps (holding 1500), with only a possible bid for Gardner Denver (from KKR) exciting during the afternoon session
  • Asian equities regained some of their poise after another uncertain start, with a slightly weaker $ helping commodities & resource plays in the region
  • Korea continued to outperform on the hope that the incoming president will made good on pre-election pledges while..
  • ..the Aussie $ & market bounced as the RBA governor endorsed the current level of interest rates. Singapore GDP Q4 looked good printing at 3.3% vs f/c 2%
  • Pre open German GDP for Q4 revealed to be -0.6% bang in with forecasts & previous flash estimate,  fall mainly due to weak exports
  • Europe opened better pre a few macro data points during the morning, with corporate headlines relatively thin on the ground..of note
  • Bowleven (+6%) find some oil in Cameroon, Tenaris (+3.8%) #’s better, Valeo (+2.3%) profits beat expectations, Opap (-5%) & Eramet (-4.5%) #’s both disappoint
  • First macro point was latest German IFO readings...they looked good across the board (unlike PMI data yesterday that missed expectations)
  • Business climate 107.4 vs f/c 104.9, Current Assessment 110.2 vs f/c 108.5 & Expectations 104.6 vs f/c 101.4..bodes well for Q1 GDP
  • Next up the ECB revealed their forecast for Euro-Area GDP had been cut to -0.3% from +0.1%..though not a shock given recent data
  • Plus La Tribune had printed a story yesterday highlighting this is exactly what they were going to do..market took a short dip on it anyway
  • Finally at 11am the ECB announced how much money had been repaid from the second LTRO II (post a decent repayment of LTRO I last week)
  • Forecast was €100 - €150b out of the €529.5bn loaned out, but actual number came in weaker at only €61b..initial reaction is a € sell off..
  • & market whipsawing. Although it looks worse more bank repayment is still a positive for risk despite at the same time draining liquidity from the system
  • By midday we’re up 0.8% in UK & 1.6% in Europe (flat on the week!) as the bounce continues
  • Between midday & US open Volkswagen #’s hit the tape, bang in line with expectations but a very cautious outlook statement weighs
  • Other than that market drifts until US comes in to give us a lead & it opens with a small bounce (S&P +0.3%) post decent #s’ from HP (AH y’day)
  • Afternoon session see firms picking over the Volkswagen (-7%) guidance, but without any US data not much else catches the eye
  • We end the week positive in Europe..For the week FTSE -0.1%, Eurostoxx -0.5%, S&P currently -0.77%. Not much harm done.

Liontrust Dealer's Blog - 21/02/2013

“Rules are for the obedience of fools and the guidance of wise men.” Douglas Bader CBE, DSO and Bar, DFC and Bar, WWII Royal Air Force fighter pilot, born February 21st 1910 - September 5th 1982


  • The FOMC minutes put markets into a tailspin, as investors fretted over a potentially more hawkish tone (see below)....
  • ....which resulted in the S&P sliding by almost 1.25% and the VIX rising over the session by more than 19%·         Authorities in China added to the woe by telling local authorities to “decisively” curb speculation in real estate....
  • ....which smacked the property sector and contributed significantly to a fall of almost 3% in the Shanghai Composite Index
  • Other markets in Asia also saw predictable weakness overnight
  • ....and inevitably the UK and Europe succumbed to the red pen as well, with falls on opening of between 1% and 1.5%
  • ....with banks and resource stocks leading ther falls
  • The latest Euro area PMI data did nothing whatsoever to improve the mindset of investors (see below)
  • Suggestions from a couple of brokers that Eurozone GDP forecasts could have some downside risk now
  • Better than expected UK fiscal surplus in January with the Bank of England having received its first payment of gilt coupon income from QE
  • Frayed nerves regarding this weekend’s Italian election saw the MIB drilled 3% lower by midday in Milan
  • ....and 10 year yields there continued to creep higher
  • The markets briefly steadied following a strong Spanish auction, but the markets took another leg down led by the mining sector as precious and base metals prices lurched lower once more, although there were signs of a bounce late in the day
  • A raft of US macro data out today....
  • ....CPI much in line, as were the latest jobless claims numbers....
  • ....although the Markit PMI number was a touch light
  • ....but not as light as the latest Philadelphia Fed survey which came in at -12.5 against an expectation of +1.1 (see below)
  • An initial sell off did not grow legs, but most markets in Europe closed at or close to their lows for the day
  • FTSE ended lower by 1.62%, rather better than Europe where the Eurostoxx 600 was down by 2.17% on the day
  • The S&P meanwhile was off by about 70bps

Liontrust Dealer's Blog - 20/02/2013

“Don’t get mad. Get everything.” Ivana Trump, former Olympic athlete, fashion model and socialite, born February 20th 1949


  • The S&P rallied further post our close, spurred by a Wall Street Journal report about potential consolidation in the office supply space
  • Treasuries ended on their lows and the VIX hit its lowest level since September 2007, as the S&P makes a new 5 year high
  • Asian markets built on the global appetite for risk assets, with Korea posting its best day of the year
  • Foreign direct investment in China fell for the eighth straight month to $9.3bn
  • Japanese trade deficit widens to a monthly record, despite the first rise in exports in eight months
  • European markets open flat, as does the UK, but European markets came easier on worries to the fore on the Italian election
  • UK market gets a boost from the Bank of England minutes, showing a further 2 members of the MPC voted for additional QE, including Mervyn King (see below)
  • ....and better than expected jobless data also encouraged the risk on camp
  • Sterling inevitably gets hit by this more dovish stance, trading down almost 1.5c at $1.53, an eight month low
  • German CPI in line with expectations, French CPI rather worse
  • The price of gold forms a death cross....when this happened last year the price fell by 10% over the following month (see below)
  • Cut dividends a major feature, with RSA trading lower by 14%+ and Lufthansa by almost 5% on reduced payouts....
  • ....whilst Credit Agricole trade as much as 11% higher and Lafarge 6.5% better on decent numbers
  • Spain announce 2012 budget deficit was 7% of GDP, against a target of 6.3% and an expectation of 7.3%....
  • ....some relief there helped Spanish 10 year bonds to rise
  • The recent string of positive data points on the US housing market took a knock today, with data showing an 8.5% decline in housing starts in January and an actual number that came up short, but panic not, the trend is still in place (see below)
  • US Producer Price index numbers were in line with market expectations
  • Significant falls in precious and base metal prices during afternoon trading (silver, platinum, palladium and nickel all lower by 2.5%+)
  • Oil price took a knock in late afternoon trading (West Texas off by as much as 2.8%) on rumours of a hedge fund blowing up
  • FTSE ended the day higher to the tune of 0.26%, whilst most of Europe was lower, led by yesterday’s winners, Italy and Spain
  • Meanwhile the S&P was down by 0.45% as we called it a day

Liontrust Dealer's Blog - 19/02/2013

“To know that we know what we know, and to know that we do not know what we do not know, that is true knowledge.” Nicolas Copernicus, Polish scientist, February 19th 1473 – 24th May 1543


  • US markets closed yesterday for Presidents day so no overnight lead for Asia
  • Yen strengthens after Jap Fin Min Aso rules out buying foreign bonds (Nikkei -0.3%)
  • Also says govt is not considering any immediate change to the law governing in the BOJ
  • However PM Abe says buying them “exists as one idea”, so who knows..
  • Minutes from the RBA noted “demand from China has spurred prices of commodities”
  • Also noted lower rates are helping the economy and retain scope to cut further (Aus +0.4%)
  • Other main action in the region is a pretty weak Chinese market (-1.6%) as several things compound (more below)
  • Including a report in the CSJ that the country might be opening up to short selling,
  • Europe markets initially opened weaker on thin volumes, with a pretty dire looking report for car manufacturers
  • New car registration dropped 9.5% in January, with the EU SAAR at 10.4m the lowest in 10 years
  • “Challenges for the industry remain significant” said market forecaster LMC automotive,
  • Corporate wise results from Danone (+5.9%) surprise to the upside thanks to a decent organic growth number
  • While Bernstein cut their rating on Vodafone (-2%) to underperform for the first time since 2008,
  • The team are highly rated & say the firm faces “structural decline” so the shares predictably weak
  • Mid morning the latest German ZEW data points to an improving economy (sentiment 48.2 vs f/c 35)
  • Though the Current Situation reading for Feb prints lower at 5.2 vs f/c 9 (but backward looking)
  • Spain sell €4bn 3m/9m paper at 0.42%/1.14% better than last time, btc 5.76/2.32. (10 year unchanged at 5.21%)
  • Also Troika says Greece met its 2012 targets & they expect to pay out the next tranche of aid,
  • Midday we’re up c 0.5% with CAC outperforming +1% despite French FM saying 2013 GDP target likely to be cut to 0.2% - 0.3% from 0.8%
  • US pre-market bit more corporate as Staples (+12%) think about an LBO & Office Depot (+13%)/OfficeMax (+24%) reveal in advanced merger talks
  • Sets up the S&P for an extremely strong start out of the blocks post their day-off (up 0.4% in first 30 mins)
  • Only one piece of US data, NAHB index for Feb small disappointment at 46 v f/c 48 (1st decline in 10 months though)
  • “The index remains elevated relative to construction but nevertheless shows a modest flip from Jan - a little caution here” (BOAML)
  • By the end all markets were extremely strong, though re-reading the above you won’t find an obvious catalyst!
  • So FTSE +0.96%, Eurostoxx +1.2% & S&P is currently +0.5%..Italian elections Sunday but who cares.

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Any opinions expressed should not be construed as advice for investment in any [product or] security mentioned or which may form the underlying content of any topics discussed in this blog.  The information and opinions provided in this blog take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision.   Any opinions or information provided has been based on sources we believe to be reliable at the time of this blog’s preparation: no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.  Neither Liontrust, nor any of its partners, employees, representatives or agents accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of our research or its contents.

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