All posts by suzieneu

M&S should have patched up the holes in its clothing division by now

The phrase “progress is a slow process” could have been written to describe Marks & Spencer’s long-awaited turnaround of its lacklustre clothing division.

Today’s fourth-quarter trading update showed yet another decline in sales (down 1.9 per cent, or 2.7 per cent stripping out any new acquisitions or non-comparable aspects) that once again contrasted dramatically to its buoyant food business.

New(ish) boss Steve Rowe has deemed the results “unsatisfactory” and vowed to address it – just as his predecessor vowed to do and no doubt a flurry of highly-paid creative directors and marketing consultants etc etc.

The real question is why is it taking so long? Does the M&S team not read the multitude of commentary about why its fashion lines are so undesirable? Admittedly, certain newspapers that count Marks and Sparks as advertisers will be giving a kinder view of the problem, but there is certainly enough independent analysis out there.

To me it is mind-blowingly obvious that the types of clothes that would sell well at M&S would be: good quality classic workwear; basics such as polonecks and jumpers in neutral colours, not just fluoro-pink (I struggled to find a black poloneck when I was last in there, let alone one in a size 8); middle-of-the-road flattering skirts and dresses that would suit the average person (A-line rather than horrendously unforgiving bodycon). More plain, less cheap airhostess patterns. M&S is NOT Maria Katrantzou and never will be (or should be).

Taking a look at the M&S website today, I trawl through the “New In” section of the womenswear collections.

We have a leather a-line wrap skirt that looks concerningly similar to the outfit worn by serial killer Dexter from the eponymous Netflix series when he butchers his victims.

A white, tassled, lace vest top that looks like something you’d find in the New Look sale but at a far higher price (no disrespect to New Look, but it’s different markets).

Oh, and dungarees. This item in particular makes me question whether M&S has an idea – or even cares – who their customer actually is. The only people I know who would wear dungarees would be hipsters or the very young – probably bought from Topshop – surely not the key demographic for this supposedly high street staple store?

Of course this is not to say there is not a single item I’d actually buy in M&S. They do produce some nice jumpers and if I looked very, very hard, there might be the odd jacket that’s passable.

But here lies the problem. People lead busy lives and every decision you make in your leisure time is the one that you think gives you the best odds of delivering what you want. If you choose a restaurant, it’s the one you think you’re most likely to enjoy that evening. If you choose a shop, it’s the one where you think you’re most likely to find clothes you like. Why would you go to a shop where you might be able to find 2 items out of 100 that you like, when you could go to another and perhaps find 15 out of 100?

It would be a shame to see such an historic brand as M&S lose its clothing division and effectively become just another supermarket. There is still potential for a turnaround – but whether Steve Rowe will be the man to do it, I’m yet to be convinced.

There’s more to Glencore’s agri sell-off than meets the eye

This week, Mike van Dulken and Augustin Eden from Accendo Markets explain why Glencore is still keen on the agriculture sector despite selling off its business…

Deleveraging in the mining sector continues, with Glencore managing to offload 40 per cent of its agricultural business to Canada Pension Plan Investment Board (CPPIB). But Glencore’s situation is rather different from that of sector peer Anglo American, which we discussed a while back.

Glencore struggled through the latter part of 2015 with a massive debt burden, the result of huge over-investment just around the time when commodity prices began turning over, and its shares were part of a group that weighed heavily on the FTSE 100 index last year.

While we’ve seen action taken by the blue chip miner to reduce its debt load before now, the partial sale of its agricultural arm is an indication that there are indeed buyers for mining assets. Sure, the $2.5bn price tag fell short of analysts’ expectations, but it was bang on Glencore’s guidance and has put some much-needed funds into the coffers, which the company says it will use to… expand its agricultural assets. Wait a minute. Glencore is selling part of its agricultural business in order to buy other agricultural businesses? Mad as it sounds, that seems to be correct.

Glencore is currently – despite this deal – a major exporter of grains in Russia, Canada and Australia. It shifted around 44 million tonnes of the stuff in 2015 but saw profits cut in half by an oversupplied and stagnating market. So what Glencore may be engaged in here is a clever marketing ploy – those being somewhat of a speciality of the commodity trading giant. It clearly still sees value in agricultural commodities, otherwise it wouldn’t be looking at South America and Brazil (the world’s #1 soy bean exporter) for potential acquisitions in that sector, right?

The other market in which Glencore lacks a big footprint is the US, and understandably so – the strength of the dollar making US exports less competitive means it’s not a priority right now. But what about the outlook for US monetary policy? If the Fed continues to be dovish – stamping down the hawkish dissenters – then the outlook for the dollar would be bearish, which would strengthen the Canadian Dollar and make Canadian exports less competitive. While Glencore shouldn’t and probably isn’t making a call based on FX forecasts, isn’t it a little funny that it’s sold a 40 per cent stake in its agricultural business to the Canadian Pension Plan Investment Board?!

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Exclusive: Investec dumps Bell Pottinger over Gupta contract

Investec has severed ties with Bell Pottinger, after it emerged that the public relations firm has agreed to represent a holding company owned by South Africa’s controversial Gupta family.

It is understood that the South African bank stopped enlisting the services of Bell Pottinger within the last two weeks, after Johannesburg-based newspaper Business Day reported that the PR firm had taken on the Guptas’ Oakbay Investments as a client.

The Gupta family’s close relationship with President Jacob Zuma is at the centre of the controversy, with critics accusing the family of wielding improper political influence in order to “capture the state” for the sake of its own business interests, which range from media to mining.

Senior politicians recently claimed they were offered cabinet positions by the family, sparking a corruption probe, but the Guptas deny the allegations and say it is part of a plot to oust Zuma.

Bell Pottinger was hired to manage the flurry of bad press surrounding Oakbay, one of the two main holding companies that look after the Guptas’ businesses.

Last month, allegations emerged that the South African mining authorities, under the family’s influence, pushed Swiss resource giant Glencore to sell one of its coal mines to Tegeta Exploration and Resources, a mining company part-owned by Oakbay.

Duduzane Zuma, the son of the President, has direct or indirect holdings in a number of Gupta/Oakbay entities, making the whole situation even murkier. The Guptas deny the accusations.

Bell Pottinger is no stranger to controversy itself. The firm, founded by Margaret Thatcher’s PR guru Lord Bell, has represented clients including shale gas fracking firm Cuadrilla, Asma al-Assad, the wife of the Syrian dictator, and the governments of Bahrain and Egypt.

This is not the first time that Bell Pottinger had risked ruffling Investec’s feathers. In 2014, Lord Bell made an infamous gaffe when he claimed all bankers were “criminals”, at a time when Investec was one of the firm’s clients.

Investec, which has a number of existing relationships with other PR firms, declined to comment.

Bell Pottinger declined to comment.

The oil price recovery is unlikely to last

This week, Mike van Dulken from Accendo Markets tells Hot Commodity why hopes of a continued oil price recovery are premature…

There has been much talk about the remarkable recovery in the price of oil to $41/barrel and whether it is sustainable. After 50 per cent gains since January’s 13-year lows are we set to push on or retrace? Debate continues as to whether Opec and Russia can cobble together some sort of production freeze agreement. Not in our opinion. Not while Iran and Iraq are in full recovery mode. Can anyone trust anyone, given the hole they have dug themselves in the fight with US newcomers for market share?

This keeps the global supply glut overhang very much in play and risks worsening as prices approach $45 where some nimble US shale frackers – now the oil market’s swing producers – have suggested they would consider returning to idle rigs to pump at the more economically viable price. Which would of course add to the supply glut and thus give us a $45 ceiling to accompany the recent $28 floor.

However, there has been little focus on the narrowing of the spread between the two crude oil benchmarks over the last few weeks to the point they are now just a few cents apart. With US Crude +52 per cent versus Brent Crude +48 per cent we could assume that US Crude has overshot and may be due a drop back below $40. For a long time, US Crude traded at a significant discount to Brent, driven by a sharp rise in US shale production over the last half decade and Brent incorporating more transport costs. However, there are reasons why the spread should have evaporated of late, even testing positive in December. The US has lifted its export ban. North Sea production has actually picked in the face of declining US shale production. Bearish market bets on oil have been unwinding sharply, most notably on the widely used US Crude benchmark.

So are those bullish reversal patterns set to complete at $45/48 as we asked a fortnight ago? Or is $42 the best we are going to see in terms of challenging the long-term downtrend? Is the short squeeze complete? A supply glut, rising US stocks and Opec disagreement are simple enough drivers to appreciate, with plenty of data points and comments to media fuelling volatility. However, don’t forget the currency element with oil – like most commodities – denominated in USD. The USD is already off its 3.5-month dovish Fed-inspired lows of last week. This is thanks to a handful of US monetary policy makers very publicly expressing views which are rather at odds with the dovish stance most recently offered by Fed Chair Yellen. Any more of this and the resulting USD strength could easily serve to push oil back or at the very least hinder further advances.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Brexit will not stop EU free movement

Leaving the European Union would not halt the free movement of migrants into the UK, a legal expert has said.

A key argument for the ‘leave’ camp ahead of the 23 June referendum on Britain’s membership of the EU has been migration, at a time when the bloc is struggling to deal with the fallout from the Syrian refugee crisis.

Eurosceptics argue that leaving the EU will give us sovereignty over our borders and stem the flow of migrants from newer members of the economic and political union, such as Bulgaria and Romania – and prevent migrants from outside the bloc entering the UK via other member states.

If we did leave the EU, the UK would have to establish new trade agreements with the rest of Europe. But Anthony Woolich, partner at Holman Fenwick Willan, told Hot Commodity that if the UK expects to continue doing business with EU member states, it will come with strings attached.

“If the UK wants to export its goods and services to the EU, free movement of persons could be a key part of a free trade agreement,” he said.

“Especially bearing in mind how close the UK is to mainland Europe, I think it is highly likely that the EU would demand free movement as part of the deal.”

However, it should be noted that the EU currently has 53 trade agreements with countries around the world – all with varying Visa arrangements – so free movement is not a certainty.

Regarding the trade deal itself, Woolich argues that this could be tricky to thrash out.

“I don’t think the UK will be very popular if we leave the EU, as it’s a time of crisis,” he said. “So I think the EU will drive a hard bargain.

“Furthermore, the EU has negotiated our trade agreements with countries outside the bloc – does our civil service have the expertise to negotiate these deals?” he added.

“These discussions are slow moving and we will have to do this on multiple levels.”

The migrant crisis has dominated headlines in recent months and added weight to the ‘leave’ argument, due to growing concern over border control. Prime Minister David Cameron recently came back from Brussels with a proposal for EU membership reform that was seen as far too weak by Eurosceptics.

The large inflow of migrants has put a strain on some eastern European countries, who do not have the capabilities to deal with them. Macedonia provoked outrage when it resorted to using tear gas to hold back migrants, while other countries have built high fences and tightened their identity controls to protect their borders.

This week the EU proposed a deal whereby Turkey will take back Syrian migrants who have arrived in Greece and in return, a Syrian already in Turkey would be resettled in the EU. Turkey would receive financial support and progress on its EU membership application.

If it’s a boom period, why are we not feeling any richer?

As a financial journalist, assessment of where we are in the economic cycle is inevitable in most conversations I have through work.

Recently, industry professionals have casually thrown in statements such as “we’re due another recession” and “they’ve only been through a boom period” when talking about new businesses.

When people talk about this year’s global market turmoil slowing down the UK’s recovery, it evokes images of some sort of financial Mardi Gras that we’ve all been enjoying, soon to be curtailed by drama in the commodities market and political crises in Russia and the Middle East.

While I accept that the statistics support these assertions, it somehow jars from a personal finance perspective.

It comes down to two things: wage growth and property prices. Growth of pay packets slowed to 1.9 per cent in December, down from a high of 3.3 per cent last summer.

Property prices are ballooning in London and rising fast in other parts of the country, namely due to a supply shortage and population growth. Average UK prices hit a 10-month high in February, according to Nationwide.

Yes, interest rates are likely to remain low due to the imminent threat of a China-led global economic meltdown, but what use is a low borrowing rate if you can’t afford to save for a deposit or pay off a mortgage in the first place? Add into the mix the tightening of the credit market and it would be easy to see how one would miss the fact that we’re allegedly in a boom period.

The threat of a continued commodities rout, geo-political woes in the Middle East and China’s economic slowdown may be keeping George, Mark and the rest of the financial elite awake at night, but for the rest of us, it’s business as usual.

The oil price follows the market’s heart, not head

This week, Mike van Dulken and Augustin Eden from Accendo Markets tell Hot Commodity why it’s sentiment, not fundamentals, that will boost the oil price.

Equities remain rather sensitive to commodity prices – understandably, given their links to economic growth sentiment. In the oil space we continue to hear mumblings of meetings to discuss production freezes (Moscow next?), yet the probability of any agreement between Opec and Russia is non-existent as long as Opec’s own members fail to agree – Iran and Iraq are still increasing production. Can members trust each other anymore? Has the oil price decline on Saudi-led stubbornness taken things too far in some cases? Is the cartel no more? US production has fallen to a six-month low, helping prices recover to their best levels in many weeks, yet as we have written before, this just risks the US shale frackers rolling back in to make the most of more economically viable prices. They are the new swing producers.

While this remains a distinct possibility, we can’t fail to note some interesting technicals of late that are at odds with some of the fundamentals. US Crude has broken above $36 which could see it on for a double-bottom pattern completing around $45. A price in the mid-$40s makes sense after comments from some US producers about $40 being the new $70, and a $45 figure being cited as enough to encourage some of the nimble drillers back to their rigs. Yet US stockpiles continue to grow to fresh all-time highs. Will today’s data show yet another increase?

Brent Crude, on the other hand, never tested its $28 lows twice and so a double-bottom can’t be on the cards. While there is interesting resistance at $41.30, there is still potential for an inverted head and shoulders reversal to complete at $48 after the breakout at $36. Importantly, if both patterns achieved their objectives this would put paid to major long-term downtrends, getting prices back above what has been bugbear falling resistance since those long gone $100+ highs of summer 2014. It was also maintain the current $3 spread between the two benchmarks.

A major broker may have announced to the world yesterday that the recent surge in commodity prices has gone too far with fundamentals unchanged, exacerbated by short covering, ETF buying and banks vying to distance themselves from bad sector debts. That call may have resulted in a sell-off yesterday. However, markets have already regained poise. After all, fundamentals are one thing, but sentiment is very much another. And hopes of a more favourable message from central banks over the next week or supportive chat from major oil producing nations could easily serve to boost bullishness for the barrel again.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Good news! The US economic revival is definitely on its way

This week, Mike van Dulken and Augustin Eden from Accendo Markets tell Hot Commodity why the US is on the up…even if the rest of the world isn’t.

Equity markets went to town yesterday on positive US data and hopes of more stimulus from the European Central Bank (ECB) and China’s People’s Bank of China (PBoC). Yet this is surely supporting the case for the US Federal Reserve to deliver further interest rate hikes this year – something likely to stifle US growth.

So was the market reaction simply increased confidence in the US economic recovery, coupled with a realistic belief the Fed won’t dare hike this year for fear of a repeat of January’s volatility? This should maintain a nice accommodative tilt to global monetary policy to spur economic recovery elsewhere.

US interest rates have risen only a touch to regain 0.5 per cent and equal the historic lows of its peer across the pond – the UK’s Bank of England (BoE). However, US macro data has blown too hot and cold since then for the Fed’s Federal Open Market Committee (FOMC) to be comfortable hiking again anytime soon. Mixed Fed chat of late, with some quite noticeable changes of heart by long-term committee hawks (Bullard), adds to our belief.

With markets already building up to Friday’s US Non-Farm Payroll numbers, it’s worth noting that jobs data has been anything but a worry for the Fed for a good while now, with net monthly additions averaging around 225,000 since 2013. Unemployment at 4.9 per cent remains in a downtrend towards 10 year lows, but wage growth is still lacking.

News that US Q4 2015 GDP growth was revised up to one per cent quarter-on-quarter from 0.4 per cent last week was welcomed by markets, but it still showed a slowdown from previous quarters.

US Consumer Price Inflation (CPI) expectations have also faded quite dramatically (just 1.4 per cent for the next decade, suggestive of another oil price plunge), and sit way below the Fed’s two per cent target. Core CPI figures (excluding food & energy) may have accelerated back to target but for this to hold up oil prices must fall no further, allowing the influence of their 2014 price plunge to dissipate.

So aside from the fact that Friday’s US jobs figures are sure to deliver the traditional monthly market volatility, for us it will only serve to bolster confidence in the US economic revival. Good news. This in turn may further support the case for policy normalisation, but it’s not going to be enough for the Fed to consider the stars truly aligned for another press of the big red button. Even better news for risk appetite. Enjoy the first Friday’s usual fun ‘n’ games, but other data is far more important.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: www.accendomarkets.com.

BT and Openreach? It’s complicated, says TalkTalk

Jessica Lennard, director of corporate affairs and regulation at TalkTalk, tells Hot Commodity why Ofcom’s report brings more questions than answers for BT…

It was another big week for the telecoms industry, as Ofcom emerged from its bunker after a year-long consultation on the current state of the sector. Its main conclusions (that the UK is lagging badly behind on the technology of the future, fibre to the home; and that BT is systematically abusing its ownership of the national network, Openreach) came as no surprise to many. The fact that the regulator’s 108 page report holds few concrete policy proposals to remedy its fairly punchy findings was nonetheless greeted with widespread frustration by commentators, customers and BT’s rivals.

BT has remained ostensibly bullish as whispers about the need for a break-up have grown into a roar over recent months. But an 11th hour ‘coincidental’ offer of an extra £1bn investment (presumably found down the back of the sofa) laid bare quite how nervy the ex-monopoly has become. BT celebrated a ‘victory’ yesterday, but smart shareholders will now want to know what exactly the regulator intends to do – did they really “bottle it”, in the words of Lib Dem Leader Tim Farron? Or could this be the start of a smart negotiation by Ofcom chief executive Sharon White, who was quite clear that full separation remains on the table until further notice.

One assumes this is by no means a settled debate for BT itself. Part of the business is clearly pulling away into retail, with aggressive expansion into mobile and TV – expensive pursuits that would benefit nicely from a big wad of cash from spinning off Openreach. Instead, BT’s beleaguered chief executive finds himself embroiled in a seemingly never-ending national debate over a crumbling infrastructure network. Openreach may still symbolise BT’s engineering heritage, but if Sharon White has her way and imposes a kitchen sink’s worth of new regulation, will keeping it be worth the trouble?

This commentary was provided exclusively by Jessica Lennard at TalkTalk for Hot Commodity.

Sorry investors, the oil glut looks here to stay

FinnCap’s Dougie Youngson tells Hot Commodity why he is sceptical about recent talk of cuts to oil production…

Oil prices ticked up again at the beginning of this week as investors continued to hope that that the current glut of oil production could finally start to fall. Last week Saudi Arabia, Venezuela and Qatar announced they were proposing to freeze production at January’s level. But any deal is dependent on the participation of Iraq and Iran. Both are said to be supportive of the “big freeze”, but have yet to commit to the group. Oil-field-services firm Baker Hughes also said last Friday that the number of rigs drilling for oil in the U.S. fell by 26 last week to 413, down 68% from a peak in October 2014. But in both cases we are looking at freezes on current production levels, not cuts, and these countries will continue to produce above quota.

There is actually a practical reason for not making cuts. Once you shut in a well it can be difficult to bring it back online at the previous levels of performance. Shut in wells rarely return to former production rates, and this is a serious concern given the cuts that are required in order bring production in line with demand. This issue is particularly pronounced in Russia, which can be victim to a more common kind of freeze. Its shut in wells tend to get quickly filled up with water, and come winter this water freezes, which has a devastating effect on both the reservoir and infrastructure.

It’s not just the threat of gammy wells that mean producers are unlikely to shut down production. After all, what incentive does Saudi Arabia really have to reduce production? Why should they help out the rest of the industry? If they can still make a profit at the current oil price then they have little incentive to change. Oil is a finite resource and their oil supplies won’t last forever. So it makes more sense for them to keep production high, so that they can maintain their market share and enhance margins when the oil price does eventually recover.

Ultimately, any resolution on production levels will simply act as a sticking plaster. Key countries may well say they will rein in their overproduction, which is no bad thing. Demand is also forecast to increase by one to two million barrels per day, and this increase could help mop up the overproduction by the end of the year. However, what people say they will do and what will actually happen are two very separate things. The only certainty is that producers will act in their own interests, whatever they may be.

This commentary was provided exclusively for Hot Commodity by FinnCap.