The Queen and the President have spoken. Neither Elizabeth II nor Mario the first said anything to stop the markets moving sideways and, in the end, we may find that neither said much at all.
Despite Government protestations that this is not a zombie parliament, the Queen’s Speech at the opening of parliament proved eminently forgettable. A couple of days later it is hard to remember anything that is in the legislative programme. Talk of helping businesses, especially small ones, looks just talk. We have heard many times before about lifting the burden of red tape but it never seems to happen.
A year of legislative drifting may be no bad thing for investors, however. We had five of them under John Major yet the economy was in pretty good health by the time Gordon Brown got his hands on it. What we don’t want is 12 months of desperate electioneering measures.
As the UK economy continues to recover, doing little or nothing is a good option.
The same cannot be said of the European Union, which remains the biggest single threat to global recovery. European Central Bank Mario Draghi is faced with shrinking growth, possible deflation and demands that he do something, anything, while appeasing German demands that he do nothing risky.
This week he cut interest rates yet again, including the introduction of a negative rate on some deposits, a version of the UK funding for lending programme to help businesses and a sort of quantitative easing in which it will no longer issue its own bonds to offset bond purchases in crisis-hit European Union countries.
Some commentators think Draghi has thrown in everything but the kitchen sink, others that this tinkers at the edges. I have read that the worst of the eurocrisis is over and also that Draghi is committed to virtual zero interest rates for the next four years, both of which statements are laughable. Who knows what will happen in the next four years?
The problem is that no-one knows whether the latest ECB measures will work. All the ECB ever does is to buy time, which is commendable in itself but does not solve the problems.
Stock markets in London and Europe are likely to continue their erratic sideways movement. As ever, buy on the dips.
Supermarket Sales Slump
It goes from bad to worse at Tesco (TSCO) and Morrison (MRW) as the supermarket sector continues to crunch.
Tesco is caught in the trap of falling sales revenue and continuing expenditure on revamping stores. Struggling chief executive Philip Clarke admits that this week’s sales figures for March-May were the worst in his 40 years at the store chain.
Yet Clarke seems to think that his strategy is working and that there is “positive momentum” within the business. One would hate to see what failure looks like.
Amazingly, Tesco shares shot up when Clarke announced his dire figures, though reality prevailed before the morning was out. Stay well clear.
Life is no easier at Morrison, where life president Ken Morrison delivered an extraordinary attack on the executives, saying they were not capable of running the core business, let alone the convenience stores into which the chain is expanding.
The only listed supermarket group worth holding shares in is Sainsbury (SBRY), and even those are looking a bit pricy. I own Sainsbury shares but would not top up at current levels as even Sainsbury will come under pressure from the discounters.
Elsewhere in retailing, ASOS (ASC) saw its shares slump by a third after its second profit warning in three months. The online retailer is still growing sales and profits, but not as rapidly as before, and it is slashing margins to offset the decline. Sales abroad, which account for well over half the business, have been hit by the strength of sterling.
Investors thinking of picking up a bargain should remember that profit warnings usually come in threes. I’m not tempted.
