Here’s a jolly little poser: which will come first, a rise in UK and US interest rates or the next Greek crisis? I think it will be the interest rates, although I wouldn’t put money on it.
What is clear is that the words of Bank of England Governor Mark Carney have been wilfully misinterpreted in the press as indicating that UK rates will rise at year end, possibly as early as November. That is earlier than the February 2016 date that the markets were factoring in.
He said no such thing. Carney merely stated that the Bank’s monetary policy committee would start thinking about it at the end of this year, not actually taking action. His words were: “The decision … will likely come into sharper relief around the turn of this year.”
A similar mistake was made by the press when Carney was appointed in 2012. He said then that he would not even think about raising interest rates until unemployment fell below 7%. The press wrongly decided that meant raising rates as soon as that threshold was reached, which happened much earlier than expected.
Carney indicated back then that February 2016 was a likely date. It still is. Far more important is that he has confirmed that any rises will be small and will be spaced out. At the peak, he sees rates reaching only a little over 2%. The real news is that there is still no rush to raise.
Inflation has been at zero for two month and will probably continue at zero for another two. Wages are rising, but not alarmingly.
Fed chair Janet Yellen this week also stressed that US interest rate rises would be subdued. We should remember that on both sides of the Atlantic we are not talking of a sudden shock to the system, just a long, gradual return to normal.
Interest rate rises are generally a depressant on share prices, particularly for housebuilders, whose shares have admittedly got a bit ahead of themselves over the past couple of years. I own shares in two of them and I am not even thinking of selling.
Another Executive at M&S Departs
Another one bites the dust on the troubled general merchandising – clothes and homewares – side of Marks and Spencer (MKS). Head honcho John Dixon leaves the board immediately and will depart the company after 30 years’ service with almost indecent haste.
The fact that, at 47, he is seen as an M&S veteran and is the longest serving member of the senior team tells you all you need to know about continuity.
Dixon spent four years overseeing the highly successful food side before picking up the poisoned chalice of general merchandising. He could be followed by Steve Rowe, current head of food. The danger is that translating the factors behind soaring food sales into womenswear is a difficult task while weakening the food team could damage the part of the business that is keeping M&S going.
M&S shares have defied my past concerns, rising from 390p last October to nearly 600p in May before tailing off a bit. The news of Dixon’s departure brought an immediate further slide of 7p to just below 540p. They could have further to fall.
Games Stocks in Battle
The bid battle for online gaming group Bwin.Party (BPTY) has turned into a poker game with Bwin favouring an offer from rival 888 Holdings (888) over a potentially slightly higher one from GVC Holdings (GVC).
All is not as it seems. Both bids are in shares and cash and a leap of 10p in the 888 share price has pushed the value of its offer to 107.13p for each Bwin share, just below the 110p proposed by GVC, which is not yet a formal offer.
Bwin shareholders should hold on and await developments. This is a classic case where there are two possible bidders who could start to outbid each other. On the other hand, shareholders in 888 and GVC should consider whether they ought to get out in case one or the other of them is forced to overbid.
