HEAVY POUNDING: The pound sank against all major currencies on Monday, though perhaps not as much as exciteable headlines suggested, after Boris Johnson announced his intention to campaign for a British exit from the European Community.  Boris cannot take all the blame (or credit) for this – the pound has been in slow decline against the US dollar and Euro for several months.   Great news for British exporters, of course, as British goods become ever cheaper overseas, but not so good for imports to the UK which will grow more expensive.  As Britain must import (for example: steel) to export (for example: cars) this is a double edged sword for such an intermediary economy.  There is no doubt that a lot of this decline is prudent position taking against the unknown (knowns and unknowns) that would follow a decision to Brexit – though perhaps not so much due to concerns as to the strength of a British economy outside Europe as to the turmoil that would follow the “Out” vote in the short term.  But it also reflects the general expectation that both Euro and dollar rates are about to rise, whilst sterling seems less likely to.  The Bank of England, though, may have views on that; the Governor, Mark Carney, has resumed his signalling that rates must at some point rise, hinting that this may be towards the current year end.  Certainly we are in for some broader foreign currency fluctuations in the future than we have been used to recently.

ASDA SINKING FEELING: After Tesco, J. Sainsbury, and Morrison all produced stronger performances than expected for the last (Christmas) quarter, the market has been awaiting ASDA’s figures – which came out at the end of last week.   Rumours were that they were not good, and that proved to be spot on – like for like sales dropped nearly 6%, which ASDA blamed on heavy competition both from its UK major rivals, and from the German cost cutters, Aldi and Lidl.   ASDA’s adjusted turnover has now fallen for six successive quarters.   Its problems are exacerbated by the fact it also has a larger exposure to clothing and fashion than its rivals through its George clothing brand; this has also suffered intense competitive pressure in spite of heavy promotion.

ASDA is owned by the American food giant retailer Walmart, which is supporting chief executive Andy Clarke in his efforts to define a more profitable business model for ASDA, which include a narrower range of products, heavy cost cutting, and many more own brand products – in all of this it is following its major rivals.   It also recognises that it has to cut central costs – as Tesco did last year and Sainsbury some time ago; which will mean redundancies at its Leeds headquarters.

But its parent in the USA is also looking at its own problems.  It published its figures the same day, with net turnover across the group – the largest real estate based retailer in the world – showing flat sales, although it was looking in earlier forecasts to 3% or 4% growth this year.  That, though, is not the core problem.  Rising costs are the big issue at the moment, especially wage increases for its one million plus workers who now are guaranteed by Walmart (formerly much criticised for underpaying its low paid staff) earnings of not less than US$10 an hour – against the USA minimum wage of $7.73 dollars an hour.  This has pushed net operating income down 7%.  Walmart says it is vital to invest in its business if it is to regain growth momentum.  Investors weren’t so sure – the share price fell 5% on announcement of the figures.

WEST BY NORTH WEST: The Enterprise Research Centre , an academic based analysis group reported that over 11,000 firms in Britain are regarded as “high growth”, recruiting more than 20% new employees over three years.  These firms show a remarkable regional concentration in London and the southern counties immediately to the west; and in the north west, around Manchester, Liverpool, and Chester.   In terms of towns, Liverpool is second to London.  The study attributes this performance to lower costs than Europe, a more enterprise friendly approach, and a strong technology culture in the UK.

TAKE AWAY: Sainsbury thought it had its deal for the takeover of Home Retail Group, owner of Argos, all sewn up.   A price satisfactory to both sides was agreed and the struggling Homebase D-I-Y chain sold off before the deal was even signed, giving a nice clean sweep up of Argos, the true target.  Sainsbury was basking in the markets congratulations for a clever piece of execution when along came a party pooper.  The surprise arrival at the party is the South African Steinhoff retail group, which has indicated that it intends to make a rival offer of 147.2p in cash, plus allowing exiting shareholders to keep the 25p a share coming in from the Homebase sale, and the final dividend, another 3p, thus totalling about 175p in cash.  This compares to 161.3p from Sainsbury, not a huge difference, but certainly enough to be worth thinking about.  Steinhoff is a retail giant, listed in Johannesburg and in Germany, more than three times the size of Sainsbury, so with much more firepower if it comes to a fight.  It is run by Christo Wiese who owns 20% of the business himself, and is pushing an expansion outside South Africa.  British assets include a sizeable shareholding in Iceland, the food retailer, and outright ownership of two furniture retailers, Bensons for Beds, and Harveys, and recent acquisitions of Virgin Active in the sport and health care sector and New Look in young fashion.  The Argos/Home Retail acquisition would take it into a new area of UK retail, though without the synergies of scale which would flow from a Sainsbury acquisition which has been seen as the core strength of the deal to Sainsbury.  The Take Over Panel has extended the time which Sainsbury has to make a counter offer to 18th March, to ensure equality of opportunity between the bidders.

LOW SCORER: HSBC, having decided to keep its headquarters in the UK, announced its annual results.   Not a great day for Chief Executive Stuart Gulliver who had to unveil his personal scorecard as to target achievements – 45/100 – which cut his share entitlements by nearly £4m compared with last year.  The bank’s profits were down US$3bn, reflecting mainly rising costs but also a US$858m loss in the last quarter as the bank adjusted various provisions.  The increase in costs relates mainly to regulatory costs and the improvements to its reporting regime that the bank is having to make across its businesses around the world.

LOW DIGGER: BHP Billiton, the international mining giant also announced its half year annual results to 31st December 2015, and had bad news for shareholders.   Firstly, profits were down to US$412m as the price squeeze on metals and mining continued to bite hard, including massive write downs for the values of its shale oil extraction business.   Second, the board reversed its policy of recent years in paying increasing dividends.  It cut this periods dividend by 75% compared with the same period last year.  It simply cannot spare the cash to keep paying out at the rate it has in the past.   In this, it is line with other large similar groups such as Angle American who are adopting the same policyKEY MARKET INDICES:
(at 23rd February 2016; comments refer to changes on one week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.61% (unchanged); 5 year 0.85% (rising).
Euro€: 1 mth -0.18% (rising); 3 mth-0.11% (rising); 5 year -0.09% (falling)
US$: 1 mth -1.62% (major rise); 3 mth 0.72% (rising); 5 year 1.13% (falling)
Currency Exchanges:
£/Euro: 1.27, £ falling
£/$: 1.41, £ falling
Euro/$: 1.11, € steady
Gold, oz: $1,225 steady
Aluminium, tonne: $1,572, slight rise
Copper, tonne: $4,694, slight rise
Oil, Brent Crude barrel: $34.15, rising
Wheat, tonne: £104, steady
London Stock Exchange: FTSE 100: 6,038 (rising). FTSE Allshare: 3,308 (rising)
Briefly: Quite a positive week in all areas, except the currency exchanges, on which we comment above. The London stock market is making good progress recovering from recent weakness and the FTSE100 is back over 6,000. Oil and metals both made modest gains. Dollar interest rates at the short end continued recent volatility