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CRH Boosted by Transition 

CRH – shares +9% as it looks to transition to a US primary listing in 2023. Fy results strong with revenues +12%, EBITDA +13% to $5.6bn and margins +10bps. The fact that world’s largest building materials company plans to abandon London for New York is a bitter blow for the former – just as it was revealed that Shell too thought about the move and Flutter looks to take a punt on the US. About three-quarters of earnings for CRH derive from North America, - the move is pragmatic for the board but far more symbolic for the London Stock Exchange and the City. It’s a sign of decline and underlines the need to revitalise public markets in the UK. It’s not just companies moving listings abroad like Ferguson, it’s the huge slate of takeovers that has decimated corners of our markets due in large part to the weak pound and depressed UK valuations. Time for major change.  

  

Just change the rules?  

Former Bank of Japan Governor Shirakawa writes in article for the IMF on inflation targeting, urging "Now that we know its limitations, the time is ripe to reconsider the intellectual foundation on which we have relied for the past 30 years and renew our framework for monetary policy". So, does this mean we have to accept 3-4% inflation? Maybe, we shall see, Shirakawa himself says he is ‘sceptical’ of adopting a higher inflation target. But it’s not beyond the realms of possibility that the Fed and others decide that forcing the issue on 2% might not be worth the pain. As Shirakawa says: “Inflation targeting itself was an innovation that came about in response to the severe stagflation of the 1970s and early 1980s. There is no reason to believe it is set in stone.”  

 

Europe Struggles as Bonds Rise 

Stocks in Europe fell yesterday in tandem with the bulk of the US market, though the Dow managed to eke out a tiny gain. The FTSE 100 was the outperformer, holding onto the half a percent gain at the open through the session as basic resources shares led the pack after some stronger-than-expected China manufacturing data. Housebuilders sank as house prices plunged by the most since November 2012. Early moves this morning are to the downside across Europe with risk struggling for bid with yields moving higher – the US 10yr hitting 4% at last and the 10yr bund yield at its highest since 2011.  

  

More Difficulties for the UK 

The pound fell back after Andrew Bailey, the governor of the Bank of England, signalled interest rates may have peaked. After 10 straight hikes, he said there was not necessarily an urgent need to do more. “At this stage, I would caution against suggesting either that we are done with increasing Bank rate, or that we will inevitably need to do more,” he said. “Some further increase in Bank rate may turn out to be appropriate but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.”  

We have to see this in context – markets had ramped bets of peak rates from around 4.25% a month or so ago to around 4.75% as a global bond selloff gathered momentum through February. The last time markets had lofty rate hike expectations the BoE governor was keen to push back – once they had come down the BoE thought market pricing was more appropriate. Just coincidence that his remarks yesterday came as data showed the UK registered its biggest drop in house prices in a decade – the ‘British problem’ for the Bank of England raising rates too far is the impact on the housing market. Bailey has been very keen not to allow the market to price in too many hikes – that does not mean they are not going to emerge, but I do believe the BoE’s bias will be to ease later in the year.   

  

Elsewhere in the Market 

Eurozone inflation due up today at 10am GMT. Expecting a decline to around 8.3% but yesterday saw more evidence of inflation rearing up again with German CPI rising in Feb. CPI rose to 9.3% in Feb from 9.2% in Jan, with food +21.8% and energy +19.1%.  

More central bank speak – arch dove Kashkari, a voting member of the FOMC this year, said he’s open to 50bps next time and that "at this point...I lean towards continuing to raise further," beyond the 5.4% peak he’d previously inked as his dot. New Fed dots due in three weeks will likely push up the terminal rate. 

Salesforce – huge jump in the shares after-hours following quarterly results that beat expectations. The company also expanded its share buyback programme and delivered a forecast that was better than most had hoped for. Shares rose 16% in the after-hours market after it posted adjusted earnings of $1.68 per share vs. $1.36 expected. 

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