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December Market Commentary

Archive for the ‘Commentary’ Category

December Market Commentary

Thursday, December 6th, 2018

Introduction

It is always difficult writing a report like this, as you are always trying to ‘hit a moving target.’ While you can record the stock market levels at the close of business on, say,  30th November, there is always the risk that the commentary is overtaken by events.

That has never been more true than this month: we wrote these notes on Monday 3rd December and, of course, you have to press ‘publish’ at some stage. However, we are very conscious that the situation regarding Brexit – and perhaps also the civil unrest in France – may have moved on by the time you read this.

That said, on to business, and the majority of the stock markets on which we report in this commentary enjoyed a good, if unspectacular, November. There were also some signs at the end of the month that the trade war between the US and China might at least be thawing. Following a meeting at the G20 summit in Argentina, the two countries agreed not to impose any further tariffs for 90 days, to allow talks to take place.

Away from stock markets the oil price fell below $70 a barrel for the first time since April – leading to calls for a reduction in the price of petrol – and those of you who keep an eye on the performance of cryptocurrencies will have seen that Bitcoin had a disastrous month. The price of the virtual currency fell by 37% in the month, and – when we checked the price over the weekend – stood at £3,107.

UK

Despite the political chaos in the UK there was plenty of good news for the economy in November with figures for the third quarter (July to September) confirming that it had grown at 0.6%, three times faster than the equivalent rate in Europe.

There was more good news as figures showed that wages rose by 3.2% in the same three month period, the fastest rate of wage growth for almost a decade. However, people did not appear to be spending the money on the high street, which once again lost out to online shopping in the Black Friday/Cyber Monday bonanza. And there was more gloom for town centres as Thomas Cook issued its second profit warning in two months, blaming the record-breaking summer.

The retail picture did not improve when Marks and Spencer reported falling sales for food and clothing, and a report from management consultants PwC said that retailers were facing their ‘toughest trading conditions for five years’ with 14 shops closing every day.

New car sales were also down and 850 jobs were lost as Michelin closed its factory in Dundee.

But against that, profits at the UK’s publicly listed companies jumped nearly 14% in the third quarter of the year, pushing total profits over the last 12 months to a record £217.9bn.

Sadly, the FT-SE 100 index of leading shares sided with shop closures not record profits and closed November down 2% at 6,980. The pound had a relatively quiet month – despite the continuing uncertainty over Brexit – and ended the month trading at $1.2748.

Brexit

In 1942, as the tide of World War II finally began to turn in the Allies’ favour, Winston Churchill said, “It is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Is that where we are now with Brexit? Theresa May has done a deal with the European Union. According to the campaign group Leave Means Leave, it is ‘the worst deal in history’ seeing the UK paying £39bn and getting nothing in return.

According to Downing Street, it is the best possible deal and a triumph for the Prime Minister’s dogged diplomacy. It is vastly superior to a Canada or Norway-style deal,  the dreaded ‘no deal,’ or staying in the EU. It is a deal that ‘delivers on the result of the referendum’ and the full Government publicity machine has been wheeled out to support it.

Well, we shall see next week, when the MPs vote on the deal. At the moment it looks likely to be defeated, as Conservative MPs and ex-ministers line up to criticise it.

Quite possibly it will be heavily defeated and the Opposition will table a motion of no confidence in the government, leading to a General Election. Quite possibly there will be more late night meetings and trips to Brussels and a new deal will come back to parliament. Quite possibly Theresa May will be replaced as Prime Minister. Quite possibly we could have a second referendum – the so-called ‘People’s Vote.’

So no, it does not look like we have reached the beginning of the end, or even the end of the beginning. The picture may be a little less murky by the end of December, if only because some options – almost certainly the current deal – will have been ruled out.

At the moment, we are still due to leave the European Union on 29th March next year: We have written previously that we could see that date being pushed back to allow ‘more time for constructive talks with our European partners.’

Europe

The big story in Europe came at the end of the month as the worst civil unrest since 1968 broke out in France.

The headlines had French President Emmanuel Macron threatening to impose a state of emergency and demanding new police powers as he struggled to contain the unrest, with 75,000 people estimated to have taken part in the action over the weekend.

The Gilet Jaunes (Yellow Jackets/Vests) movement began three weeks ago as a protest against Macron’s climate change inspired fuel tax rises. But in reality it goes deeper than that as protesters claim that Macron is a ‘president of the rich’ who does not care about the concerns of ordinary French people and the higher living costs they are facing.

A recent poll showed that Macron had broken new ground by becoming the most unpopular French President ever at this stage of a Presidency – he is roughly 1½ years into a five-year term – with populist leader Marine le Pen (whom he beat in the Presidential election) now more popular.

Quite where Macron goes from here is anyone’s guess. It is not just the fuel protests: growth in the Eurozone has slowed to a four year low, and France still has a high level of unemployment – 9.3% in August, which is far closer to the 9.7% of Italy than it is to the 3.4% in Germany.

In other news, the government in Italy continued to defy the EU over its proposed Budget – although there were no such budgetary worries for France and Germany as they agreed a new budget for the whole Eurozone.

In company news, Volkswagen became the latest company to plough huge sums of money into electric cars as it committed to spending $50bn (£39bn) and announced plans to become the world’s most profitable manufacturer of electric vehicles. Given that the emissions scandal is reported to have cost the company $30bn (£23.6bn), it probably has some catching up to do…

Neither of Europe’s major stock markets enjoyed a good month. The German DAX index was down by 2% to 11,257 and the French index fell by a similar amount, ending November at 5,004.

US

Barely two months ago Apple won the race to be the first company valued at a trillion dollars (£780bn), but throughout November the shares slid as investors worried about declining iPhone sales and the company’s vulnerability to a protracted dispute between the US and China.

As we have written elsewhere, those fears may now be receding but Apple has now been overtaken by Huawei as the world’s second largest manufacturer of smart phones (and by Microsoft as the world’s most valuable company). There are mutterings that the innovation and attention to detail of former CEO Steve Jobs is being missed.

There was better news for the wider US economy, which added 250,000 new jobs in October, saw wages rise by 3.1% and unemployment down to 3.7%. “Wow! Incredible numbers. Keep it going,” tweeted the Commander-in-Chief.

But there was less good news for Donald Trump as the US mid-term elections saw the Democrats gain 40 seats in Congress and regain a measure of control. Previously, the President had benefited from Republican control of both the Senate and Congress, and this may make it more difficult to get some of his more contentious proposals approved.

In other company news, Amazon finally announced the location of its second HQ – and went for both New York and Virginia. Uber may be struggling to afford even one HQ: it lost a cool $1.07bn (£821m) in the three months to September, as it prepares for a public share offering next year.

Fortunately, the Dow Jones index does contain some companies that cling to the hopelessly outdated notion that the profit and loss account should be in the black, and rose 2% in November to end the month at 25,538.

Far East

The month began with Chinese leader Xi Jinping promising to cut import tariffs and open up the Chinese economy, amid continuing criticism that its trade practices are ‘unfair.’ Xi was speaking at a Shanghai trade expo and also made a robust defence of the global free trade system, widely seen as an attack on the US as the tariff war continued.

However, there was perhaps a glimmer of light at the end of the tunnel by the end of the month following the G20 summit in Argentina: as we noted in the introduction, the two countries agreed not to increase tariffs any further for 90 days to allow time for talks.

A week after Xi’s speech and China turned its attention to the annual shopping bonanza which is Singles Day (on 11th November) which far outstrips Black Friday and Cyber Monday. Once again all online records were broken as Alibaba – roughly China’s equivalent of Amazon – took $1bn (£780m) in just 85 seconds of trading.

Over in Japan, it was a very different picture as the economy contracted by an annualised rate of 1.2% in the third quarter, with the blame placed on natural disasters. Japan has been hit by both a typhoon and an earthquake this year, which have significantly impacted the economy.

Also ‘significantly impacted’ were the shares of Nissan which slumped after boss Carlos Ghosn was arrested, for under-reporting his income by the small matter of £34.5m over the last five years.

There were also problems for Huawei, as New Zealand became the latest country to ban purchases of mobile networks from the company, as it expressed security concerns, following similar action in Australia.

It was a better month on the region’s stock markets, with only China’s Shanghai Composite Index falling in November. That was down by 1% to 2,588, but the other three major markets in the region all rose. Hong Kong led the way with a rise of 6% to 26,507 whilst South Korea was up 3% to 2,097. Despite the gloomy news on the economy the Japanese market also rose, finishing November up 2% at 22,351.

Emerging Markets

It was a quiet month for the emerging markets which we cover, with no major news stories, although clearly the continuing tension between Russia and the Ukraine looks as though it has the potential to flare up at any moment.

On the stock markets India led the way with a rise of 5% in the month, ending November at 36,194. The markets in Russia and Brazil both rose by 2%, to close at 2,392 and 89,504 respectively.

And finally…

The month kicked off in good style as Bradley Stoke Town FC of the Bristol and District League signed a player called… Bradley Stokes. It would certainly make it easier for the fans if teams only signed players with a similar name…

Meanwhile in Holland, Emile Ratelband – presumably unable to find a team called FC Ratelband – contented himself with bringing a lawsuit to lower his age. “We live in an age where you can change your name and change your gender,” said 69 year old Emile, “So why can’t I change my age?” Being 69 is, apparently, harming Emile’s chances on the dating app Tinder.

Still young, but clearly with plenty to worry about, are the students of Leeds Trinity University. Lecturers there have been told to avoid capital letters in their handouts as they can ALARM STUDENTS and ‘scare them into failure.’

Fortunately, the students do not live in North Korea where they would be alarmed to find that only fifteen haircuts for men and women are approved by the state. And no, you are not allowed to sit in the chair and say “I’ll have a trim Jong-un, please.” No-one is allowed to have a haircut like the beloved leader…

Finally, a nod of acknowledgement to the state broadcasting corporation in China which has introduced virtual reality newsreaders powered by artificial intelligence. Our sources tell us that the BBC will not be following suit. We can understand that: after all, there’d be no-one left to appear on Strictly…

November Markets in brief

Thursday, December 6th, 2018

November was an average, if unspectacular, month for global markets. This will be welcome news for many investors – it followed an October that investors described using language ranging from ‘slightly worrying’ to ‘catastrophic’ depending on where their money was invested, and events were interpreted on a scale of ‘massive fall’ to ‘temporary speed bump’ or a ‘natural rebalancing of markets’.

UK

In spite of the political turmoil around Brexit, there was some good news for the British economy, with figures for the third quarter (July to September) confirming that it had grown at 0.6%, three times faster than the equivalent rate in Europe. Over the same period, wages rose by 3.2%. Great news for now. However, as political events around Brexit run their course, the potential for widespread economic disruption remains.

The FTSE 100 fell by 2%, to close November down at 6,980, with anxiety about the ability of the US and China to end their trade dispute at the G20 summit hanging over the market like a dark cloud.

Europe

France suffered its worst period of civil unrest since 1968, with widespread protests against Macron’s heavy taxation of fuel gripping the country. He is currently the most unpopular president at this early stage of his presidency; just 18 months into a 5 year term.

Elsewhere on the continent, Italy’s right-wing government continue to defy the EU over their proposed budget. This saw an iffy month for Europe’s major markets. The German DAX and the French index both fell by 2%, down to 11,256 and 5,004 respectively.

US

There was good news for the US economy, which added 250,000 new jobs in October, saw wages rise by 3.1% and unemployment down to 3.7%. A strong showing to say the least.

The stock markets performed intermediately with the Dow Jones rising 2% in November to 25,538 and the NASDAQ fell slightly to 7,330.

Far East

There is possibly a glimpse of light at the end of the tunnel in the US-China trade war. At the G20 summit, the two nations agreed not to increase tariffs for 90 days to allow time for talks. Supported by a retail boost on Singles Day, the Chinese annual shopping bonanza, the country’s stock markets had a ‘less bad’ month than the last few, with the Shanghai Composite Index falling just 1% to 2,588.

Elsewhere in the region, Hong Kong led the way with a rise of 6% to 26,507 whilst South Korea was up 3% to 2,097. Japan also rose, despite its economy contracting by 1.2% in the last quarter, finishing the month at 22,351, up 2%.

The next month looks to be unsettled, with Brexit chaos likely to crescendo over the next few weeks.

Returnships: helping mums return to work

Wednesday, November 14th, 2018

For women returning to the job market after a long career break, getting back on track can seem daunting. Many are reduced to applying for graduate-level and admin work, far below their level of experience. They feel that their skills are outdated or they will have lost their touch. Others find that recruiters have a high level of bias against people who don’t have recent experience, especially in fast-changing sectors like tech.

Returnships are aimed at helping experienced professionals return to a role at mid to senior level. While they’re open to men, the majority of applicants are women who have taken a career break to raise children and who are returning to work in their late 30s or early 40s when their youngest child starts school.

There is an established culture of bias against mothers who have taken a long career break. Mothers who return to work can end up earning a third less than men. Although the fact that women tend to work less hours than their male colleagues is a large factor, women also have less chance of getting pay rises and promotions.

Despite returnships being a relatively recent arrival – they were first introduced in the UK in 2014 – they’re catching on fast and can count established names such as Morgan Stanley, J.P. Morgan and Allianz among their benefactors.

Highly-qualified women can find it hard to get a role again and can find themselves applying for jobs they’re overqualified for, thinking it’s their only route back in. Returnships allow women to bypass this prejudice and gain the much needed experience they need to find their way back into jobs. They allow women to rejoin the world of work at the right level, paid the right amount.

Many returning mothers are highly educated and offer a level of maturity that can boost employers at a mid/senior level. The level of bias they face is cited by Labour MP Jess Philips as a major cause of the UK’s catastrophic productivity gap which is 35% below Germany’s and 30% below that of the US.

Returnships are paid and typically last up to 6 months. They aim to brush up participants’ technology skills, boost their confidence through coaching and reacclimatise them to the corporate landscape, often with the help of a mentor. They usually result in the offer of a permanent contract at the end, although this is not guaranteed and depends on the returner’s performance.

Post-GDPR: What you may have noticed

Wednesday, November 14th, 2018

Since its introduction in May, the GDPR regulation has massively reduced the number of trackers that companies place on the internet and how our data is stored. After the flurry of emails we received in May, seemingly from every company we’ve ever had contact with, all seems to have gone silent. The reality, however, has been different. Behind the scenes, plenty has been going on.

Trackers include cookies and pixels – pieces of code in websites that follow internet users around online to try to get them to click on personalised advertising.

Small trackers have lost between 18 and 31% of their reach and the overall number of trackers on pages reduced by 4% for firms in the EU. You might have noticed a slight drop in the number of targeted ads you’ve seen, but this is likely to have been a negligible change.

For people who work in companies that use customers’ data, GDPR is likely to be remembered for creating a massive workload by forcing them to rapidly assess how it collects and stores data. GDPR compliance means that consumer data has to be kept securely. It must be safe from hackers and thieves, and non-compliant firms risk fines from the EU of up to 4% of global turnover if a breach is found to have taken place. This understandably caused a headache for IT departments across the country.

Despite smaller firms’ loss in reach, tech giants have still managed to track plenty about what their users do. Since the legislation came into force, Facebook’s trackers declined just 7% and Google actually managed to increase its reach by 1%.

The fact of the matter is that GDPR has done little to prevent tracking by the tech giants. The likes of Google and Facebook have the money to invest in the most experienced lawyers and ensure that they can still collect as much data as possible. This data is what they use to generate much of their revenue.

It has hit smaller digital advertising firms the hardest; those who don’t have the budget to ensure they can keep their trackers deep into users’ lives without the risk of violating GDPR legislation – unlike tech giants.

Google, which has entire departments purely working on GDPR and started preparing 18 months before its implementation, has been challenged by data privacy campaigners and could potentially face a so-called “mega fine”.

Its obsessive collection of location could violate GDPR because it prevents users from giving informed consent. They bury their location consent settings deep in their browser and apps – hidden under the ‘location history’ button, in case you’re interested in taking action to stop Google using your location to target ads.

So far in the UK, only one notice has been served under GDPR. This was to a Canadian analytics firm who worked for Vote Leave. AggregateIQ was accused of processing people’s data for “purposes which they would not have expected”. It was paid almost £2.7 by Vote Leave to target ads at potential voters.

Since GDPR, complaints about potential data breaches in the UK have more than doubled and businesses widely report struggling to manage this extra burden. It seems that, so far, GDPR has created a lot of extra work without doing much to prevent the intrusive practices of large firms.

3 pension changes you may have missed in the Budget

Wednesday, November 14th, 2018

There was scarcely a mention of the ‘P’ word in October’s Budget speech (believe us, we were listening closely for it!). Instead, Hammond used the Budget speech as an opportunity to unveil his ‘rabbit in the hat’ changes to income tax thresholds, an increase in NHS mental health funding and a ban on future PFI contracts.

However, we had a good read of the accompanying ‘Red Book’ for any mention of pensions. At 106 pages, this was no mean feat. Fortunately, though, it was time well spent as we found some changes to pensions you may otherwise have missed:

The pension dashboard

HM Treasury confirmed that the Department for Work and Pensions (DWP) would look at designing a pension dashboard which would include your state pension. The pensions dashboard will be an online platform that will let you see all of your pension schemes in a single view. The average worker is nowadays expected to work eleven jobs during their career and keeping track of so many pension pots could prove confusing to say the least.

There was an extra £5 million of funding for the DWP to help make the pension dashboard a reality. Commentators see the dashboard as a welcome sign that the government is committed to helping savers keep track of their funds.

Patient capital funding

The government announced a pensions investment package which should make it easier for direct contribution pension schemes to invest in patient capital. Patient capital refers to investments that forgo immediate returns in anticipation of more substantial returns further down the line.

The government may review the 0.75% charge cap and there is widespread speculation that it will be increased to allow more investment in high growth companies.

Cold calling ban

The government has promised to ban pensions cold calling as part of a drive against pension scammers. Almost two years since the government’s initial proposals to combat pension scams were announced, pensions cold calling will finally be made illegal.

Research by Prudential indicates that one in 10 over 55s fear they have been targeted by pensions scammers since the introduction of pension freedoms in 2015. Cold calls, with offers to unlock or transfer funds, are a frequently used tactic to defraud people of their retirement savings.

As much as these measures go a long way to making people’s pensions more secure, the government will be powerless to enforce cold calls made from abroad and not on behalf of a UK company. It is unclear how and if the government will work with international regulators to mitigate the dangers of such calls.

The longevity challenge and how to tackle it

Thursday, November 8th, 2018

The longevity challenge: In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.

The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.

In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.

Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of outliving your money.

Secondly, there’s the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in 14 over the age of 65 to one in six over the age of 80.

Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.

The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it’s definitely something that you need to take into account in your financial planning.

Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.

There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.

There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.

There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you’ll live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.

IR35, the biggest Budget revenue raiser

Thursday, November 8th, 2018

Extra money for Brexit and the NHS, changes to growth and debt forecasts, changes to tax thresholds and a new ‘digital services tax’. These have been the points which have received the most media attention from the autumn Budget. Another important announcement, however, has predominantly slipped under the media radar and failed to become a major ‘talking point’ from the new budget. Hammond announced an IR35 tax clampdown that will have a huge affect on contractors and freelancers who operate in the private sector. Rules which already apply to the public sector will be extended to the private sector in 2020, with the exception of small businesses.

The reforms mean that self employed people could end up paying more tax.

Private sector companies with over 250 employees will now have an obligation to check whether they are using any contractors who should be paying tax. The aim of these changes is to clamp down on self employed workers who should really be treated as employees, but work through a third party.

In reality, these changes don’t mean that IR35 is being applied to the private sector for the first time. Rather, it just means that the burden of responsibility to pay the right amount tax shifts from the subcontractor to the company.

In the private sector, relationships with freelancers are generally more complex than in the public sector where the rules already apply. There are fears that the changes will have a negative impact on genuinely independent contractors.

The new IR35 rules could reduce a subcontractor’s annual income by as much as 25% when extra income and National Insurance contributions are taken into account.

What’s more, some subcontractors are worried that the changes will deter public sector firms from employing them. They think that the risk of facing a large tax bill at a later date will prevent firms employing freelancers, even if it is just for genuine sub-contractual work. The fact remains that employers could face serious consequences if they misidentify a worker as an employee or self employed.

The Treasury estimates that the change in rules will earn the taxpayer an extra £1.2 billion by 2023. An extra £410 million has already been raised since rules were introduced in the public sector in April 2017. This is a similar figure to the amount that the new ‘digital services tax’ is expected to raise.

Should the Bank of Mum and Dad start charging interest?

Thursday, October 18th, 2018

If you’ve lent money to your children to help them with university fees, a deposit on their first home or even just to support them with the rising cost of living, then you’re not alone. Statistics suggest that around a quarter of all mortgages are now partially funded by the ‘Bank of Mum and Dad’.

But have you ever thought about whether you should charge your offspring interest when they pay the loan back? It’s a consideration that’s likely to make many parents feel like Dickens’ famous miser, Ebeneezer Scrooge. However, there are arguments to be made for adding on interest which might help to prevent you from donning a Victorian style top hat and uttering ‘Bah, humbug!’

If you’re concerned that any money provided to help out your children might end up becoming a ‘permanent loan’ that you might never see again, interest can be a good way to ensure this doesn’t happen. Whether you put an interest rate in place from the start, or make it clear that interest will start to be charged if the money isn’t paid back by a certain point, the idea of having to repay more than the initial amount can help the borrower take the loan seriously and ensure regular payments are made.

It’s also worth considering what adding interest could help teach your children about ‘real world’ loans, especially if they are still relatively young. Another way of achieving this is to refuse multiple loans – a bank wouldn’t agree to an endless stream of applications for further credit, so if you do want to see your money again you should ensure that your offspring don’t see you as an unlimited supply of funds.

Of course, the Bank of Mum and Dad isn’t really a bank at all, which is what makes it attractive for all involved. Young people will likely feel more secure borrowing from their family than risking being turned down by a bank and damaging their financial status; whilst parents who can afford to loan their children money know it might offer some protection from the difficulties of struggling to pay off credit. Charging interest might be something you’re completely comfortable with, or it might be an idea you would never entertain; ultimately, however, the choice is entirely yours.

Kids off to Uni? Congratulations – but have you been saving enough?

Wednesday, October 10th, 2018

The Institute of Fiscal Studies suggests that the average total debt incurred by today’s university students over the duration of their studies will amount to £51,000. This figure comes as those in higher education saw the interest rate on student loans rise to 6.3% in September. Total student debt in the UK has now risen to £105 billion as of March 2018, a figure £30 billion higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

October market commentary

Thursday, October 4th, 2018

Introduction

On Tuesday, 3rd November 2020 the United States will go to the polls to elect its next President. All the indications are that Donald Trump will stand for a second term and if the words of Bill Clinton – “It’s the economy, stupid” – are to be believed, he will win.

While not wanting to make a political comment or endorse his policies in any way that be welcome to some extent – he does provide plenty of news and entertainment for these commentaries, after all. September was no exception, as he ramped up the trade war with China, ordering tariffs on a further $200bn (£154bn) of Chinese imports, which will include electronic products and consumer goods such as handbags.

These tariffs will see the cost of the Chinese imports rise by as much as 25% and – not surprisingly – Beijing was quick to respond, slapping tariffs of between 5% and 10% on a range of US products. Especially targeted were agricultural products, which largely come from states which have strong Republican majorities – a point which the President duly made on Twitter.

It is interesting to look at the relative stock market performance in the two countries. Despite the trade war, the US stock market is up by 7% this year. Although tech stocks were hit by the latest round of tariffs, the US stock market loves Donald Trump. The Dow was below 20,000 on his Inauguration Day in January 2017: it closed September above 26,000.

What happened in the rest of the world? There was the usual mixed news in the UK and – as we shall see – absolutely no progress on Brexit. In the US, Amazon became the second company to be valued at a trillion dollars – roughly £770bn. The country was hit by Hurricane Florence, but far more damage was done in the Far East by Typhoon Mangkhut, which hit the Philippines, Hong Kong and Southern China.

On the world’s stock markets it was generally a good month: India was the only major economy on which we report to see a significant fall during September. More worryingly, however, the oil price hit a four year high of around $81 a barrel, as both Saudi Arabia and Russia rejected President Trump’s calls to increase production.

UK

As with every month this year, September brought more gloom for the beleaguered UK high street, as Debenhams called in advisers from KPMG amid suggestions that it may close up to 80 stores. There were no ‘suggestions’ from RBS, who announced that it would be closing a further 54 branches and John Lewis – long held out as the one bright spot among department stores – saw its profits crash by 99% when the latest results were announced.

Tesco, though, was in a more buoyant mood as it launched Jack’s, the ‘pile it high, sell it cheap’ arm of the company we wrote about recently. The aim is to wrest market share back from Aldi and Lidl: we shall see whether it succeeds or whether Tesco simply ends up competing with itself.

In the wider economy, there was some good news, as the UK benefitted from the warm weather and the World Cup. Figures for July showed that the UK economy had grown at its fastest pace for a year, and the Office for National Statistics announced that the economy had grown by 0.5% in the last three months of 2017, compared to the previously announced 0.4%.

Unemployment came down by a further 3,000 to 1.44m: that means that the UK has an unemployment rate of 4.3% – the lowest for more than 40 years. However, inflation did edge back up to 2.7%, the highest level for six months.

…But no doubt, Chancellor Philip Hammond, will soon have that under control. Having given every indication that he would deliver his Budget speech in November, he has brought it forward to 29th October. He had apparently intended to deliver the speech on 31st October until it was pointed out to him that the Budget would coincide with Hallowe’en and that the headline writers would have a field day with ‘Hammond’s House of Horrors.’ So Monday 29th it is…

In construction news, it was announced that London’s Crossrail project will open nine months behind schedule and HS2 – latest projected cost £56bn – promised to deliver between 15,000 and 30,000 new jobs.

The FT-SE 100 index of leading shares had a quiet month in September but at least it moved in the right direction, rising by 1% to 7,510. The pound was more or less unchanged against the dollar and ended the month at $1.3031.

Brexit

So here we are: less than six months to go until 29th March 2019 when the UK will – in theory – exit the EU. The countdown has begun – although the word ‘countdown’ rather implies that something definite is going to happen. Right now any option still appears to be possible: in fact, a new option seems to crop up every day.

We left this section last month with Prime Minister Theresa May having presented her ‘Chequers’ plan for Brexit. September started with Tory MPs from all sides of the party rubbishing the plan and the EU’s chief negotiator Michel Barnier dismissing it as unworkable. ‘Barnier Rubble’ was the neat summary in one newspaper’s headline.

Throughout the month there were increasingly dire warnings of the consequences of a ‘no deal’ Brexit. Both BMW and Jaguar warned of factory closures and Bank of England Governor Mark Carney said that house prices could fall by 35% over 3 years in the event of ‘no deal’ – although if you, or your children, are struggling to get on the housing ladder you may regard that as no bad thing.

Theresa May duly trooped off to Salzburg to meet the other European leaders and according to your viewpoint, was either ‘ambushed’ or got exactly what the UK’s negotiating position deserved. ‘EU Dirty Rats’ proclaimed the pro-Brexit Sun.

So another month has passed and once again we are no further forward. The Prime Minister danced on to the stage at the Conservative party conference and in her speech dismissed calls for a second referendum – defending her plan for a free trade deal that would provide ‘frictionless trade in goods’.

Meanwhile, there will be calls for a ‘Canada-style’ deal, Boris Johnson will continue to promote ‘Super Canada’ and pro-Remain MPs will still call for a People’s vote.

Europe

Perhaps the big story in Europe came in Sweden, where both main parties saw a sharp decline in their votes as the nationalist, anti-immigration Swedish Democrats won nearly 18% of the vote. The country’s Prime Minister Stefan Lofven was ousted after losing a no-confidence motion and the country now faces a period of uncertainty as the politicians try to form a workable coalition.

The politics of Naples have, traditionally, been rather simpler. It has a tradition for pizza and the Mafia. But now the city – like so many in Europe – is seeking to re-invent itself as a tech capital, with both Apple and Cisco setting up academies in the Southern Italian city. Hopefully, this will reverse the brain-drain which has seem so many of Southern Italy’s young graduates leave for jobs abroad, or in the north of the country.

On Europe’s stock markets the two major indices went in opposite directions in September. The French index was up by 2% to end the month at 5,493 but the German DAX index slipped back by 1% to close at 12,247.

US

In September, Donald Trump tied up a US/South Korea trade deal and has just negotiated a ‘modernised’ trade deal with Canada to replace the North America Free Trade Agreement.

Away from the Oval Office, it was generally a good month for the US economy, which added 201,000 jobs in August as unemployment remained low at 3.9% and wage growth rose by its fastest pace for nine years, reaching an annualised rate of 2.9%.

However, this did prompt the Federal Reserve to raise interest rates by a further 0.25% taking them to a range of 2% to 2.25%. This was the eighth rate increase since 2015 – with another one expected later this year – as the Fed maintains its policy of gradual rate rises.

As we noted in the introduction, Amazon followed Apple in being valued at more than a trillion dollars as its share price reached $2,050 (£1,577). Not to be outdone Apple unveiled a raft of new products including yet another version of the iPhone: it’s called the XS if you want to upgrade.

There was less good news at Tesla as Elon Musk’s behaviour became increasingly erratic and the month ended with him being accused of fraud and removed as the company’s chair, after he reached a deal with US regulatory authorities over a tweet saying he planned to take the company private. Quite what the future now holds for him and the loss-making company is anyone’s guess.

It was another good month on Wall Street: as we mentioned in the introduction, the threat of a trade war has seen the Chinese stock market fall 14% this year. In contrast the Dow Jones index is up by 7% for the year-to-date, and rose by 2% in September to end the month at 26,458.

Far East

Donald Trump was not the only one shaking hands and smiling for the cameras after making a deal. Also getting in on the act were Kim Jong-un and Moon Jae-in, the respective leaders of North and South Korea. President Moon made a historic trip to North Korea, and the meeting moved the de-nuclearisation of the Korean peninsula significantly closer, as Kim promised to close one of his country’s main missile testing and launch sites.

Sadly, it wasn’t just Florida that was hit by hurricane season, as Typhoon Mangkhut, which killed dozens of people in the Philippines, moved on to batter Hong Kong and Southern China. The bill for the clean up is already estimated at $120bn (£92bn) and is likely to rise further.

We have commented below on the expected rise of the Indian economy over the next ten years: HSBC’s report also forecast that growth in China will continue to outstrip the West. A further report – from London based think tank Z/Yen – suggested that the growth in the Far East is going to put increasing pressure on London and New York as financial centres. Far Eastern cities such as Shanghai, Shenzhen and Beijing are surging and Hong Kong, Singapore and Tokyo have been long established among the world’s leading financial centres.

In company news, founder and CEO Jack Ma announced that he would step down from his position at e-commerce giant Alibaba next year, to let ‘younger, more talented people’ take on the leadership roles. Mr Ma has a net worth of around £28bn, so goodness knows what ‘more talented’ people will achieve.

September was a good month for Far Eastern stock markets. The Chinese Shanghai Composite index shrugged off the worries about a trade war with the US, rising 4% to 2,821 (although it remains down for the year as a whole). Pride of place went to Japan where the Nikkei Dow was up 6% to 24,142. The South Korean market was up 1% to 2,343 while the market in Hong Kong was virtually unchanged, closing September at 27,789.

Emerging Markets

As far as newspaper headlines went, the big story in September was Venezuelan President Nicolas Maduro being photographed eating steak cooked by Turkish celebrity chef Salt Bae – while at home millions are starving and the country sees the biggest mass migration of people in South America’s history.

In rather ‘harder’ news, economists at HSBC have forecast that India will overtake the UK, Germany, France and Japan to become the third largest economy in the world. The forecasters are expecting growth of 6% in India, with China’s growth slowing to 5% per annum. India will, however, lag a long way behind the world’s two biggest economies, with HSBC forecasting that by 2030 China’s GDP will be £26tn, ahead of the US on £25.2tn and India on £5.9tn.

So good news for India but there was far less good news for Argentina, which is fast becoming South America’s equivalent of Greece. The country’s GDP has fallen sharply, the government is implementing widespread austerity measures and the International Monetary Fund has had to increase its three year bailout programme to $57bn (£43bn) from the $50bn previously announced.

Despite the optimistic forecasts, the Indian stock market had a disappointing month, falling by 6% to end September at 36,227. In contrast, the other two major emerging markets we cover were both up, with Brazil rising 3% to 79,342 and the Russian market rising an impressive 5% to 2,475.

And finally…

At the beginning of this month, it was reported that the Coca Cola Company was buying Costa, the coffee chain which dominates the UK high street. It seems a ‘trip’ to town may be about to take on another meaning.

According to Canada’s BNN Bloomberg, Coke is in talks with a local producer – Aurora Cannabis – about developing marijuana-infused drinks. Before you dig out your flares and queue outside Costa, we should stress that the aim of the drinks is to relieve pain: Coke describes them as ‘functional wellness beverages.’ But who knows? A mix up in the bottling plant and suddenly your local high street might look a rather different place…

Already apparently ‘under the influence’ are the customers of Derby ice cream maker Gavin Murray, who faces a bill of £1,000 from his local council after not quite getting the balance right in his ‘rum n’ raisin’ flavour. Mr Murray started his business four months ago, but the killjoys at the council have decreed his ‘rum n’ raisin’ to be ‘too alcoholic.’ He now faces paying the council the money for the correct paperwork – or modifying his ice cream making to burn off the alcohol. And presumably disappointing a large queue…

Finally, this month there will be people – especially with the Christmas party season on the horizon – who find that their clothes have mysteriously shrunk. The traditional answer was to nip down to Weight Watchers – but not any more. The company has jumped on the re-branding wagon by shedding the ‘weight’ and will henceforth be known simply as ‘WW,’ which, the company says, reflects its focus on ‘overall health and wellness.’

There’s that ‘wellness’ word again. Perhaps WW could link up with Coke. And if that doesn’t work there’s always Mr Murray’s rum n’ raisin…