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September market briefing

Archive for the ‘Investments’ Category

September market briefing

Wednesday, October 3rd, 2018

September has a reputation for being the worst month for investing, something the figures confirm. Since 1950, the Dow Jones has declined by an average of 0.8% in September and similar results can be seen across a range of stock indexes. There are many theories to why this is the case, none of which offer much in the way of a concrete explanation. Thankfully, this year stock markets bucked the trend and, generally speaking, September saw the global markets perform strongly.

In London, the FTSE 100 had an unremarkable month, seeing a rise of 1% to 7,510. Ultimately, a rise is still a rise so this should be welcome. Elsewhere in the British economy, the news is a mixed bag. The high street had a ghastly month; Debenhams suggested that they may close up to 80 stores and RBS announced the closure of 55 branches. Even John Lewis, the ‘golden boy’ of British department stores, saw its profits crash by 99% this month.

Unemployment – at just 4.3% – is at its lowest for over 40 years. However, the threat of a ‘no deal’ Brexit would mean that unemployment will rise substantially. During the month, both Jaguar and BMW warned of factory closures in the event of ‘no deal’. What’s more, Mark Carney, Governor of the Bank of England, said that house prices could fall by 35% over 3 years if the government and the EU can’t come to an agreement. So as well as the high mobile phone roaming charges which are thought to return after Brexit, you might also find yourself in negative equity.

Whatever you think of Donald Trump, the US stock markets love him. September was another good month on Wall Street. The Dow Jones rose by 2% during the month to end up at 26,458, a 7% total rise since the start of the year.

Otherwise, Trump continued his assault on Chinese trade. He announced during the month a that a further $200 billion worth of tariffs would come into effect later this year. China seems to be fairing much worse than the US in their ‘trade war’; its stock markets have fallen by 14% since January, though the Chinese Shanghai Composite index did rise by 4% during September.

Over the summer, the Japanese economy returned to growth after shrinking in Q1 of 2018. The Nikkei 225 index in Tokyo was up 6% to 24,142 at the end of the month. Elsewhere in the Far East, the South Korean market rose 1% to 2,343 and Hong Kong ended the month virtually unchanged at 27,789.

The big news in emerging markets was that HSBC economists have forecast that India will soon become the third largest economy, leaving the UK, Germany, France and Japan by the wayside. Following this good news… the Indian stock market had an awful month, falling by 6% to end September at 36,227.

October will be an interesting month. Chancellor Philip Hammond will announce the final budget before Brexit on 29 October, which should outline his answers to the following questions: a) What is the best way to bring down the country’s 2.7% inflation rate? b) How to fund £20bn extra for the NHS by 2023? c) Is raising taxes or borrowing the best way to fund public services? There have even been rumours of a new form of tax, although the details of this are unknown…

Funding care home costs with a care home ISA

Wednesday, September 19th, 2018

If you’re under 60, funding your future care might not be top of your agenda. Garden improvements, good restaurants and holidays probably rank slightly higher, as well as saving for your pension if you’ve not yet retired.

However, the government could be proposing a new ISA in order to encourage people to start saving for their later life care. Recent leaked government documents suggest that the government is considering a Care ISA as part of its forthcoming green paper on social care.

The Care ISA would have a tax free allowance of its own that reflects the cost of care. Any leftover savings from this ring-fenced amount would be safe from inheritance tax when you die.

The high cost of later life care is something that looms for many of us.

Currently, those in England and Northern Ireland who have assets of more than £23,250 will be expected to self-fund their care completely. This can mean selling the family home and spending a chunk of your savings on funding care.

Councils are becoming increasingly ruthless in cracking down on people who deliberately deprive themselves of assets by giving them away. There is no time limit on how far a council can go back when claiming deliberate deprivation.

A Care ISA would mean that, if a saver comes to need later life care, more of their assets would be protected.

However, the Care ISA has been widely criticised by both providers and financial commentators.

At the moment, people can leave £325,000 and, from April 2020, couples with children and property will be able to leave £1 million jointly. Much of the population dies with less assets than these. So, for many people, an inheritance tax break isn’t relevant, which could limit the Care ISA’s uptake, making it unattractive for providers to offer it. They may prefer to take advantage of other products, such as a pension, because they offer immediate tax relief.

Additionally, financial services firm Hargreaves Lansdown suggest that only one in four people ends up paying for long term care costs, making the Care ISA even more unattractive.

This means that providers are unlikely to see the Care ISA as a significant business opportunity. The upfront costs of implementing the niche ISA could make it unprofitable.

What’s more, it is unclear how the government would clamp down on the tax loophole that will emerge if savers pay for their care from funds outside of the Care ISA and use the ISA as an inheritance tax exempt savings fund.

The abundance of negative feedback means that the Care ISA may well remain the stuff of fantasy for the treasury.

September market commentary

Wednesday, September 5th, 2018

Introduction

August used to be known as the ‘silly season’. Everyone who made the news was away on holiday, nothing happened and newspapers were desperate to fill their pages. So rather more obscure stories made it into print…

That, of course, was before Donald Trump. And Brexit. And Venezuela, Argentina and Greece. And…

In short, August is now just another month and this year it saw the world’s two most powerful economies, the USA and China, continuing their trade war as the US imposed an additional round of tariffs on Chinese imports and Beijing inevitably retaliated. Domestically, there were more woes for Donald Trump as more members of his former inner-circle decided they would rather do a deal with the prosecutors than the President. Could he be impeached? At this stage it would seem unlikely but the net is tightening.

At home, the Chancellor – as Chancellors do – floated the idea of a new tax. Abroad, two South American countries found themselves in deep trouble and Greece emerged from its bailout programme. For now, anyway…

UK

The month in the UK got off to a bad start for borrowers and – hopefully – a good start for savers as interest rates finally rose. The move – from a base rate of 0.5% to 0.75% – had been long expected, with the economy strengthening, consumer spending gradually rising and the Bank of England seeking to get inflation closer to its target rate of 2%.

He may be one of the least charismatic holders of his office, but Chancellor Philip Hammond was at the centre of one of the more interesting stories in August. The month started with news that Amazon’s UK profits had jumped from £24.3m to £72.3m. At this point the Chancellor must have been rubbing his hands in the expectation of some juicy tax receipts but no – Amazon’s tax bill came in at just £4.6m and it was able to defer £2.9m of that, meaning that the Chancellor could expect a cheque for just £1.7m.

As we will report below, August was a month which saw the familiar tale of gloom for UK retail and the Chancellor has often spoken of ‘levelling the playing field’ between online retailers and the traditional high street.

So August saw him float the idea of an ‘Amazon Tax’ – a specific tax on online sales platforms to help traditional retailers. “We want to ensure the high street remains resilient,” he said, “And make sure taxation is fair between businesses doing business the traditional way and those doing business online”.

Will it work? It seems doubtful. Rewind the clock to the beginning of the last century and Hammond would have slapped a special tax on cars to protect the horse and buggy economy. But France and Germany have already introduced their own version of the tax: do not be surprised to see it included when ‘Spreadsheet Phil’ delivers his Autumn Budget speech.

As we mentioned above, August was another poor month for the retail sector in the UK. House of Fraser went into administration and was bought by Sports Direct for £90m – around a tenth of the previous valuation. Marks and Spencer’s mooted more store closures and the month ended with the future of Homebase looking uncertain as 42 stores were closed. However, Coca Cola did give the high street – and the coffee business – a double espresso vote of confidence by agreeing to buy the Costa Coffee chain for £3.9bn.

The sun continued to shine in August and the Office for National Statistics reported the good weather had helped boost the UK’s Gross Domestic Product by 0.4% in the second quarter of the year. There was gloom for the housing market though, with August seeing house prices suffer their biggest month-on-month fall since July 2012. UK car manufacturing was also down in July and profitability in the service sector was at its lowest level for four years. But for those who like their glass half full there was yet another drop in unemployment, as it came down by 63,000 to 1.36m – the lowest level since 1975. The UK also recorded its biggest July surplus of income over expenditure for 18 years – so finally the Chancellor could get excited…

Sadly, the FTSE index of leading shares took its cue from the bad news rather than the good, finishing the month down 4% at 7,432. The pound was also down slightly against the dollar, closing down 1% at $1.3016.

Brexit

There were – inevitably – any number of stories about Brexit during August, the vast majority of them centring on the consequences of a ‘no deal’ Brexit, a fantastic opportunity for the UK or a potential disaster depending on your existing viewpoint. What did gradually emerge through the month was the realisation that ‘no deal’ holds as many terrors for the EU as it does for the UK. Perhaps the most relevant story came on the last day of the month, with City AM suggesting that leaders of the EU27 were preparing a ‘fudge’ agreement, allowing both sides to claim victory.

That would be entirely in line with the way the negotiations have preceded so far, and there is still plenty of scope for a last minute decision to extend the UK’s two year notice period beyond 29th March next year. There is a French saying which roughly translates as ‘only the temporary endures’. You would not bet against reading our monthly market commentary in August 2028 and seeing a comment on the UK’s ‘temporary agreement’ with the EU…

There have also been attacks on the Prime Minister’s Chequers proposals both from within her own party and from the EU’s chief negotiator, Michel Barnier. The Conservative Party Conference takes place at the end of this month, but the PM’s speech will not be until 3rd October. So it looks like we are in for another month of uncertainty. Keeping with French phrases, ‘Plus ça change…’

Europe

In Europe, the Greek bailout finally ended. On the surface this is good news: Greece is no longer borrowing from the EU, and the government is finally running a surplus. Dig a little deeper though and it is much less cheery – Greece has been left with severe debts which will take generations to repay. A fifth of the population – and a quarter of Greek children – live in severe material deprivation. The unemployment rate remains around 20% with youth unemployment twice that: half a million Greeks have left the country and the financial crisis has wiped out a fifth of the economy. As the old saying goes, only death and taxes are certain, but we can be fairly sure that sooner or later the headlines will be saying ‘Greek Crisis’ again.

Italy, one of the other teetering European economies, set itself on collision course with the EU by announcing a massive €80bn investment in the nation’s infrastructure. The populist government seized on the collapse of the Genoa bridge to announce the plan, hoping that the financial stimulus can boost Italy’s flagging economy. It is a high risk gamble, but Italy’s economy has been virtually stagnant for two decades: the only surprise is that it has taken this long…

Like so many other leading indices, both the major European stock markets were down in August, with the German DAX index dropping 3% to 12,364 and the French stock market falling back by 2% 5,407. At the other end of the stability league table the Greek stock market was down 4% at 730.

US

Let us start off the US section with a success story. At the beginning of the month Apple won the race to become the first trillion dollar company. Better than expected figures, confirming strong sales growth for the more expensive iPhone models, sent the shares to a new high of $207, enough to see Apple beat Microsoft, Amazon and Alphabet (the parent company of Google) to the trillion dollar valuation.

There was, though, some gloomy news for the wider economy at the start of the month as US jobs growth slowed in July. Just 157,000 new jobs were created in the month, 33,000 below expectations and well down on the 248,000 created in June. Figures also confirmed that the US service sector had expanded at its slowest rate for 11 months.

As the month progressed, the President continued his high-profile initiatives and interventions, doubling the tariffs on Turkish steel and aluminium – and sending the Turkish lira plummeting as a result – and doing what he described as an ‘incredible’ trade deal with Mexico and threatening to pull the US out of the World Trade Organisation.

Whatever you think of the President’s actions, by the end of the month the US was awash with good economic news, as figures released for the second quarter showed the US economy had grown at an annualised rate of 4.2%.

Not surprisingly Wall Street liked what it saw, and the Dow Jones index ended August up 2% at 25,965.

Far East

We have covered the China/US trade war above and there was little good news to report for China in August as the stock market fell and there were worrying signs for the Hong Kong property market as monetary tightening by the US federal Reserve forced Hong Kong’s authorities to restrict credit.

There was better news on the other side of the Sea of Japan, with figures for the second quarter showing the Japanese economy returning to growth, as it increased at an annualised rate of 1.9%. Car giant Toyota added to the good news as it posted a 7.2% rise in quarterly net profits, beating expectations and surprising analysts.

On the region’s stock markets, China’s Shanghai Composite index was down 5% on the continuing worries about a trade war with the US, ending the month at 2,725. Hong Kong did only marginally better, falling 2% to 27,889. The other major Far Eastern markets were both up by 1% with the Japanese market closing the month at 22,856 and the South Korean index ending august at 2,323.

Emerging Markets

August was a busy month for the Emerging Markets section of the commentary, beginning with two tales of woe from South America.

Venezuela is in crisis: the country with the highest oil reserves in the world has been brought to its knees by the current government and is now seeing the largest exodus of people in South American history. Meanwhile, Argentina has once again had to go to the International Monetary Fund with the begging bowl and, as we write, interest rates have increased to an eye-watering 60% as the Government attempts to prop up the peso.

India was hit by the floods in Kerala, but the country has seen its fastest quarterly growth in two years as the rupee falls, with the country’s GDP expanding by 8.2% in the second quarter of the year, compared to 7.7% in the first quarter and 5.5% in the same period last year. Unsurprisingly, the stock market was up by 3% in August to close the month at 38,645.

The Russian currency was also hit as the US imposed sanctions in the wake of the Skripal affair, but the stock market still managed a 1% rise to 2,346. No such joy for the other major emerging market we cover, as the Brazilian index declined 3% in August to 76,678.

And finally

Or ‘rather more obscure stories’ as we should perhaps call them this month.

We’ll start ‘and finally’ in the dangerous waters of dating, where a divorcee looking for a wealthy boyfriend won £13,100 in damages from a dating agency after it failed to introduce her to the man of her dreams. Tereza Burki had paid the Seven Thirty agency – based in Knightsbridge – £12,600 but sued for ‘deceit and misrepresentation’. The judge ruled that the dating agency had ‘made promises but failed to produce the goods’.

Not so much ‘plenty of fish in the sea’ as not enough. Poor old Ms Burki spent £12,600 to catch a mackerel but obviously only dated sprats…

Also not having much luck are the UK’s farmers, who are increasingly the victim of rural crime, with villains reportedly enjoying a day out in the countryside and then finishing it by going home on a farmer’s quad bike. Rural crime is now a £44.5m a year problem and while some farmers are fighting back with CCTV and infra-red motion sensors, others are apparently using medieval fortifications, with earth banks, ditches and moats making a comeback.

Farmers, of course, have plenty of land, but the land everyone wants today is in cyberspace, with the BBC reporting that people are spending real money to buy virtual land in a new city called Decentraland. When we say ‘real money’ we obviously mean a virtual currency – Ethereum in this case – but we assume the virtual currency has to be bought with ‘real money’. So you invest money that only exists online buying land in a city that also only exists online. Sometimes, the world seems it’s just getting too complicated…

Financial planning in your forties

Thursday, August 16th, 2018

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

The end of LISA?

Thursday, August 16th, 2018

The new girl on the block, in terms of saving products, seems like she may not actually be around for much longer. LISA, or the lifetime ISA, is being threatened with abolition by a Treasury committee, having only been on the market for 16 months.

The LISA allows those aged between 18 and 50 to save up to £4,000 a year towards a pension or a first home tax free, with the promise of a 25% government bonus capped at £1,000 a year.

However, a panel of MPs have highlighted significant drawbacks with the scheme. Some of the negative feedback has centred around the scheme’s complexity and that is confusing to customers.

The LISA has always seemed a somewhat odd product in that it has two very different target audiences; those saving for a house and those saving for a pension. It’s difficult to see how one product could hold the same appeal for both.

In fact, it has worked better as a vehicle for those saving for a deposit on a house than those using it as a pension allowance. After all, what first time buyer wouldn’t want an extra 25% from the government? It hasn’t been as appealing to those looking for a pension replacement.

The main problem is the 25% exit penalty imposed if you withdraw money from the scheme for any purpose other than retiring or buying a house. This is viewed as exceptionally high, especially as many savers do not realise the penalty is 25% of the entire pot. Those who have had to withdraw money earlier, for whatever reason, have lost more money than they expected.

It’s true that demand for the LISA not been strong and there has been relatively little take-up. What’s more, very few advisers have been keen to offer them.

To some extent, though, it seems a shame to talk about scrapping the scheme when it has only really just got started. If you or a family member fall into the age range and do qualify for a LISA, it could be worth investigating one now and make the most of the government bonus before time runs out.

Interest rate rise: What does this mean?

Thursday, August 9th, 2018

The Bank of England has raised interest rates from 0.5% to 0.75%, only the second rise in a decade. Currently, interest rates stand at their highest since 2009 and reflect what the Bank of England perceive as a general pick-up in the economy.

The Bank said that a rise in household spending has strengthened the British economy. Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does the rise affect you?

If you are on a variable rate ‘tracker’ mortgage, your repayments will increase. For example, if you have a £100,000 mortgage, this will add £12 to your monthly repayments.

It’s important to highlight that if you are on a fixed rate mortgage, your payments will stay the same until your base rate comes up for renewal. The Bank of England’s announcement does not mean that your rates immediately rise.

For prospective borrowers, the interest rate rise signals a change in the Bank of England’s tone. Further rate rises are a definite possibility. However, the Bank’s governor took a rather cautious tone which indicates that there are unlikely to be any more rises until 2019.

For the time being, base rates on mortgages are unlikely to rise above 3%. That said, the demand for rate fixes will be higher than usual this year.

Unfortunately for those of you going on holiday, after the announcement the pound fell by 0.9% against the dollar. This is due to the extreme political uncertainty surrounding the sterling with Brexit taking an unchartable track.

Reactions from U.K. businesses have been a mixed bag. The Institute of Directors, which represents about 30,000 members in the U.K., has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

This negative perspective wasn’t unanimous among all lobbying groups. The Confederation of British Industry, the country’s biggest business lobby, welcomed the rise saying the case for higher rates had been building.

A small rise of 0.25% is likely to have a minimal impact on your finances. However, larger hikes down the line could have a substantial effect on the British financial landscape.

Monthly Market Summary – July 2018

Thursday, August 9th, 2018

Despite a brewing trade war between China and the U.S. and an increasingly uncertain post-Brexit future, on the whole, July was a buoyant month for global stock markets.

In the U.K., World Cup fever and hot weather propelled the retail and hospitality sectors to a successful month. In fact, the Centre for Retail Research estimated that every England goal was worth £165.3 million to the nation’s retailers.

Overall, the FTSE-100 index of leading shares was up slightly in the month. Having closed June at 7,637, it ended the month at 7,749 for a rise of just 1%.

On the continent, July was an unusually quiet month. Mainland Europe’s two major stock markets grew confidently during the month; both the French and German markets rose by 4% during July.

Whilst Europe saw a subdued July, Trump’s America had a chaotic month – something most of us have come to expect.

After imposing a 25% tariff on $34bn of Chinese goods in July, which provoked retaliatory measures by China, Trump is now proposing a colossal tariff that will affect $200bn of Chinese imports.

In typically brash American fashion, however, Wall Street has shrugged off the wide uncertainty these “Trump Tariffs” have caused , with the Dow Jones rising 5% in July.

Elsewhere, the Asian markets had a mixed bag. Shanghai and Tokyo closed up by 1%, whilst Hong Kong and Seoul fell by 1%.

This general upward trend could continue. However, the simmering U.S.-China trade war plus an, as of yet, directionless Brexit could bring some turbulence into global stock markets over the coming month.

On the subject of turbulence, if you’re flying somewhere abroad this month, we wish you a pleasant holiday.

How best to help your grandchildren financially

Wednesday, July 25th, 2018

Being a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

The plus side of this is that you get the opportunity to make a real difference to your grandchildren’s lives. The downside is that the regulations around inheritance tax (IHT) can be confusing and the red tape overwhelming at times. By taking steps to find out what the rules are though, you can make life easier for family members and still be confident that you have enough money for your own retirement dreams.

One important consideration is the timing of your gift. If there’s a new arrival in the family, the financial needs will be very different than if it is to help older children. For example, the priority may be to help the newborn’s family move to a more spacious home or to help with private school fees for a primary school-aged child. Later on, it may be to help with driving lessons, pay for school or university fees or enable them to get on the housing ladder. You may decide you want to leave your money to your grandchildren in your will, in which case it is vital to plan your giving in advance in a tax efficient way.

IHT will be levied on your estate at 40% when you die, so if you’re giving money away now that will have an impact later. The nil-rate band is a threshold of £325,000 for the value of your estate. Anything above that will be taxed. Making monetary gifts can take the money out of the ‘IHT net‘ but remember this only applies for the seven years after you made the gift. It’s worth exploring some extra allowances such as being able to give £3,000 of gifts per tax year (your annual exemption) as well as an allowance for small gifts and wedding/birthday gifts.

There are a number of alternatives to make your gift. If the money is needed before age 18, a trust structure is a tax-efficient way to give money, while still giving you some control on how it is used. A Junior ISA can also be a good option as it grows tax-free, building up a fund for driving lessons or university fees. You can’t open the JISA on your grandchild’s behalf but you can pay into it up to their annual limit, currently £4,260. If they’re older, you might want to consider a lifetime ISA for a housing deposit. Again, you can’t open it for them as a Lifetime ISA can only be opened by someone between the ages of 18-39 but if your grandchild opens one, it’s a way for them to save up to £4,000 a year and get a 25 per cent government bonus on top.

Whatever you opt for, you’ll have the feel-good factor of helping the next generation in a way that is right for both you and them.

July market commentary

Wednesday, July 18th, 2018

Introduction
Let us invite you to travel back in time to June 2016, to the day after the Brexit referendum. Meanwhile, across the Atlantic, campaigning in the US Presidential election is in full swing.

You are offered two glimpses into the future. The first is that two years on, the UK has apparently made no real progress in the Brexit negotiations. The second is that Donald Trump has been elected President and has had a successful meeting with Kim Jong-un. You would have dismissed both of them as ridiculous and yet that is exactly what June brought us, as Theresa May called yet another Brexit crisis meeting and President Trump met the leader of North Korea in Singapore.

…And then the President went on to announce a raft of tariffs on imported goods – from both China and Europe – which may well see the threatened global trade war develop. Both China and the EU were swift to announce retaliatory tariffs, and (unsurprisingly) June was a month in which none of the major stock markets we cover managed to gain any ground.

June was also another bad month for the virtual currency Bitcoin. The price has been in steady decline over the last two months and, over the weekend, stood at $6,369 (£4,822). There were two main reasons for the fall as the South Korean cryptocurrency exchange Bithumb revealed that it had lost 35bn won (£24m) in a cyber-attack, and governments and regulators around the world – the US Securities and Exchange Commission is the latest – made ominous noises about cutting down on Bitcoin fraud.

In what is surely a sign of things to come, the Canadian province of Quebec halted approvals for Bitcoin mining as it worried about being able to supply electricity to the province.

UK
Sadly, the big story in the UK in June is one which has been written about often in recent times – the continuing decline of retail and the national high street. On the morning of Monday July 2nd, both the Mirror and the Daily Mail led with ‘the battle to save Britain’s high streets’.

Can anything be done? June brought us almost uninterrupted sunshine, and it may well be that the retail figures – like those for May – will show a rebound from the depressing figures disclosed in the Spring. The Mail is reporting that 50,000 retail jobs were lost over the last six months and is calling for an urgent review of ‘crippling business rates’.

Even that may not be enough: the simple fact is that it is easier, quicker, more convenient and cheaper to shop online. Even Costa is starting to struggle, reporting a 2% fall in like-for-like sales in the first three months of the year, which it blamed squarely on a lack of shoppers.

The long term trend was neatly captured by the problems of House of Fraser. On June 4th, it ‘rejected talk of a collapse’: three days later it was announcing that 31 of its stores would close. With M&S also planning a programme of store closures, Debenhams issuing constant profit warnings and 60 bank branches closing every month, the UK high street increasingly looks like it could be an idea whose time has passed.

But let us try and find some good news…

June was a good month for the economic numbers in the UK. Unemployment was down, falling by 38,000 between February and April, and the number of people in work rose to a record 32.4m – up 440,000 on the previous 12 months. That said, wage growth slowed again, so it is to be hoped that inflation does not also start to rise, otherwise we will be back in the realm of falling real wages.

The UK also earned the unofficial title of tech ‘unicorn’ capital of Europe. For those of you that don’t know the term, a ‘unicorn’ is a tech start-up valued at more than $1bn (£757m). The UK is home to 37% of the continent’s ‘unicorns’ and, according to a report for London Tech Week, is the number 1 destination for Europe’s top tech talent.

Rather more mundanely, the Bank of England voted to hold interest rates at their current level, but it is looking increasingly likely that base rates will rise to 0.75%, possibly as early as August.

The month ended with MPs voting overwhelmingly for the expansion of Heathrow airport – but do not expect the diggers to move in for a few years. The move will be widely challenged in the courts by local and environmental campaigners.

Finally, what of the UK stock market? The FTSE 100 index of leading shares had a quiet month. It started June at 7,678 and fell by just 41 points to end the month at 7,637. And it is down just 51 points for the year as a whole, having started 2018 at 7,688.

The pound was also down slightly against the dollar, falling from $1.3299 to $1.3211.

Brexit
As noted in the introduction, June brought us the second anniversary of the vote to leave the EU but we remain no closer to knowing what the final shape of Brexit will be. Airbus and BMW made veiled warnings about the consequences of ‘no deal’ but with Theresa May’s cabinet still squabbling about the shape of the eventual customs partnership, that exact outcome appears to be looking ever more possible.

At the time of writing, the newspaper headlines are telling us that this month’s meetings will be ‘make or break for May’, although it would not be a surprise to see that, once again, a last minute compromise will be cobbled together and that this time next month we will still be no further forward.

Europe
The Italian coalition government has survived its first month in office, even giving an impression of normality as new finance minister Giovanni Tria said that the government was “clear and unanimous” in its decision to remain in the Eurozone.

The main news in Europe was the decision of the ECB to end its huge programme of bond-buying which was introduced in a bid to stimulate the economy of the Eurozone. In a statement, the ECB said that it would halve the current scheme – worth €30bn (£26.6bn) a month – after September “as long as the data remained favourable” and end it completely in December. ECB President, Mario Draghi, acknowledged that Eurozone growth had stuttered recently, but was adamant that the underlying growth “remained strong”.

There was big news for jobs in the steel industry as German industrial group Thyssenkrupp signed a deal with Tata Steel to combine the two companies’ European businesses. The new company will be headquartered in Amsterdam and will have a total workforce of 48,000 – but there are fears of up to 4,000 redundancies.

There could be one more redundancy as well… It is hard to escape the feeling that we are approaching the end of Angela Merkel’s time as German Chancellor as key ally Horst Seehofer, the interior minister, threatened to resign over her immigration policy. In Turkey, Recep Erdogan won a new five year term as president, with some commentators arguing that it effectively spelled the end of the country as a democracy.

On the stock markets, the German DAX index ended June down 2% at 12,306, while the French index was down just 1% at 5,324. At the halfway point in 2018, the German index is down by 5% for the year as a whole, while the French index has risen by just 11 points.

US
Threatened trade war or not, the US announced better than expected data on jobs as unemployment fell to an 18 year low. Forecasters had been expecting 190,000 jobs to be added in May, but that figure was comprehensively beaten as the economy added 223,000 jobs in the month.

As had been expected, the US Federal Reserve announced a rise in interest rates, moving the target rate up from 1.75% to 2%, and going so far as to forecast a further two rate rises this year, reflecting the strength of the US economy. It is the seventh time that rates have been increased since 2015 and takes them to their highest level since 2008.

In company news, there was more gloom for Facebook as it wrestled with yet another ‘privacy bug’ – this time affecting the data of 14m people. And there was bad news for Google as the EU announced that it would fine the company up to $11bn (£8.33bn) over the dominance of its Android system.

Tesla, Elon Musk’s car making company, announced that it would cut 9% of its workforce – mostly ‘salaried employees’ – as it bids to finally make a profit. The company employs 37,000 people and has never made a profit in the 15 years it has existed.

“Profit is not what motivates us,” Musk posted on Twitter. Wall Street does occasionally like to see companies making a profit, but it was a quiet month for the Dow Jones index, which drifted down 1% to close the month at 24,271. Looking at the year as a whole, it is down 2% from its opening level of 24,719.

Far East
China seems well on course to become the world’s most influential economy as the One Belt, One Road infrastructure project continues to extend its influence through Africa and towards Europe, with Chinese leader Xi Jinping committed to creating ‘a paradigm of globalisation that favours China’. The country is now the world’s second largest consumer of crude oil, with 25% of the imports coming from Sudan and the Gulf of Guinea.

For this month though, it was a disappointing performance from China’s Shanghai Composite Index which fell 8% to close at 2,847. Hong Kong followed Shanghai’s example, falling 5% to 28,955 and the South Korean market was down by 4% to 2,326. The Japanese market was more or less unchanged in the month, moving up very slightly to 22,304.

Unsurprisingly, given the threat of a trade war, all four markets are down over the first six months of the year. The Chinese market leads the way with a fall of 14%: South Korea is down 6% and the Hong Kong and Japanese stock markets are down by 3% and 2% respectively.

Emerging Markets
Could North Korea one day feature in this section of our report? It seems that these days the only way to predict the future is to think the previously unthinkable. Kim Jong-un is 34 (or 36, depending on which ‘official’ source you believe) and it is not hard to see him one day taking North Korea down a similar road to China while maintaining rigid state control of the economy.

For now, though, we will look at only the usual suspects – India, Russia and Brazil. The first two saw their stock markets largely unchanged in June, closing at 35,423 and 2,296 respectively. The Brazilian market was down 5% at 72,763. For the first six months of the year, Russia – with future tourism surely buoyed by a successful World Cup – has seen its market rise by 9%, the Indian stock market is up 4% but the Brazilian index is down by the 5% it fell in June.

And finally…
Sadly, the high street seems to be taking a further thumping from consumers as newspapers report that supermarket groups are ‘losing millions’ as ‘cunning shoppers’ buy expensive items such as avocados and put them through the self-service tills as cheaper items like carrots.

It sounds like there is a gap in the market for an app which tells you how many 60p per kg. carrots weigh the same as a £1.50 ready-to-eat avocado…

New shopping techniques aside, a shortage of CO2 (carbon dioxide) was also making the news. It turns out that CO2 is not just something you vaguely remember from school, but a vital component in the food and drink industry.

It is used to add the ‘fizz’ in beer and fizzy drinks, and to extend the shelf life of meat and other food products. Scotland’s biggest abattoir has closed and Asda rationed the supply of fizzy drinks to online customers.

There are also real fears that there could be a beer shortage this summer as Europe continues to struggle with the CO2 shortage and “beer crazy football fans” threaten to drink Russia dry during the World Cup.

But things can always get worse – and back in the UK we could now be facing a shortage of… lettuce. The heatwave has apparently boosted demand for lettuce but – according to the brilliantly-named British Leafy Salad Growers Association – the soaring temperatures have stopped the crop growing. Broccoli and cauliflower crops have also been affected and the shortage could hit the supermarket shelves as early as this week.

Expect the Iceberg Lettuce to replace Bitcoin as the new default currency of the internet. Maybe it’s time to get out there and plant lettuce in the back garden… or perhaps instead you should be considering a crop of avocados…

June market commentary

Wednesday, June 6th, 2018

Harold Wilson famously said that, ‘a week is a long time in politics.’ A month is a very long time when we come to write this commentary.

Looking back to the first few days of May, the Royal Bank of Scotland was announcing plans to close 162 high street branches in the UK, Facebook said it was going to launch a dating service and, in Europe, there were rumours of a final, final (and this time they really meant it) deal on Greek debt.

But that was all simply froth and noise. The real news came right at the end of May with political crises in Spain and Italy – with the Italian one threatening to become an economic crisis at any moment – and Donald Trump’s sudden announcement of steel tariffs on virtually any country you care to name. May ended with Europe swiftly announcing retaliatory measures and the world once again looking at a damaging trade war.

Unsurprisingly, this had a negative effect on world stock markets, although with the news coming at the very end of the month much of the uncertainty may be reflected in June. Only two of the major stock markets we cover managed a gain during May, with the UK leading the way – albeit only rising by 2%. Most of the other markets were slightly down although, as you will see below, there were two markets which fell significantly.

UK
May was another month with the usual mix of good and bad news in the UK. As we have just noted, RBS kicked off the month by announcing the closure of 162 bank branches. As online banking and mobile apps continue to bite into retail banking you do wonder just how many high street branches there will be in ten years’ time.

The gloom for high streets up and down the country as April proved to be another bad month for the retail sector, with footfall down by 3.3% following the 6% fall in March. Add in the store closures announced by M&S and warnings of thousands of betting shop closures as the Government reduced the maximum stake on fixed odds betting terminals and you question whether town centres as we know them will survive.

There was more bad news for RBS as it agreed to a $4.9bn (£3.65bn) fine from the US authorities for mis-selling and BT announced plans to cut 13,000 jobs – around 12% of its workforce – in an attempt to cut costs.

…But there was plenty to report on the ‘good news’ page. Consumer confidence rose in April, reaching its highest level since January 2017 as wages rose by 2.9% in the first quarter of the year, finally starting to pull ahead of inflation. Unemployment was also down, falling by another 46,000 in the first three months of the year and still at its lowest level since 1975.

There was also positive news in the corporate sector as the Share Centre released data showing that UK corporate profits rose to a record high in 2017 as a buoyant world economy boosted UK multinationals. The profits recorded by the survey – £153bn – were 0.2% ahead of the previous record, set in 2011.

Will those successful companies be paying more for any borrowing in the future? Almost certainly, as the Bank of England hinted at a series of interest rate rises over the next three years. However, inflation fell to 2.4% in April – the lowest since March 2017 – meaning that threats of a rate rise have receded in the short term.

The UK stock market decided this was all good news, and the FTSE 100 index of leading shares was up 2% in May, the best rise recorded by any of the markets we monitor. It closed the month at 7,678 having ended April at 7,509. However, the pound went in the opposite direction, falling 3% in the month to $1.3299.

Brexit
Looking back over my Brexit notes for May they seem to cancel each other out. ‘Tory backbenchers deliver ultimatum over customs partnership’ ran one headline. ‘Jobs at risk without a customs partnership’ ran another. The month ended with suggestions of a ten mile wide trade buffer zone in a bid to break the deadlock over the soft/hard Irish border question.

We are now ten months away from the date when the UK is supposed to leave the EU and still virtually nothing has been agreed. That agreement may be even harder to find after the Republic voted to legalise abortion, leaving Northern Ireland as the only place in the British Isles where abortion is illegal. The DUP remains fiercely opposed to any legalisation – and Theresa May remains fiercely dependent on DUP support, presumably meaning that the DUP now hold a much larger bargaining chip in any discussions on the border.

What a mess. It almost makes Italy look like a model of considered government.

Europe
…Except of course, that Italy is anything but considered. Or stable…

Wishing for a stable government in Italy is probably akin to wishing for an end to the Greek debt crisis, but that is what might happen in June. Later this month a team of EU debt inspectors will arrive in Athens and begin poring over the Greek government’s books. If they like what they see, then apparently Europe’s leaders will settle on a long term plan for Greece to repay the billions of euros it owes.

Were it not for Italy that sort of news might make the headline writers turn to drink, but Italy seems to be a more than adequate stand-in.

For now, the country has a government. Giuseppe Conte, an academic and relative political novice, is the Prime Minister, heading a coalition of the anti-establishment Five Star Movement (M5S) and the far-right League party. It has been dismissed as ‘populist’ – which to this writer at least simply means it won the most votes in the election. It is, though, undeniably sceptical of the EU and how long a coalition between a party that believes in a universal basic income and another that believes in cuts to government expenditure can last is anyone’s guess.

Meanwhile, Spain was losing its Prime Minister after Mariano Rajoy lost a vote of no confidence following allegations of corruption. Plenty of drivers also expressed ‘no confidence’ in their BMW cars, which stalled while they were being driven, forcing the company to recall 300,000 vehicles. And there wasn’t much confidence behind Air France either, as another wave of strikes forced the country’s economy minister to warn that the airline could go out of business.

What of the main European stock markets? Like many markets in this month’s Bulletin, the German DAX index was virtually unchanged, falling just seven points in May to close the month at 12,605. The French market was down 2% at 5,398 but the Greek market tumbled dramatically, down 11% to 756. Does that suggest those debt inspectors may not like what they find?

US
The beginning of the month was ‘business as normal’ in the US. Apple showered its investors with cash as it announced plans for a $100bn (£75bn) share buyback – and said that it had sold 52.2m iPhones in the three months to March.

Legendary investor, Warren Buffet, liked what he saw and bought 75m shares in the company, sending the shares to a record high.

Over at Facebook, Mark Zuckerberg, fresh from surviving the Congressional hearings, said that Facebook would be launching a dating service, and fellow billionaire Elon Musk remained optimistic about Tesla’s future – despite the company posting a record loss of $710m (£523m) for the three months to March. The company’s target is to produce 5,000 electric cars a week – so far, it is producing just 2,270 as it continues to burn cash at an alarming rate.

The wider US economy added 164,000 jobs in April. That was slightly below expectations, but it still saw US unemployment fall to 3.9% – the first time it has dipped below 4% since 2000.

…And then, right at the end of the month, President Trump announced tariffs on imports of steel and aluminium. Among the countries and trading blocs affected were the EU, Canada and Mexico, all of whom announced retaliatory measures. The President said that the move was to secure “‘fair trade” adding, “they are our allies but they take advantage of us economically.”

The retaliation from the EU saw tariffs imposed on a raft of US imports from Harley Davidson motorbikes to bourbon. There were no tariffs on Chinese goods as trade talks continued, but it now appears that the US will impose 25% tariffs on $50bn worth of Chinese imports shortly after mid-June, with Treasury Secretary Steve Mnuchin saying that a final list of goods would be published by 15th June.

The Dow Jones index took all the news in its stride and – along with the UK – was the only other market we cover to rise during May. It was up by just 1% to close the month at 24,416.

Far East
There was bad news for the Japanese economy in May, with figures for the first quarter of 2018 showing that the economy had contracted by an annualised rate of 0.6%, worse than the expected contraction of 0.2%. This was the first time the Japanese economy had shrunk in two years, ending the longest stretch of economic growth since the 1980s.

‘Shrinking economy’ is a phrase which doesn’t appear to translate into Chinese, but the government there did finally agree to ‘significantly’ increase the number of goods it buys from the US. A joint statement between the US and China said the two countries had agreed to ‘a meaningful increase in US agriculture and energy exports.’

The White House added that the move would ‘substantially reduce’ the $335bn (£251bn) annual trade deficit the US has with China – although telling there was no mention of the $200bn (£150m) deficit reduction target that had previously been mentioned. And quite what impact June’s tariffs will have is anyone’s guess…

In company news, Chinese smartphone maker Xiaomi (it’s pronounced ‘show-me’ and it is a brand name you’ll become increasingly familiar with) announced plans for a $10bn listing on the Hong Kong stock market, while TenCent – China’s biggest social media company and now worth more than Facebook – posted a 61% year-on-year jump in profits to $3.7bn (£2.7bn).

It was a quiet month on the region’s stock markets. China’s Shanghai Composite index was up just 13 points to 3,095 while the markets in Hong Kong and Japan both drifted down by 1% to 30,469 and 22,202 respectively. There was less good news in South Korea, where the stock market fell by 4% to end the month at 2,423.

Emerging Markets
It was a quiet month for Emerging Markets news and – for two of the three major markets this section covers – a quiet month on the stock markets too. Both the Russian and Indian markets were unchanged in percentage terms, with the Russian market down just four points to 2,303 and the Indian stock market ending the month up 162 points at 35,322.

There was, though, no such calm in Brazil with the stock market falling 11% to 76,754 and undoing all the gains made so far in 2018.

And finally…
‘Close but no cigar’ probably sums up the final section of our commentary for May. There were some interesting stories but sadly, no security engineers locking themselves in ATM machines or cutting-edge AI robots drowning themselves in swimming pools…

Still, TSB boss Paul Pester would have had an easier month if he had locked himself inside one of the bank’s ATMs. ‘Computer chaos at TSB’ screamed the headlines, in a month which almost certainly saw the bank set a record for the number of times its customers heard, “Your call is important to us, but we are experiencing heavy call volumes at the moment.”

The chaos saw TSB customers given access to pretty much anyone’s account but their own, and one couple were actually able to see their life savings removed from their account while they were kept on hold.

Speaking to a committee of MPs, Mr Pester said that the migration to a new computer system had been “a terrible decision.” He would, he said charitably, be foregoing his £2m ‘integration bonus.’

There was bad news for all of us as the Great British Summer approaches. The cost of vanilla has sky-rocketed over the last two years, meaning that the cost of your ice-cream will be going up. At $600 (£450) per kilo vanilla now costs more than silver: it may be time to invest in mint chocolate chip shares…

In the ‘good news’ column a small town in Carmarthenshire has been named as one of the best places for coffee in the world. Coaltown Coffee in Ammanford (population 5,293) was named on Lonely Planet’s list of best roasteries. So wherever you are in the world, you’ll be able to enjoy Welsh coffee – at least until you-know-who imposes a tariff on it…