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What does their election mean for the German economy?

Archive for September, 2021

What does their election mean for the German economy?

Wednesday, September 29th, 2021

On Sunday September 26th Germany went to the polls in the first election of the post-Angela Merkel era. ‘Mutti,’ as she is widely known, has been German Chancellor – and, by definition, Europe’s premier politician – since 2005. But she stepped down as leader of the Christian Democrats (CDU) in 2018 and made it known that she would not seek a fifth term as Chancellor.

Merkel was replaced as leader of the CDU by Armin Laschet, who has served as Minister-President of North Rhine Westphalia since June 2017. His main rival as the next Chancellor was expected to be Olaf Scholz of the Social Democratic Party (SPD) who has served as Vice-Chancellor of Germany and Finance Minister since March 2018.

The CDU and the SPD duly won the biggest percentage of the votes and were projected to take the most seats in the Reichstag. However four other parties also won a significant share of the vote and at the time of writing both Scholz and Laschet are claiming that they will be able to form a government.

The full preliminary result of the election, with the SPD narrowly coming out on top, was as follows:

  • Social Democrats:  25.7% / 206 seats
  • Christian Democrats 24.1% / 196 seats
  • Green Party 14.8% / 118 seats
  • Free Democrats 11.5% 92 seats
  • AfD 10.3% 83 / seats
  • The Left 4.8% / 39 seats

With 735 seats in the Reichstag that means 368 are required to form a government, making a coalition inevitable. The CDU and the SPD could do that, but at the moment both Scholz and Laschet are looking more towards the Greens and the pro-business Free Democrats.

There is, very clearly, going to be a lot of talk and a lot of deals to be done before a government emerges and at this stage a three party coalition looks the most likely. Depending on the party colours, this has given rise to any number of nicknames with the early front-runner the ‘traffic light’ coalition of the SPD (red), the Greens and the Free Democrats (yellow). Replace the red with the black of the CDU and the coalition becomes ‘Jamaica,’ and so it goes on…

At the stage it looks likely that the right-wing Alternative fur Deutschland and the left-wing Die Linke won’t be in whatever coalition finally emerges, although the AfD will be the largest party in the eastern states of Saxony and Thuringia.

Whatever coalition finally ‘wins,’ what’s very clear is that Germany does not need a prolonged period of paralysis. Like the UK it is suffering supply chain problems as it emerges from the pandemic, inflation is rising and the economy – for so long the engine driving Europe – is under pressure as the world places less emphasis on heavy engineering.

This is a story which is likely to develop in the coming days as discussions between the parties take place. We will keep clients updated through the normal communications we send out, but should you have any questions please don’t hesitate to get in touch with us.

More than half of UK adults now seek financial advice

Wednesday, September 29th, 2021

As we look back on the months passed since the UK first went into lockdown one thing is abundantly clear – financially, the last couple of years have been good for some people. We’re not talking about the billionaires who have seen their shares rocket during lockdown but rather the many, many people who have saved money by not commuting, not buying lunch from the sandwich shop and not going on holiday. Depending on which paper you read, people in the UK have ‘accidently’ saved anywhere between £100bn and £125bn during lockdown. 

At the opposite end of the spectrum, lockdown has been hard for millions of people as businesses have failed, jobs have been lost and they have been forced to rely on their savings. 

In both cases there has been a need for financial planning advice. In recent years it might have been assumed that fewer people would need financial advice as a new money management or savings and investing app came out virtually every other day. 

However, according to a recent report from Prudential, the exact opposite is the case. More than half – 53% – of UK adults say that financial problems and changed circumstances over the last 12 months have caused them to seek financial advice. Of this figure, 33% have already sought financial advice, whilst the remaining 20% are planning to do so. 

For most of those responding to the survey the glass was, unfortunately, half-empty, with 85% of people saying they had concerns about the coming months, with the two concerns most frequently highlighted being: ‘having to use savings to make ends meet’ and ‘my investments losing money.’ 

Interestingly, the report revealed that the need for financial advice was felt most among the younger generations – Millennials and Generation Z, exactly the generations we might have assumed would shun traditional advice in favour of apps and online portals. 

Seventy-four percent of Millennials said that they had, or were going to, see a financial adviser, with 58% of Generation Z echoing those sentiments. The key drivers for these generations were ‘avoiding financial difficulties’ and ‘wanting to start [my] investment journey.’ 

Clearly recent months have been difficult. What they have illustrated is that financial planning advice will always be required and that people – of whatever generation – will always value face-to-face advice (even if that has been face to Zoom advice recently…) 

Our clients can rest assured that whatever happens with the pandemic – and however long the restrictions stay in force – our commitment to providing the very best long-term financial planning advice will never waiver.

September Market Commentary

Wednesday, September 8th, 2021

The defining image of August 2021 had little to do with the stock market on the surface, it was, of course, the withdrawal of British and American troops from Afghanistan. As some readers will know, Afghanistan has significant mineral reserves, which some estimates put at $1tn (£730bn). These reserves include lithium, so it will be no surprise if at some stage we see the China/Pakistan economic corridor extended into Afghanistan. 

August was, by and large, a good month for the majority of stock markets we report on. Most markets gained ground, with the Indian stock market having a spectacular month. 

It was a less positive month for the blockchain site Poly Network, where hackers exploited a “vulnerability in its systems” and stole some $600m (£436m) in digital currency tokens. Following an appeal on Twitter the hackers duly returned some of the money in what was one of the largest reported thefts of digital currency. 

There were signs from various purchasing managers’ indices around the world that the pace of recovery from the pandemic may be slowing down. These worries were not helped when China closed Ningbo-Zhoushan, the world’s third-busiest cargo port, due to an outbreak of Covid. 

August ended with images of the last American troops leaving Afghanistan and with Hurricane Ida hitting New Orleans, leaving one million people in Louisiana without power. 


August was a month when the news for the UK economy was mixed. Like many countries around the world the UK is recovering well from the pandemic, but there are worries that staff shortages may hamper the recovery, and that the Bank of England may need to tread a delicate path between stimulating the economy and keeping a lid on inflationary pressures. 

Figures for the second quarter showed that UK GDP had grown by 4.8% between April and June, with the expected strong performance from the services sector. The rise in output leaves the economy 4.4% below where it was in the last quarter of 2019, before the onset of the pandemic. 

International Trade Secretary Liz Truss said that she expects to complete negotiations for the UK to join the Trans-Pacific Partnership by the end of next year, as business confidence jumped to a new four year high. According to the survey by Lloyds Bank employers in the North West are feeling particularly optimistic. 

What does worry employers, however, is the shortage of staff. The Purchasing Managers’ Index for August hit a six month low of 55.3: while that still indicates optimism, it was significantly down on the 59.2 recorded in July. 

Equally worrying was a YouGov poll, which suggested that as many as 354,000 small businesses may not be able to repay the Covid loans they have received from the Government, due to cash flow problems and hold-ups in their supply chain. 

Any reader wanting their glass to be resolutely half-empty should, sadly, look no further than the UK car industry. We have written elsewhere about the impact the global shortage of microchips is having and, with staff still affected by the pingdemic, figures for July showed that just 53,438 cars were built in the UK, down 38% on July last year and the worst performance since 1956. Unsurprisingly, sales of second hand cars soared due to the shortage of new models. 

What about jobs and the high street? In the US, Amazon is, apparently, about to go into the department store business. Here in the UK a story on the BBC stated that the UK has lost 83% of its “main department stores” in the five years since the collapse of the BHS chain. To confirm what may well be the changing face of our town centres in the future, trials of shared banking hubs in two towns where all the bank branches have closed, Cambuslang in South Lanarkshire and Rochford in Essex, are to be extended to April 2023. 

If you would like other evidence of our changing shopping, and eating habits, then Greggs are to open 100 new stores, creating 500 new jobs, and Just Eat says it will create 1,500 new jobs in the North East. 

Despite the boost provided by the Euros, though, the high street continues to struggle, with City AM reporting that footfall in July was 34% down on the same month in 2019, with shoppers seemingly still unwilling to return to town centres. 

Online spending hit £10bn in July, the highest monthly spend in 2021 so far, bringing this year’s online total to £64.9bn – a massive increase of 56% on 2019. 

The UK’s FTSE-100 index of leading shares had a relatively quiet month. It rose just 1% to close the month at 7,120. The pound was down by 1% against the dollar, and ended August trading at $1.3755. 


August is, of course, the month when Europe traditionally goes on holiday, so news in this section of the Bulletin was in slightly short supply. 

Tesla boss Elon Musk announced that he hopes to start making cars at the Gigafactory just outside Berlin in October, “or soon afterwards.” The planned start date has been pushed back after battles with local environmental campaigners and what Musk described as “German bureaucratic delays.” 

Like many central banks the ECB has taken the first steps towards establishing a digital currency, beginning a two year investigation phase that could see a digital Euro by the middle of the decade. The ECB is worried that failing to implement a digital currency will undermine the Eurozone’s monetary autonomy, as foreign technology giants – and other digital currencies – gain ground. 

We report below on measures taken by the South Korean central bank to curb rising prices, and the ECB could soon have similar problems. Rising prices, a spike in Covid infection numbers and a drop in vaccinations dented German consumer confidence as Europe’s biggest economy headed into September. 

Despite this, August was a good month for the German stock market, which rose 2% to close at 15,835. The French stock market was up by just 1% to end the month at 6,680. 


August was another month in the US that got off to a good start thanks to the jobs figures. With the US economy growing by 6.5% in the second quarter, figures for July showed that 943,000 jobs had been created, against a general consensus of 870,000. Job vacancies now stand at a record 10.1m as lay-offs fell to their lowest level in 21 years. 

We have written previously about President Biden’s eye-watering $3.5tn (£2.55tn) budget proposals. In August they were approved by the US Congress and it now looks almost certain that the measures – which include significant packages for health, family support and climate schemes – will go ahead. The President also said that he wants 50% of all car sales to be electric by 2030. 

What won’t be going ahead, at least not until 2022, is a return to the office for staff at Apple. The company, which gave CEO Tim Cook a $750m payday, has said that it will delay calling staff back to the office until January at the earliest, citing fears of a further Covid surge. 

In other company news Amazon, having done so much to impact the traditional high street, is apparently considering opening department stores, with Ohio and California already earmarked as possible sites. 

The month ended with the Federal Reserve hinting that it may start to withdraw post-Covid stimulus measures later this year as the US economy continues to recover. However there are currently no plans to increase interest rates, despite a recent spike in inflation. 

In common with most of the markets we cover, August was a good month in the US. The Dow Jones index rose 1% to close the month at 35,361 while the more broadly based S&P 500 index was up 3% to 4,523. 

Far East 

We have devoted a lot of column inches in previous market commentaries to the pro-democracy movement in Hong Kong, and the subsequent crackdowns by the Chinese authorities. Perhaps unsurprisingly, official figures released in August showed that Hong Kong’s population had shrunk by 87,100 in the year to June. 89,200 Hong Kong residents left the city, although this was partially offset by inflows from mainland China. 

The Beijing authorities continued their crackdown on the tech companies in August. Tencent was the latest company to come under fire, with prosecutors filing legal action over claims its messaging app did not comply with laws protecting minors. With the authorities branding online games “electronic drugs” we can expect this tighter control of the tech sector to continue for some time. 

There was good news in Japan with the economy rebounding more quickly than had been expected, ahead of the Tokyo Olympics. The country’s GDP grew by 1.3% in the second quarter of the year, roughly twice the rate that had been forecast. 

There was less good news for Toyota, which announced plans to slash car production in September from 900,000 vehicles to 540,000 due to the global microchip shortage. At the end of the month the South Korean central bank became the first in the region to raise interest rates (from 0.5% to 0.75%) in a move aimed at curbing household debt and house prices, both of which have risen sharply in recent months. 

On the region’s stock markets China’s Shanghai Composite index had a good month, rising 4% to close August at 3,544. The Japanese stock market was up 3% to 28,090 but the markets in Hong Kong and South Korea were unchanged in percentage terms, finishing at 25,879 and 3,199 respectively. 

Emerging Markets 

There was some interesting company news in the Emerging Markets section. Square, the digital payments platform owned by the co-founder of Twitter, agreed to pay £21bn for the Australian ‘buy now, pay later’ firm Afterpay. The company has more than 16m customers and is used by 100m businesses around the world, and was seen as a key indicator for the no-credit-checks online payments industry that boomed in the pandemic. 

In a rather more conventional industry, Saudi Arabia’s oil giant Aramco saw its profits jump almost four times as the world recovered from the pandemic and demand for oil picked up. The world’s biggest oil producer said net income had risen to $25.5bn (£18.4bn) for the second quarter of the year. 

On the stock markets August was an excellent month for India’s BSE Sensex index, which shot up 9% in the month to close at 57,552. The Russian market was up 4% to 3,919 but it was a disappointing month for the Brazilian stock market, which fell 2% to 118,781. 

And finally…

August was not a vintage month for the ‘And finally’ section of this commentary. The month used to be known as the “silly season:” parliament wasn’t sitting, everyone in Europe was on holiday and journalists scrambled furiously to find stories to fill their column inches. As we covered in the introduction, August 2021 was very far from the “silly season” – but was there anything to lighten the gloom? 

Well, in this continuing summer of shortages McDonald’s ran out of milkshakes thanks to the shortage of lorry drivers. 

Appropriately for August insurer Zurich warned against the increased risk of outdoor fires – up 16% since 2019. Not in the woods though, but in your garage. It is, apparently, the fault of lockdown, as we’ve now all rushed out and bought outdoor pizza ovens, converted our garages into gyms (or bars) and made the old garden shed into a “shoffice.” Perhaps we could point our fingers at former Prime Minister David Cameron, who famously spent £25,000 on what he described as a “shepherd’s hut,” which included a wood-burning stove, sofa bed and sheep’s wool insulation. 

There’ll certainly be no problem for 12-year-old Benyamin Ahmed, from London, if he wants to put a shed/office at the bottom of the garden. He has made approximately £290,000 in his summer holidays, after creating a series of pixelated artworks called Weird Whales and selling non-fungible tokens (NFTs), which allow artwork to be ‘tokenised,’ creating a digital certificate of ownership that can be bought and sold. 

If you have no idea what that last sentence meant then you are not alone: it’s clearly indicative of how quickly the world is changing. But let’s spare a thought for Benyamin’s teacher: any day now they will be struggling to understand an essay, entitled “What I did in my summer holidays…” 


Avoiding the “Scamdemic?”

Thursday, September 2nd, 2021

There has been a rapid rise in phone and online scams over the past sixteen months as criminals seek to take advantage of people’s insecurities regarding Covid. With many processes moving online and onto our mobile phones, comes new opportunities for people to take advantage. This phenomenon has been dubbed the “scamdemic.”

Scams have come a long way from the apocryphal general from a far-away nation who was desperate to share £30m with you. Although some people do fall victim to fraud of that design, the sage advice of grandmothers everywhere;  “if it seems too good to be true then it probably is”  has oftentimes been enough to protect the vast majority of us. 

There is a huge difference, however, between £30m and £2.99. While it is hard to believe that we’ve been chosen to receive a share of a king’s fortune, it is all too easy to believe the text message that appears to come from the Royal Mail. They have been unable to deliver a parcel, there’s £2.99 to pay and all we need to do is click the link to this website. After all, with the rise and rise of online shopping, who isn’t waiting for a parcel? 

According to the credit-reporting agency Credit Karma, more than half the people in the UK have been targeted by text scams since lockdown began. Worryingly, a third of us have fallen for them and, with the average person receiving four scam messages a week, it is easy to wonder if sooner or later we won’t all be a victim. 

Along with the Royal Mail, messages supposedly from PayPal are most likely to have caught us out, but criminals posing as the NHS and HMRC – saying you’ll shortly be in jail if you don’t pay a tax bill immediately – are also high on the list. 

The official term for all this is Bulk Telephony-enabled Fraud (BTF). There are services allowing customers, legitimate and otherwise, to send up to 30,000 messages a minute. Looking on one company’s website, the cost of sending 100,000 messages is just over 2p per message. For the criminals it is purely a numbers game. With so many messages going out, some of them are bound to hit the target. And while the average age for postal scams is 74, the age group most likely to fall victim to text scams are the under-35s. 

It’s unlikely that this problem is going away any time soon. You may ask, well, why doesn’t the Government do something? The problem is that so many of these scams and frauds are based offshore. 

The answer, for now, is in our own hands. Caution and a healthy skepticism can help to protect you. If you’re feeling tired, burnt out or otherwise distracted, ask whether now is the time to be dealing with your messages. Question them when you receive them:  ‘Am I really expecting a parcel?’ ‘My accountant deals with everything, so why are HMRC contacting me?’ Questions like that may not be as straightforward as grandma’s advice, but asking them could save you a lot of money, and an equal amount of heartache. 

Is there any reason to worry about Inflation?

Thursday, September 2nd, 2021

If you’re the sort of person who likes their glass half-empty then there will be plenty of opportunities to find something to worry about at the moment. The recovery from the pandemic, global tensions and all the staff shortages in the news can turn anyone into a pessimist. 

On top of that, some are suggesting that we need to start worrying about a word that has hardly been on anyone’s lips for the last few years – inflation.  There are even fears that the policymakers could “choke off” the economic recovery because of worries about inflation. 

In the recent past, most economies have been worrying not about inflation, but about deflation – which can cause economies to stagnate. Seemingly suddenly, the effects of Covid are causing prices to rise, and we’re hearing more and more about supply chain inflation. Simply put, manufacturers are having to pay more for raw materials because of delays and disruption caused by the pandemic. That cost carries down the line, and inevitably, this will result in higher prices to consumers. 

The Bank of England’s departing chief economist Andy Haldane has warned that inflation is “rising fast” and could reach nearly 4% this year – well above the Bank’s target rate of 2% (which was exceeded in May, when inflation reached 2.1%). 

The Bank’s Monetary Policy Committee is slightly less hawkish, saying that it expects inflation to go above 3% “for a temporary period.” The Resolution Foundation, a well-known think tank, sides with Mr Haldane, arguing that as the economy opens up and consumers start to spend the savings they accumulated during lockdown inflation will be driven up. 

Concerns are also being voiced in Europe – which has suffered from too little inflation for almost the last decade – and in the US, with the Wall Street Journal forcibly making the point that it is supply problems causing the rise in prices, not an increase in consumer demand. 

Whoever is right, inflation is something worth keeping an eye on. Inflation has the potential to impact the value of savings and investments, and interest rates paid on deposit accounts remain at, or very close to, historic lows. If inflation does reach 4% then a deposit account paying less than 1% is going to look remarkably unattractive. 

It’s not all doom and gloom, as with most things, a little planning goes a long way. Regular contact with your financial professionals and regular reviews of portfolios is as important as ever. We will be keeping a close eye on the inflation figures over the coming months and will make sure that our clients are kept fully updated – and, of course, that any necessary action is taken at the appropriate time.