May Market Commentary

Introduction

For several months now, we’ve been noting that while growth remains slow across much of the globe, the worst of the inflation crisis seems to have passed.

The International Monetary Fund believes the world economy has been “remarkably resilient” in recent years, noting that despite “many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops”.

But while cautious optimism is growing, the global economy is by no means exactly where investors, businesses, consumers and policymakers want it to be just yet.

As always, let’s take a closer look at key markets around the world and examine the state of play over the last month.

UK

The UK economy saw slight growth of 0.1% in February, following an uptick of 0.3% in January. This has raised hopes that the country is on its way out of recession, after GDP fell for two consecutive quarters in the second half of 2023. Chancellor of the Exchequer Jeremy Hunt hailed the latest figures, describing them as a “welcome sign that the economy is turning a corner”.

There was further good news for the Chancellor last month, as official data also showed that inflation fell to 3.2% in the year to March, taking it to its lowest level in two-and-a-half years.

However, the number of people out of work has gone up in recent months, with the unemployment rate rising to 4.2% between December and February. This is the highest level for six months. The employment rate, meanwhile, fell to 74.5%, and the number of 16 to 64-year-olds defined as economically inactive increased to 22.2% – or 9.4m people.

As the broader economic situation improves, all eyes are on the Bank of England, as its Monetary Policy Committee has opted to keep interest rates on hold at 5.25% in recent months. However, the Bank of England was recently criticised heavily by the former head of the US central bank Ben Bernanke, who was commissioned to lead a review into how it creates its economic forecasts.

In his report, Mr Bernanke acknowledged that while many other central banks have also made incorrect predictions in recent years, the accuracy of the Bank of England’s forecasts have “deteriorated significantly”, partly because it uses outdated tools that are not fit for purpose in the modern world. Mr Bernanke has put forward a series of recommendations and Governor Andrew Bailey has said he will make sure they are implemented.

Slight improvements in key economic indicators are also failing to have a notable impact on the trading environment for many UK businesses. According to the British Chambers of Commerce’s latest quarterly outlook, 56% of firms expect turnover to increase over the next year, which is unchanged from its previous report. Similarly, the proportion of firms expecting an increase in profits barely changed, rising from 47% at the end of 2023 to 48% in the first quarter of 2024.

And worryingly, 46% of businesses polled said they expect to raise prices over the coming year. This could be partly linked to the introduction of new post-Brexit UK border controls which came into force at the end of April. According to estimates from insurance firm Allianz Trade, the new checks could add 10% to import costs over the first year and cost British businesses £2bn.

It was a mixed picture in the retail sector in particular. According to the British Retail Consortium and KPMG, the value of sales rose by 3.5% in March year-on-year, with sales figures for the month being boosted partly by an early Easter.

Supermarket giant Sainsbury’s has performed especially well in recent months, reporting that underlying pre-tax profits have risen by 1.6% in the last year to £701m. This was higher than the amount the company had been forecasting.

By contrast, the Office for National Statistics has reported that rising prices have led to shoppers spending less at department stores, as they saw a 3.7% fall in sales volumes during March. In addition, high street fashion retailer Ted Baker has closed 11 stores and is to close four more in the coming weeks after falling into administration.

April also saw Premier Inn owner Whitbread announce that it is to cut 1,500 jobs. The company is planning to reduce its number of branded restaurants, which include Beefeater and Brewers Fayre, and expand its hotel operations.

In the banking sector, the Coventry Building Society has agreed a potential £780m takeover of The Co-operative Bank, in a deal that would see it become the country’s seventh largest lender. Meanwhile, Lloyds Banking Group reported that pre-tax profits fell to £1.6bn in the first quarter of 2024, down from £2.3bn a year earlier, partly due to growing competition among mortgage lenders.

Furthermore, HSBC’s Group Chief Executive Noel Quinn announced that he is retiring after almost five years in the role. His announcement coincided with confirmation that HSBC experienced a 1.8% drop in profit for the first three months of 2024 year-on-year. Mr Quinn will remain in the role until a replacement has been named.

Elsewhere, energy giant Shell is reportedly leaving London and instead listing in New York, as it believes US investors feel “more positive” about fossil fuels than those in the UK. This would represent a major blow to London’s stock market, as Shell is currently the biggest listed company in Britain, in terms of its market value.

In the tech sector, the march of artificial intelligence (AI) continues at pace, with Microsoft opening a new London office focused on research and development in the AI space. Mustafa Suleyman, Chief Executive of Microsoft AI, said the company plans to “make a significant, long-term investment in the region as we begin hiring the best AI scientists and engineers into this new AI hub”.

However, the UK’s Competition and Markets Authority has warned that big tech’s dominance of the AI market is a “real concern”. Sarah Cardell, Chief Executive of the watchdog, said: “The essential challenge we face is how to harness this immensely exciting technology for the benefit of all, while safeguarding against potential exploitation of market power and unintended consequences.”

The pound ended April down 0.29% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 8,159 points, up 2.60% on March.

Europe

Following a period of stagnation for the eurozone economy, there is growing optimism that the situation is starting to improve. A survey of professional forecasters by the European Central Bank (ECB) found that respondents expect the eurozone to see growth of 0.5% in 2024. This will be followed by an uptick of 1.4% in 2025 and 1.4% in 2026. The specialists polled are also confident that inflation will continue to decline, estimating a rate of 2.4% in 2024 before it falls to 2% in 2025 and 2026 – in line with the ECB’s target.

Meanwhile, the ECB opted to keep interest rates on hold at a record high of 4.5%, a move which had been widely expected by analysts. “Inflation has continued to fall, led by lower food and goods price inflation,” the ECB said. “Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.”

However, the organisation said domestic price pressures are “strong” and are “keeping services price inflation high”. The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner,” the ECB added.

Germany has been one notable cause for concern in Europe over the last few months, but it seems that the situation there is finally starting to get better. The German government has revised its economic growth forecast for 2024 slightly from 0.2% to 0.3%, which Economy Minister Robert Habeck said is a response to “”signs of slight cyclical improvement”.

Germany’s return to growth has also helped private sector activity in the euro area soar to its highest level in nearly a year. The latest S&P Global Purchasing Managers’ Index rated activity at 51.4 in April. Any figure above 50 indicates growth and Germany exceeded this number for the first time since June last year. This was a better figure than analysts had been expecting.

Germany was also rated as one of the most attractive places in the world to do business in PwC’s latest Private Business Attractiveness Index. Despite sluggish growth and high inflation over the last year, the country rose from fourth place to third in the rankings, thanks to factors including its good technology and infrastructure, and a favourable ecosystem for start-ups.

France is another key market where businesses are becoming more confident about its economic prospects. In a poll of 8,500 businesses by the Bank of France, respondents anticipated growth of about 0.2% in the first quarter of the year. However, the level of France’s public debt remains an issue, despite credit rating agencies Moody’s and Fitch both deciding to leave France’s ratings unchanged last month.

French President Emmanuel Macron has sought to drive growth by simplifying and cutting red tape that affects businesses. A bill designed to ease bureaucratic burdens on French companies was unveiled in April by Finance Minister Bruno Le Maire. According to government research, nearly one in three small business owners spend more than eight hours a week on administrative tasks, while four in ten spend more than four hours a week managing admin.

In a statement, the government said: “We need to simplify our economy to win the confidence of entrepreneurs and encourage them to create wealth on our soil.”

One sector that has seen a mixed performance in recent months has been the automotive sector. Volvo saw a record number of vehicle sales in March, with the number going up by a quarter year-on-year to 78,970. This was fuelled partly by the growing popularity of its plug-in hybrid and electric models.

By contrast, Volkswagen saw a 24% slump in sales of its all-electric vehicles in Europe during the first three months of 2024 year-on-year. At the same time, it recorded a 91% increase in sales in China.

April was a big political month for Europe, with Simon Harris being elected as Taoiseach by members of the Dáil in Ireland. The 37-year-old is the youngest person to lead the Republic of Ireland, following the resignation of Leo Varadkar in March.

In Spain, meanwhile, embattled Prime Minister Pedro Sánchez has vowed to stay on, amid corruption claims relating to his wife. A court has opened an initial inquiry into his wife’s affairs, but Mr Sánchez has said he is going to stay on following “expressions of solidarity from all sections of society”.

On the financial markets, Germany’s DAX index fell by 2.78% in April to end the month at 17,977 points. Meanwhile, the French CAC 40 index fell by 2.55% to end at 7,996 points.

US

The first quarter of the year saw a slowdown in economic growth in the US. According to the latest official data, GDP growth slowed from 3.4% between October and December 2023 to 1.6% between January and March 2024.

While many analysts had expected to see growth decelerate in the first quarter, this was a bigger slump than had been anticipated. At the same time, the rate of inflation rose from 1.8% in Q4 2023 to 3.4% in Q1 2024.

This has led to intense speculation over what decisions the US Federal Reserve will take on interest rates in the coming months.

Olu Sonola, Head of US Economic Research at credit rating agency Fitch, said: “If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.” The key US interest rate is currently between 5.25% to 5.5% – the highest level in more than two decades.

Investment bank JPMorgan is already bracing itself for US interest rates going up, with head of the institution Jamie Dimon suggesting they could go as high as 8%. Raphael Bostic, the President of the Atlanta Federal Reserve and a member of the US Fed, has meanwhile insisted that interest rates must be kept at a “restrictive level”. Speaking to BBC News, he suggested that the Fed should “not be in a hurry” on interest rate cuts and said they might only ease “at the end of 2024”, as inflation is only falling “very, very slowly”.

Despite these less than ideal economic conditions, the jobs boom in the US continued, with employers adding more than 300,000 jobs in March. This was the biggest monthly gain in almost a year and was higher than many analysts had predicted.

Against this mixed backdrop, confidence among owners of smaller companies is waning, as the latest National Federation of Independent Business (NFIB) small business optimism index saw a third consecutive monthly decline. Many business owners cited inflation as the biggest problem right now, along with higher input and labour costs.

Bill Dunkelberg, Chief Economist at NFIB, said: “Business owners continue to manage numerous economic headwinds. Inflation has once again been reported as the top business problem on Main Street and the labour market has only eased slightly.”

In the fashion sector, sportswear giant Adidas has confirmed it expects to make profits of £598m this year, after exiting its deal with Kanye West. The company chose to end the collaboration with the rapper and fashion designer after he made several antisemitic comments on social media. Adidas, which makes popular items including Gazelle and Samba shoes, said it had a better than expected first quarter of 2024, and has therefore revised its profit estimates upwards.

Meanwhile, the US Federal Trade Commission (FTC) is seeking to block fashion accessory giant Tapestry’s takeover of Capri. The competition watchdog believes the proposed £6.9bn deal will “eliminate direct head-to-head competition between Tapestry’s and Capri’s brands”. However, Tapestry has argued that the FTC “fundamentally misunderstands both the marketplace and the way in which consumers shop”.

Many will remember the incident earlier this year when a section of fuselage fell from an Alaska Airlines 737 Max 9 plane. United Airlines subsequently carried out inspections of all its Boeing 737 Max 9s and identified bolts in need of “additional tightening” across this aircraft type.

United Airlines has since reported a £161m hit to its earnings in the first quarter of the year, which it says is down to being forced to ground its Boeing 737 Max 9 fleet for three weeks after the incident. The airline believes that had this not occurred, it would have reported a profit between January and March.

Elsewhere in the aviation sector, sustainable fuel producer LanzaJet has confirmed that it plans to build a second plant in the US. The company already operates the world’s first commercial scale ethanol to sustainable aviation fuel plant in Soperton, Georgia. Chief Executive Jimmy Samartzis said it has “doubled down” on building in the US because of the tax credits in the Inflation Reduction Act and the “overall support system that the US government has put in place”.

April was a big month in the tech industry, with Taiwan Semiconductor Manufacturing Company (TSMC) agreeing to build a third factory in Arizona. The US government has committed $6.6bn in subsidies and $5bn in possible loans to support the expansion in an effort to drive domestic semiconductor production.

Meanwhile, Apple’s decision to abandon plans to create a self-driving car have led to the tech giant cutting 614 jobs. Paolo Pescatore, an industry analyst from PP Foresight, said this is notable as Apple is “the last of the big tech giants to make job cuts”. However, he said it has not been driven by the need to make efficiencies. “It feels more like a shift of strategic focus into other new emerging areas like AI,” he said.

Last month also saw President Joe Biden sign into law a bill that requires ByteDance, the parent company of TikTok, to sell the app in less than a year or be banned in the US. ByteDance has insisted it has no intention of selling the business, amid concerns that TikTok could share user data with the Chinese government, and plans to challenge the law, which it believes is “unconstitutional”.

2024 has so far been a good year for streaming service Netflix, which added 9.3m customers in the first quarter of the year. This took its overall number of subscribers to nearly 270m and helped quarterly profits hit £1.85bn. The uptick comes after Netflix began a crackdown on password sharing.

April also saw the 75th anniversary of Nato, which was marked with a special ceremony. Speaking at the event, Secretary-General Jens Stoltenberg hailed the collaboration between Europe and the US, saying “we are stronger and safer together”.

On the financial markets, the Dow Jones fell by 4.35% to end the month at 38,075, while the more broadly-based S&P 500 index fell by 3.00% to end at 5,096.

Far East

Despite the ongoing crisis in China’s property sector, the economy continued to perform strongly, seeing growth of 5.3% in the first quarter of 2024. This was well ahead of many analysts’ predictions. However, there were signs that consumer confidence is waning, as official figures showed first quarter retail sales growth fell to 3.1%.

Meanwhile, real estate developer Shimao Group, which defaulted on offshore bonds two years ago, has now been hit with a winding up petition, after failing to repay loans worth £159.7m. Elsewhere, beleaguered property developer Country Garden delayed the publication of its annual financial results, arguing that it needed more time to gather information as it restructured its debts. This led to the business suspending trade in its shares on the Hong Kong Stock Exchange.

In the tech sector, Chinese car giant BYD has reported a 47% fall in profits in the first three months of the year, partly as a result of slowing demand for electric vehicles. The company sold a little over 300,000 battery-only cars in the first quarter of 2024, down from 526,000 in the final quarter of 2023.

At Xiaomi, buyers of its new electric vehicle – the SU7 Max – have been told they may have to wait 27 weeks for their model to be delivered. The company received nearly 89,000 pre-orders within the first 24 hours of the car being on sale.

The company could face an uphill struggle selling its new vehicle in the US, as President Biden is under pressure to ban imports of electric cars made in China. Senator Sherrod Brown, the Chair of the Senate Banking Committee, said: “Chinese electric vehicles are an existential threat to the American auto industry. We cannot allow China to bring its government-backed cheating to the American auto industry.”

Despite frosty diplomatic relations between the US and China in recent months, their respective governments are still seeking areas of cooperation. President Biden spoke with his Chinese counterpart Xi Jinping on the phone and discussed issues such as climate change and drugs, although they disagreed on the issue of Taiwan, and sanctions imposed by the US on Chinese-owned companies.

“If the United States insists on suppressing China’s high-tech development and depriving China of its legitimate right to development, we will not sit idly by,” Mr Xi said. President Biden added: “I look forward to responsibly managing our relationship in the weeks and months ahead.”

Europe is another market that has experienced difficulties dealing with China. The European Union Chamber of Commerce in China has warned that “draconian regulations” have made it risky for foreign businesses to invest in China in recent years and called for the country to do more to address growing concerns.

“The number and severity of risks companies find themselves having to navigate has grown exponentially in recent years,” said Jens Eskelund, President of the European Chamber in China. The report added that “at a time when the global business environment is becoming increasingly politicised, companies are having to make some very tough decisions about how, or in some cases if, they can continue to engage with the Chinese market”.

In Japan, the yen sunk to a 34-year low against the US dollar last month, before rebounding to healthier levels. After the yen fell to 160.17 per dollar, rumours started swirling that authorities in Japan may need to step in to prop up the currency.

This is yet another red light on Japan’s economic dashboard, as new data has revealed real wages in Japan fell for the 23rd consecutive month in February.

Meanwhile, the number of corporate bankruptcies with liabilities of 10m yen or more in fiscal 2023 rose by almost a third year-on-year to 9,053.. According to the Tokyo Shoko Research, this is the first time it has exceeded the 9,000 mark in nine years.

The majority of bankruptcies were seen among small and medium-sized businesses, as they had to raise prices in order to keep up with rising costs across the board, while many firms also struggled as a result of labour shortages. The construction sector in particular had a difficult period, as bankruptcies in this industry rose by almost 40%, while the number of bankruptcies in the service sector went up by more than a third.

Against this backdrop, Nippon Telegraph and Telephone (NTT) and Yomiuri Shimbun Group Holdings have warned about the impact of artificial intelligence and called for tougher rules surrounding the use of the technology. In a joint statement, they warned that while AI could improve labour productivity “to a certain degree”, it could also lead to the collapse of society if left unchecked.

In the retail sector, Japanese retailer Seven & i Holdings confirmed it is considering listing its superstore business “as soon as reasonably practical”. The business is focusing on its flagship 7-Eleven brand after announcing the closure of several of its Ito-Yokado stores, selling off its Sogo & Seibu department store unit and exiting its apparel business.

As the US and China experience difficult relations, the role of Japan on the global stage becomes especially crucial. As a result, Japanese Prime Minister Fumio Kishida met with President Biden during a visit to Washington, where they agreed to strengthen defence cooperation. Mr Biden described the deals agreed during the meeting as “the most significant upgrade of our alliance since it was first established”.

In South Korea, the Democratic Party has won a landslide majority in the general election, winning 192 of 300 seats in the National Assembly along with smaller opposition parties.

One of the country’s biggest global brands – Samsung Electronics – has meanwhile reported a significant increase in profits in the first quarter of 2024. Operating profit rose to $4.8bn between January and March year-on-year, a nearly tenfold increase driven partly by growing demand for AI-based technology.

On the financial markets, Hong Kong’s Hang Seng index rose by 7.39% to end April at 17,763, while Japan’s Nikkei index fell by 4.86% to 38,405.

Emerging markets

India’s impressive economic growth looks set to continue, according to Moody’s Analytics. Forecasts from the organisation suggest that the country’s GDP will go up by 6.1% in 2024, down from 7.7% in 2023.

“Economies in south and south-east Asia will see some of the strongest output gains this year, but their performance is flattered by a delayed post-pandemic rebound. ” Moody’s Analytics said.

One area that is booming is the M&A market, as there were 427 mergers and acquisitions and private equity deals in India during the first quarter of the year. These were collectively worth more than £20bn, according to Grant Thornton, and include the $8.5bn Reliance-Disney merger.

India’s strong economic performance is good news for the government as the country’s general election continues. Votes are taking place in different parts of the country on seven days, and the results will be announced on June 4th.

Prime Minister Narendra Modi is expecting a high-profile visitor after Tesla and X boss Elon Musk announced that he plans to head to the country soon. Although no date for a meeting has yet been confirmed, it is understood that Musk is planning to announce major investment plans in India.

The move comes shortly after import taxes on electric vehicles for global carmakers were cut and the government said it wants to step up domestic production in the next three years.

By contrast, the situation was less than ideal at airline Vistara, which has been forced to scale back its service after widespread staff unavailability led to many flight cancellations and delays. Local media outlets believe the disruption has been caused by pilots walking out in protest against Vistara’s merger with Air India.

In Russia, western nations had sought to stifle its economic growth following its invasion of Ukraine by imposing sanctions. However, the IMF is predicting that Russia’s growth will outpace the likes of the UK, France and Germany this year, with GDP going up by 3.2%. According to the IMF, this is because government spending has remained high and oil exports have held steady over the last two years. However, that is not to say that sanctions are not still having an effect.

Petya Koeva Brooks, Deputy Director at the IMF, said: “To put this in context, if we look into the medium term, we still have growth rates that are significantly below what they were prior to the war. Now we have growth rates in the order of one and a quarter, as opposed to 1.7, which we had previously, which is another way of saying that the Russian economy is still expected to face these headwinds as a result of the war and the associated sanctions.”

Meanwhile, the Center for European Policy Analysis has noted that sanctions are making Russia more dependent on China and leading it to deal more heavily with rogue states. Stephen Blank, Senior Fellow at the Foreign Policy Research Institute, told the think tank that Russia’s defence output is “clearly facing problems given the Kremlin is constantly running to North Korea and Iran for missiles, drones, and even artillery shells, thereby incurring serious IOUs that must be paid to these rogue states in the future.”

Russian media, meanwhile, has reported that its largest winemaker, Kuban Vino, has been nationalised, as one of its founders was recently arrested and had his assets seized. Yury Antipov has been perceived by the Russian government as a security threat and understood to be transferring assets to countries that have opposed its invasion of Ukraine.

Russia’s status as a global pariah was reinforced last month when French President Emmanuel Macron accused Russia of running a disinformation campaign to undermine this summer’s Paris Olympics. He said there was no doubt that Russia was “putting out stories saying that we are unable to do this or that, so (the Games) would be at risk”.

On the financial markets, India’s BSE Sensex index rose by 0.63% to end at 74,482 points. Russia’s MOEX index went up by 4.04% to close at 3,467 points, while Brazil’s Bovespa index fell by 0.89% points to end the month at 126,970 points.

And finally…

The headlines wrote themselves for the residents of the Berkshire village of Midgham, which recently suffered swarms of – you guessed it – midges.

But while observers might find it delightfully ironic and keen to share their Alanis Morisette memes, it’s been no laughing matter for the 350 people who live there, who say they’ve never seen the situation get so bad.

One resident believes the problem has arisen because the weather was relatively mild during winter, so midge hatches are starting earlier than normal.

Sources

20240501_86byakcpr_MarketCommentaryCompliance

Introduction

It’s been a mixed picture across the globe in the last few weeks.

Many of the world’s major economies have continued to see minimal growth in recent months, while the UK and Japan have slipped into recession.

But the US is bucking this trend, as are many emerging markets such as India.

As always, let’s take a closer at what’s going on in key markets worldwide.

UK

The UK was found to have slipped into recession at the back end of last year, as official figures revealed the economy shrank by 0.3% between October and December 2023. This followed a 0.1% contraction between July and September.

Although the UK economy grew by 0.1% throughout 2023 as a whole, this was the weakest annual growth figure since 2009 (excluding 2020, when economic activity was hit by the pandemic).

Rising costs continue to be a drag on the economy, as inflation stayed stuck at 4% in January, the same rate as in the previous month and twice the Bank of England’s target of 2%. Although food prices fell in January for the first time since September 2021, the inflation rate was pushed upwards by rising gas and electricity costs.

The Bank of England had previously hiked interest rates in an effort to tackle inflation. However, the Bank’s Monetary Policy Committee has kept rates on hold at 5.25% for four times in a row. In its most recent meeting, the Committee was split on what course of action to take, with members voting 6-3 in favour of keeping interest rates on hold.

Meanwhile, there have been indications in the last few months that the job market is cooling. Wage growth fell from 6.7% between July and September to 6.2% between October and December – its lowest level in more than a year. Official figures also showed that the number of vacancies fell by 26,000 to 932,000 in the three months to January – the 19th consecutive drop.

There was better news in the retail sector, with new data showing a 3.4% jump in shop sales in January, following a sharp decline in the previous month. In addition, the housing market showed signs of growth, with Halifax reporting that house prices went up by 2.5% in January 2023 year-on-year. This means a typical home in the UK now costs £291,029.

Nevertheless, continuing Houthi attacks in the Red Sea remain a concern for the wider economy, as the British Chambers of Commerce has warned that the disruption could push up prices. More than a third of businesses polled by the organisation said they are already experiencing higher shipping costs and delays of up to four weeks as a result of the conflict.

The inflation crisis in recent years has been driven largely by soaring energy prices, but while costs have fallen in recent years, oil and gas companies have continued to enjoy bumper profits.

BP saw profits of £11bn in 2023 – a strong performance, despite being down on the £21.8bn profit seen in the previous year. Similarly, Shell generated profits of £22.3bn in 2023, down from £31.4bn in 2022.

Meanwhile, British Gas’s parent company Centrica saw its profits fall by 17% to £2.8bn last year. However, British Gas itself saw its profits go up tenfold last year, as they rose from £72m in 2022 to £750m in 2023.

Banking giant Barclays has recently found itself under considerable pressure over its support for the fossil fuel industry. However, the company has now confirmed it will stop providing direct funding for new oil and gas projects, and limit lending to energy businesses that plan to step up fossil fuel production.

This news coincided with the announcement that Barclays is to purchase Tesco’s retail banking operations in a deal worth £600m. Approximately 2,800 members of Tesco’s banking staff will transfer to Barclays as part of the deal.

Elsewhere in the financial services sector, NatWest Group reported a pre-tax profit of £6.2bn in 2023 – its highest annual profit since the financial crisis in 2007. Meanwhile, HSBC has posted profits of £24bn in 2023 – up nearly 80% on the previous year.

In the retail sector, The Body Shop fell into administration during February, and it is now in the process of closing up to half of its 198 UK stores and reducing the size of its head office.

Electronics retailer Currys, meanwhile, is reportedly set to be taken over by Chinese e-commerce group JD.com. In addition, parcel delivery firm Yodel is understood to be close to agreeing a deal with a potential buyer, although administrators are expected to be called if a buyer cannot be found.

The UK’s manufacturing sector received a boost in February with news that Jaguar Land Rover-owner Tata is to invest £4bn in a new electric vehicle battery facility in Somerset. Approximately 4,000 jobs are expected to be created at the site in Bridgwater, along with thousands more in the wider supply chain. Production of electric vehicle batteries is expected to begin in 2026.

The pound ended February down 0.04% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,651.points, up 0.27% on January.

Europe

The European Commission remains confident of growth this year, although it has downgraded its forecasts slightly. Originally, it had predicted growth of 1.3% in the European Union and 1.2% in the eurozone throughout 2024. However, these forecasts have now been revised downwards to 0.9% and 0.8% respectively.

Nevertheless, the Commission is confident that economic activity in the EU will “gradually accelerate again” in 2024, while falling inflation will lead to an increase in real wages and consumer spending. Furthermore, it expects trade with foreign partners to normalise this year, following a “very weak” performance in 2023.

Inflation is predicted to fall from 6.3% in 2023 to 3% in 2024, before falling again to 2.5% in 2025. However, the Commission has warned that ongoing geopolitical tensions, in particular in the Middle East, could create trade disruptions over the coming months, and potentially push up prices.

Germany’s struggling economy is one factor putting the brakes on wider growth across the European Union. In fact, the German Bundesbank has said there is “still no recovery” for the country’s economy, as output is expected to “decline again slightly in the first quarter of 2024”. “With the second consecutive decline in economic output, the German economy would be in a technical recession,” the Bundesbank stated.

Germany’s Economy Minister Robert Habeck has acknowledged that the economy is in “troubled waters”, and the government has revised its growth forecasts for 2024 down from 1.3% to 0.2%. Despite this, Germany has assumed the position of the world’s third-largest economy, after Japan fell into recession, and it now sits behind the United States and China.

France has also downgraded its growth forecasts for 2024 from 1.4% to 1%. Furthermore, the country’s government has confirmed it will cut spending by about €10bn, which Finance Minister Bruno Le Maire believes will allow it to stick to its target of lowering its deficit to 4.4% in 2024.

Mr Le Maire insisted that its growth forecast “remains positive”, but stressed it takes into account factors such as conflicts in Ukraine and the Middle East, the disruption in the Red Sea, and economic slowdowns in Germany and China.

Energy company EDF was one bright spot for the economy in February, as it reported a net profit of €10bn in 2023, up from a €17.9bn loss in 2022. But the war in Ukraine continues to weigh heavy on Europe as a whole.

Last month, EU leaders agreed to provide Ukraine with regular and predictable financial support between now and 2027. This money will help the country pay salaries, pensions and run public services, as well as keep its administration running while Russia’s aggression continues.

Ursula von der Leyen, President of the European Commission, said Europe’s commitment to stand with Ukraine remains “unwavering”. “We all know that Ukraine is fighting for us,” she commented. “So we will support them with the necessary funding and provide them with the much-needed predictability they deserve.”

Meanwhile, the EU has begun a formal investigation into Chinese-owned video platform TikTok, over potential breaches of the Digital Services Act. The investigation will look into whether rules over the safeguarding of children have been broken and whether its algorithms lead to users being exposed to damaging content.

Elsewhere in the tech sector, the Financial Times is reporting that Apple could be set to be fined €500m over alleged anti-competitive practices. An investigation into the tech giant began after music streaming platform Spotify complained to the European Commission that Apple was limiting its communications with customers.

On the financial markets, Germany’s DAX index rose by 4.76% in February to end the month at 17,708 points. Meanwhile, the French CAC 40 index rose by 3.74% to end at 7,943 points.

US

The US economy continues to perform strongly when compared with many other leading economies across the globe. In the final quarter of 2023, gross domestic product went up by 3.3% – well above the expectations of many analysts. This helped the US achieve growth of 2.5% over the year as a whole.

Speaking to BBC News, Ryan Sweet, Chief US Economist at Oxford Economics, said: “The US is holding up much better than other countries. It seems like the engine of the US economy continues to hum along where it’s sputtering in other nations.”

The US’s relatively strong performance has led to investors predicting that interest rates will start to come down in the next few months.

In its most recent meeting, the US Federal Reserve left interest rates on hold at 5.25%-5.5% – a 23-year high. Chairman Jerome Powell has said downplayed expectations of a rate cut in March, but acknowledged that rates are likely to come down this year. In the meantime, members of the Fed are seeking “greater confidence” that inflation will fall.

“It is a highly consequential decision to start the process of dialling back on restrictions,” he said. “We want to get that right.”

Inflation fell from 3.4% in December to 3.1% in January, according to the US Labor Department.

The jobs market has been one notable bright spot in the US economy in recent months, as employers added 353,000 jobs in January and the unemployment rate remained at 3.7%.

Neil Birrell, Chief Investment Officer and Lead Manager of the Premier Miton Diversified Funds at Premier Miton Investors, said the latest employment figures “provided a shock” as they beat expectations “by miles”.

“These numbers show the US economy to be strong and will sway anyone thinking a March rate cut was on the way to look further out,” he commented. “Any thoughts of recession are off the mark as well for now.”

In the business sector, social network Reddit has announced it plans to sell shares to the public, which it believes will drive growth. However, users of the platform have reacted with alarm, with one describing it as “the beginning of the end”.

Meanwhile, chip maker Nvidia has announced record sales, with revenues rising by 265% to £17.4bn in the three months to January 28th year-on-year. Jensen Huang, Chief Executive of Nvidia, said: “Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations.”

As the war in Ukraine rages on, the US has stressed its commitment to supporting the nation, with President Joe Biden saying he is confident a $60bn package of military aid will be approved by Congress.

This followed an appeal from Ukrainian President Volodymyr Zelensky for more weapons, as many members of Congress are unhappy with the amount being spent on repelling the Russian invasion. This is a view shared by many members of the public, as a recent poll by Gallup showed that 41% of Americans believe the US is spending too much to support Ukraine in the war.

Amid the debate over the cost of backing Ukraine, the US is also considering imposing sanctions on Chinese businesses that it believes are helping Russia wage its war.

Democratic Congressman Gerald Connolly, a member of the US House Committee on Foreign Relations, told CNBC that this option is being considered after the European Union proposed a similar approach.

“China has to understand that the same kinds of sanctions which are beginning to really take hold in Russia and are affecting Russian productivity, economic performance and quality of life, can also be applied to China,” he said. “And frankly, China has a lot more to lose than Russia.”

Policymakers in the US are also paying close attention to the threat artificial intelligence may pose throughout this year’s presidential election.

Speaking to the BBC, Deputy Attorney General Lisa Monaco argued that while AI could deliver “profound benefits” to society”, it could be used by “malicious actors” to “sow chaos”, “supercharge” disinformation and incite violence.

“We are going to be seeking stiffer sentences and sentencing enhancements for those that use AI in a malicious way to commit their crime,” she said.

On the financial markets, the Dow Jones rose by 1.97% to end the month at 38,900, while the more broadly-based S&P 500 index went up by 4.95% to end at 5,085.

Far East

Ongoing tensions between China and other leading economies around the world have prompted its Foreign Minister to insist it can’t be excluded from global trade. Speaking at the Munich Security Conference, China’s Foreign Minister Wang Yi argued that the international economy is like “a big ocean that cannot be cut into isolated lakes”.

“More people have come to realise that the absence of cooperation is the biggest risk,” he said. “Those who attempt to shut China out in the name of de-risking will make a historical mistake”.

Mr Wang was speaking after the European Commission confirmed it is seeking to bolster the EU’s economic security by taking steps to limit the influence of China. The Economic Security Package has been proposed in order to give Brussels greater oversight over foreign direct investment in the bloc, as well as investments overseas by European businesses. At the same time, the US has floated the idea of imposing sanctions on Chinese businesses that it believes are helping Russia wage its war.

Meanwhile, new measures have been introduced which require developers working on major government projects to install monitoring equipment. The rules apply to businesses that have received at least £3.3m of government funding as authorities seek to turn its beleaguered property industry around.

Another issue that will be high on the agenda for the Chinese government in the coming months will be stimulating foreign direct investment. Last year, the amount invested in China by overseas businesses rose by the lowest amount in more than three decades. According to the State Administration of Foreign Exchange, China’s direct investment liabilities in its balance of payments stood at $33bn in 2023. This is 82% down on the previous year and the lowest level since 1993.

One area that has performed strongly in recent months is the tourism industry, with official figures showing that domestic tourism spending hit £69.7bn during the Lunar New Year break. This is 47% up on the same period of last year.

In Japan, the economy shrank by 0.4% in the last three months of 2023 year-on-year. This was worse than many economists had expected and came after a 3.3% drop in gross domestic product in the previous quarter, which means that Japan has now fallen into a recession.

The slump in economic output also means that Japan has lost its position as the third-largest economy in the world after being overtaken by Germany.

Despite the gloomy economic figures, global investors are returning to Japan’s main stock index – the Nikkei 225. On February 22nd, the Nikkei 225 rose by 2.19% to end the trading day at 39,098.68. This exceeds the previous record closing high of 38,915.87, which was set on December 29th 1989.

Meanwhile, the Japanese government has reaffirmed its support for Ukraine as the Russian invasion continues, with Prime Minister Fumio Kishida saying his country is committed to Ukraine’s reconstruction.

“The war in Ukraine is still going on at this very moment and the situation is not easy,” he said. “The promotion of economic reconstruction, however, is not only an investment for the future of Ukraine, but also an investment for Japan and the world.”

On the financial markets, Hong Kong’s Hang Seng index rose by 6.63% to end February at 16,511, while Japan’s Nikkei index rose by 8.76% to 39,166.

Emerging Markets

The Indian government has expressed confidence about the prospects for the country’s economy in the long-term. Piyush Goyal, Union Minister of Commerce & Industry, said the government’s aim is to grow the current $3.7tn economy to a $30-35tn economy by 2047, by which time it should be a fully developed nation.

“PM Narendra Modi’s vision to address the issues regarding the welfare of the poor, coupled with good governance over the last decade, has helped India transform from the 11th largest to fifth largest economy in the world and is on track to become the third largest GDP by 2027,” Mr Goyal said.

“India has witnessed the best-performing decade in the last 75 years of Independence, with inflation being halved in the past 12 years that has benefited the economy with interest rates in control.”

Mr Goyal added that India’s foreign currency reserves are now the fourth largest in the world and twice what they were a decade ago.

The minister’s optimism is well-placed as international ratings agency S&P Global has predicted that India’s economy will grow by 6.7% a year on average from 2023-24, with per capita income rising to $4,500 by 2030-31.

This roughly tracks with forecasts from the International Monetary Fund, which said in its latest World Economic Outlook that the Indian economy will see growth of 6.5% in both 2024 and 2025.

India has also been highly rated in the latest annual Global Entrepreneurship Monitor survey, being ranked second in a list of the best places in the world to start a new business – after the United Arab Emirates. Saudi Arabia, Lithuania and Qatar made up the rest of the top five.

The positive forecasts come at a time when India is gearing up for a general election. Last month saw the government present its final budget before voters go to the polls, which contained a heavy focus on infrastructure building, in particular transport projects such as roads and ports.

Despite this overwhelming good news, the latest Henley Passport Index has revealed that India’s passport ranking has slipped from 84th to 85th this year, even though the number of countries Indian passport holders can travel to without a visa has risen from 60 to 62.

Meanwhile, sanction-hit Russia’s economy continues to defy expectations, with President Vladimir Putin saying Russia boasts the fastest-growing economy in Europe. He was speaking after the International Monetary Fund upgraded its growth forecasts for 2024 from 1.1% to 2.6%.

Europe sought to put pressure on Russia following its invasion of Ukraine by placing restrictions on its oil and gas, but the Kremlin has overcome this by selling the bulk of its fuel to India and China instead.

However, the war is continuing to influence key business decisions in Russia. For example, Yandex NV, the Dutch parent company of Russian online giant Yandex, has sold its operation in Russia for £4.2bn. The business, often known as the “Russian Google”, will be in the hands of a consortium of Russian investors if the sale receives regulatory and shareholder approval. Yandex has experienced what it has described as “exceptional challenges” since Russia invaded Ukraine two years ago, including Nasdaq suspending the trading of its shares.

Anton Gorelkin, Deputy Head of the Russian parliament’s committee on information policy, has hailed the move, saying: “This is exactly what we wanted to achieve a few years ago when Yandex was under threat of being taken over by Western IT giants. Yandex is more than a company, it is an asset of the entire Russian society.”

In Brazil, the economy has outperformed many analysts’ expectations in recent months, with figures from the central bank showing economic activity rose by 0.82% in December 2023 month-on-month. This was higher than the 0.75% median estimate from analysts polled by Bloomberg.

On the financial markets, India’s BSE Sensex index rose by 1.19% to end at 72,500 points. Russia’s MOEX index rose by 1.11% to close at 3,249 points, while Brazil’s Bovespa index ended the month up 1.10% at 129,161 points.

And Finally…

Traditionally, children would have expected to find a £1 coin under the pillow after losing a tooth. But in the US, it seems the tooth fairy is becoming increasingly generous, with kids getting more and more lavish gifts.

According to the Wall Street Journal, the national average in the US for a tooth fairy gift has gone up from less than $2 in 2001 to more than $6 in 2023.

In fact, the newspaper found that some children have found $100 bills under their pillows after losing a tooth, while others have even received iPhones, silver jewellery and designer goods.

How times have changed!

Introduction

Sluggish growth and high inflation have stubbornly persisted across much of the globe in recent months, and September was no different.

But some major economies are performing better than others as they grapple with global economic headwinds, and emerging markets in Asia are bucking the prevailing trend by enjoying strong rates of growth.

As always, let’s take a look at the details…

UK

The UK economy shrank by 0.5% in July, according to the Office for National Statistics (ONS). This was worse than many analysts had been predicting, and was driven by factors including ongoing industrial action and poor weather.

However, there was some good news to be found elsewhere, as inflation fell from 6.8% in July to 6.7% in August. This was the third consecutive month in which inflation has come down.

Nevertheless, a new report from the Organisation for Economic Co-operation and Development (OECD) suggests there is no room for complacency, as it warned prices will rise faster in the UK this year than in any other advanced economy.

The OECD predicts that inflation will average at 7.2% in 2023, a higher rate than in the likes of the US, Germany, France, Italy, Japan and Canada.

August’s surprise fall in inflation influenced the Bank of England’s unexpected decision to keep interest rates on hold at 5.2%, following 14 consecutive rate hikes.

Andrew Bailey, Governor of the Bank of England, said there were “increasing signs” that higher rates were harming the UK economy, an observation borne out by recent house price figures.

According to Nationwide, property values in August 2023 were 5.3% lower than they had been 12 months earlier. This was the biggest year-on-year decline since 2009 and was attributed in part to higher borrowing costs.

Weak economic growth was not reflected in the latest wage figures, which revealed total earnings in the three months to July 2023 were 8.5% higher than they had been a year earlier.

Similarly, August saw a surge in retail sales, according to the British Retail Consortium and KPMG, as sales on non-food items rose to their highest level since February.

The retail sector recently took a knock with the collapse of high-street retailer Wilko. However, it has now been confirmed that Poundland owner Pepco Group will take on the leases at up to 71 Wilko stores, with Wilko staff being given priority when applying for jobs at these outlets.

Elsewhere in the retail sector, Mike Ashley’s Frasers Group is reportedly in discussions about selling its Missguided clothing brand to fast fashion company Shein, just a year after purchasing the brand for £20m.

There was a big development in the UK’s manufacturing industry, as German car company BMW confirmed it is to begin production of two new electric Mini cars at its factory in Oxford. About £600m is to be spent on updating its plant in Cowley in order for production to begin in 2026.

September was a turbulent month for the UK’s finance sector, with the state-owned British Business Bank reporting an annual pre-tax loss of more than £147m. This, it said, was because a “challenging economic environment” led to the valuation of businesses it has invested in falling.

Meanwhile, the ongoing controversy over the closure of former UKIP leader Nigel Farage’s Coutts account rumbled on, with the Financial Conduct Authority saying it has not found any evidence that politicians’ bank accounts are being closed because of the views they hold.

The London Stock Exchange was recently dealt a blow when chip designer Arm Holdings opted to list its shares in the US rather than the UK. The company’s market value soared to £48.3bn upon its return to the stock market as investors snapped up shares.

The pound ended August up 0.2% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,648 points, up 2.46% on August.

Ukraine

Ukraine’s President Volodymyr Zelensky addressed the UN General Assembly in New York in September, in which he called on the world to unite behind his country in the face of the ongoing Russian invasion.

He also visited Canada during his latest round of international diplomacy, which comes at a time when discussions of “war fatigue” are growing in many of the nations that have, thus far, backed Ukraine, such as Poland.

In a reflection of its continued solidarity, the US has agreed a £265m military package with Ukraine, although this itself came after a disagreement in Congress about how much money it was willing to spend.

Europe

September saw the European Central Bank raise eurozone interest rates for the tenth time in a row from 3.75% to 4%. The move, which was taken in response to continuing high inflation, takes interest rates to a record high.

Germany continues to struggle in the face of the weak global economy and inflationary pressures, as it slipped into a technical recession in the first quarter of 2023. The OECD believes Germany will be the only G20 economy apart from Argentina to see its economy shrink this year.

Unsurprisingly, the gloomy environment is having an impact on business sentiment, which fell for the fifth month in succession during September, according to the Ifo institute.

Peter Oppenheimer, chief global equity strategist and head of macro research EMEA at Goldman Sachs, believes Germany’s problems are down to a number of factors, such as high energy costs, weak growth in China following the easing of Covid restrictions and continuing challenges in the manufacturing sector.

Speaking to CNBC, he said: “It’s … not a deep recession but it’s obviously been more hit by obvious headwinds.”

The German Bundesbank agrees that Germany’s reliance on China is partly behind its current problems, and said this is one reason why its “business model is in danger”.

In France, supermarket chain Carrefour has taken the unusual step of naming and shaming products where packet contents are getting smaller while prices are going up.

The company is putting stickers on the shelves of offending products, which include Vienetta ice cream and Lipton Ice Tea, to warn customers of “shrinkflation” and letting them know if the packaging is smaller or the contents are lighter.

Carrefour hopes this strategy will give companies an incentive to keep the prices of their products down. Director of Client Communications Stefen Bompais said: “Obviously, the aim in stigmatising these products is to be able to tell manufacturers to rethink their pricing policy.”

September also saw an interesting development as the UK’s opposition leader Sir Keir Starmer met with French President Emmanuel Macron in Paris. The meeting, which was described as “very constructive and positive”, comes as Sir Keir’s Labour Party is riding high in the opinion polls at home and he is aiming to position his party as a government in waiting.

On the financial markets, pharmaceutical giant Novo Nordisk, manufacturer of weight loss drug Wegovy, has become Europe’s most valuable company, achieving a stock market valuation of £339n at the close of trading on Monday 4th September.

On the financial markets, Germany’s DAX index fell by 2.65% in September to end the month at 15,508 points. Meanwhile, the French CAC 40 index fell by 2.35% to end at 7,200 points.

US

Gross domestic product in the US grew by 2.1% in the second quarter of 2023. This was thanks in part to increased consumer spending, as well as an increase in state, local and federal government spending.

Speaking to MSNBC’s Morning Joe programme, Treasury Secretary Janet Yellen said: “We’re investing in America in ways we haven’t seen for decades.”

However, she acknowledged that there is a “disconnect” between how the economy is performing and how the American public feel about how it has been handled by President Joe Biden.

A poll of registered voters by the Wall Street Journal revealed three-fifths of people disapprove of Biden’s handling of the economy, while nearly two-thirds don’t like how he has handled inflation, which rose from 3.2% in July to 3.7% in August.

The Federal Reserve, meanwhile, kept its key interest rate on hold at 5.25% to 5.5%, as it aims to bring inflation under control.

Ms Yellen said it will “take some time” before people feel more positive around the economy and feel the effects of the Biden administration’s legislation and policies.

The jobs market is one bright spot in the US economy right now, with official figures showing that employers added 187,000 jobs in August – the same number as in July. President Biden hailed the figures, saying the US is “now in one of the strongest job-creating periods in our history”.

“Some experts said to get inflation under control, we needed higher unemployment and lower wages, but I’ve never thought that was the problem,” President Biden added.

One factor that has been putting the brakes on economic growth in recent months is industrial action in various sectors, including the automotive industry, where members of United Auto Workers have withdrawn labour.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, believes the immediate impact of the auto workers strike will be “limited”, but said “that will change if the strike broadens and is prolonged”.

Hollywood writers, meanwhile, have ended their strike after almost five months, after the Writers Guild of America reached a tentative agreement with the Alliance of Motion Picture and Television Producers on issues such as pay and the use of artificial intelligence.

While this means writers are free to return to work, many productions will still be unable to resume, as the Screen Actors Guild remains on strike and no deal has yet been struck.

In the tech sector, the ongoing drama surrounding X, formerly known as Twitter, continued, when owner Elon Musk suggested that users may soon be charged each month to use the platform. Meanwhile, Apple’s share valuation took a hit after reports that government workers in China were banned from using iPhones.

On the financial markets, the Dow Jones fell by 2.96% to end the month at 33,821, while the more broadly-based S&P 500 index fell by 4.40% to end at 4,299.

Far East

China’s economic recovery remained sluggish, which was reflected in a fourth consecutive monthly fall in exports. According to official figures, exports in August 2023 were 8.8% down on the previous year, while imports fell by 7.3%.

Nevertheless, a poll of 78 economists by Bloomberg suggested that China will meet its economic growth target of 5% this year.

One major drag in the Chinese economy has been the crisis-hit property market. The problems at Chinese property giant Evergrande continued throughout September, as shares in the company were suspended after its chairman was reportedly placed under police surveillance. This came in the wake of the company filing for bankruptcy protection in the US, after it defaulted on its debts two years ago.

Another major Chinese property developer – Country Garden – saw a surge in its share values after securing an extension to a key debt payment deadline. This came after the company reported a £5.2bn loss for the first half of 2023, which it described as an “unsatisfactory performance”.

Meanwhile, the Chinese government’s crackdown on corruption in the financial sector continued with the imprisonment of Wang Bin, the former chairman of China Life Insurance. Mr Wang was found guilty of taking £35.7m in bribes earlier this year.

In Japan, Prime Minister Fumio Kishida announced that a new economic stimulus package designed to ease the impact of inflation will be put together in October. Mr Kishida has instructed his cabinet to also devise measures that could help to increase wages, although no indication of the possible size and scale of the package has yet been disclosed.

This comes as the Japanese government aims to discourage investors from trying to sell off the yen. Mr Kishisa said: “It’s important for currencies to move stably reflecting fundamentals. Excessive volatility is undesirable.”

There was more positive news for Japan’s space programme, after the country successfully launched a rocket with a lunar lander, in preparation for a planned moon landing in February next year.

India recently became only the fourth country to successfully land a spacecraft on the moon’s surface, after the US, Russia and China, and Japan is bidding to become the fifth.

South Korea, meanwhile, has been stepping up its efforts to increase its global influence, with President Yoon Suk Yeol spending five days in the US engaged in talks on foreign policy. His trip also included a keynote address at the UN General Assembly in New York.

This came as the country continued its bid to host the 2030 World Expo, a global showcase of cultural, commercial and technological accomplishments, in Busan.

On the financial markets, Hong Kong’s Hang Seng index fell by 3.65% to end August at 17,809. Meanwhile, Japan’s Nikkei index slumped by 1.15% to 31,857. China’s Shanghai Composite index fell by 0.81% to 3,110 and the Korea Composite Stock Price Index went down by 1.92% to 2,249.

Emerging Markets

India continued to enjoy strong growth, with official figures showing its economy expanded by 7.8% between April and June 2023 year-on-year. This was up from 6.1% in the previous quarter.

V. Anantha Nageswaran, India’s Chief Economic Adviser, is therefore confident the country is still on course to achieve 6.5% growth this year, saying that “growth prospects appear bright”.

This sense of optimism was bolstered by new estimates from the OECD, which raised its gross projection for the 2023-24 financial year from 6% to 6.3%.

According to the OECD, India’s strong performance is likely to help Asia drive “a disproportionate share of global growth in 2023-24”, despite the “weaker than expected” recovery in China.

Finance Minister Nirmala Sitharaman is similarly confident, telling the Business Standard newspaper that India is likely to achieve its growth target of 10.5% this fiscal year.

Global trade will be a key factor that supports India’s economic growth in the coming growth, and talks over a possible trade deal with the UK have been ongoing in recent months.

India recently hosted the latest G20 summit, during which UK Prime Minister Rishi Sunak confirmed “we’re not there yet” regarding a possible deal.

Brazil is another emerging market that is bucking the wider global trend, with the Central Bank recording stronger than expected growth in 2023. The country’s finance ministry has also raised its GDP growth projection for 2023 from 2.5% to 3.2%.

This was driven partly by a strong performance in the agriculture and service industries, while industrial output also exceeded expectations.

In sanction-hit Russia, efforts to bolster international support amid the ongoing war in Ukraine continued.

Russian Foreign Minister Sergei Lavrov met with Chinese diplomat Wang Yi in Moscow, a move which reinforced the view among critics of China that Beijing indirectly backs the invasion. President Vladimir Putin, meanwhile, met with North Korean leader Kim Jung Un, where they discussed possible military cooperation.

On the financial markets, India’s BSE Sensex index rose by 0.67% to end at 65,828 points. Russia’s MOEX index fell by 2.90% to close at 3,118 points, while Brazil’s Bovespa index ended the month at 116,603 points.

And Finally…

You might have thought aliens had finally landed on earth in recent weeks, but as ever, proof that extraterrestrials are walking among us proved elusive.

Mummified remains discovered in the city of Cusco, Peru were displayed in Mexico recently, but UFO enthusiasts became convinced they had stumbled across the body of an alien lifeform.

However, Mexican doctors disappointed the alien hunters by insisting the two alleged extraterrestrial corpses each belonged to a single skeleton.

But this wasn’t the only would-be close encounter to hit the headlines, as a family in Las Vegas have spoken out about apparently seeing two ten-foot tall aliens in their back garden.

In an interview with Inside Edition, dad Bobby and 16-year-old Angel both presented drawings of the beings they claimed to see. But curiously, the two images didn’t actually look much like each other, so who knows what they actually did or didn’t see…?

Investing is an uncertain pursuit, as you have to carefully navigate an ever-changing financial climate.

Perhaps the only certainty is that the value of your investments will go up as well as down, so it’s really important that you allocate your assets carefully to help you stay on course.

So what key issues should you be considering when you’re making these crucial decisions?

Exposure to risk

If your portfolio is based around only a few asset classes, you could lose large sums of money if any of these experience a downturn.

It’s therefore really important to diversify your portfolio across many different asset classes, so you can limit your exposure to risk in the event of a downturn and preserve your capital even during the most challenging times.

Maximising your returns

You can achieve higher returns if you optimise your portfolio around the best performing options, so you’re able to take advantage of growth in certain markets and move away from weaker alternatives.

Make sure your portfolio matches your goals

It’s important that your investment portfolio reflects your wider financial objectives. Perhaps you want to send your child to private school or university, or maybe you’re looking to buy a second home or save up for retirement.

By thinking about the spread of your assets through this lens, you can build a portfolio that helps you work towards and achieve your specific objectives.

Adapting as circumstances change

Your investment portfolio doesn’t operate in a vacuum. In fact, it can be affected by countless factors way beyond your control, from economic shifts to political upheaval at home and abroad.

With that in mind, it’s really important to be flexible and adjust your portfolio when it’s appropriate to do so.

However, it’s crucial that you don’t panic in the face of market movements, as making impulsive decisions could backfire on you. Think carefully and strategically about adjusting your asset allocation and keep a firm eye on the long-term, and stay informed so you can respond to both opportunities and risks in the right way.

Your age

If you’re five years away from retirement, you might have a different appetite for risk than someone who’s forty years off stopping work.

So if you’re a younger investor, you can probably afford to favour higher-risk, higher-reward assets such as stocks, whereas an older person might prefer safer alternatives.

Creating and managing a lucrative investment portfolio can seem a daunting task, particularly if you’re new to investing.

We’re here to guide you throughout the entire process, so please get in touch with our team of friendly, specialist financial planners.

We’ll be happy to answer any questions you have, so you can get started on this exciting and potentially lucrative journey.

Sources

https://www.lloydsbankinggroup.com/media/press-releases/2023/lloyds-bank-2023/half-of-brits-intimidated-by-investing-with-thirty-eight-per-cent-baffled-by-financial-jargon.html

Introduction

Economic growth remained subdued at best in many major markets throughout May, as high inflation continued to affect households and businesses across the world and hit confidence.

But significantly, some emerging markets such as India have bucked this trend and seen impressive rates of growth.

As always, let’s take a closer look at the details to find out more about what’s been happening over the last month…

UK

The UK saw weak economic growth of just 0.1% in the first quarter of 2023, with output hit by factors including poor weather and industrial action. Although the economy remains smaller than it was pre-pandemic, the Bank of England is confident about its prospects and believes the UK will avoid slipping into recession this year.

The International Monetary Fund also believes the country will not see a recession, and upgraded its growth forecast for 2023 from 0.3% to 0.4% However, it warned that inflation is still “stubbornly high” and that interest rates will need to remain high if it is to come down. According to official figures, the UK inflation rate fell from 10.1% in March to 8.7% in April, which is the first time it has fallen below 10% since last August.

Meanwhile, the number of people on UK employers’ payrolls fell by 136,000 between March and April. This was the first drop since February 2021 – and suggests that the labour market is now feeling the impact of subdued economic growth. By contrast, house prices in the UK rose by 0.5% in April, according to Nationwide, following seven consecutive monthly declines, raising hopes of a slight recovery in the housing market over the coming months.

It was a mixed picture among UK businesses, with bakery chain Greggs reporting a 17% increase in sales year-on-year. By contrast, online fashion retailer Asos saw a 10% drop in sales during the six months to the end of February year-on-year, and posted a loss of more than £87m. BT, meanwhile, announced it was seeking to cut costs by cutting up to 55,000 jobs over the next few years, with many outgoing customer services staff being replaced by artificial intelligence.

Unsurprisingly, oil and gas companies continued to perform strongly, with Shell reporting profits of £7.6bn in the first quarter of 2023, and BP seeing profits of £4bn over the same period. This was despite energy prices coming down slightly in recent months.

The impact of Brexit continued to loom large in the business community, with carmarker Stellantis warning it may have to close factories in the UK if the government doesn’t negotiate a new deal with the EU. The company, which owns Fiat, Citroen, Peugeot and Vauxhall, said that under the current deal, it would face tariffs of 10% on exports to the EU from next year.

Despite ongoing concerns over the effects of Brexit on the economy, there was good news for the UK capital when London came top of Brand Finance’s new City Index, making it the best city brand in the world.

Although London is clearly well regarded around the globe, concerns have been raised about businesses choosing to list in the US rather than the UK. British technology firm Arm, for example, recently filed to list its shares in the US rather than London. In response to these worries, the Financial Conduct Authority (FCA) confirmed plans to revise and simplify listing rules to encourage more companies to list shares on UK stock markets.

The pound ended May down 0.3% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,458 points, down 5.23% on April.

Ukraine

President Volodymyr Zelensky met with leaders in Paris, London, Rome and Berlin in an effort to secure further military support for Ukraine. While they all committed to supplying extra weapons and equipment, they have so far ruled out sending Eurofighter jets to combat Russian forces.

May also saw the UK host the Eurovision Song Contest on Ukraine’s behalf, as the ongoing war meant it was impossible for last year’s winner to stage the competition itself. The event was another significant show of international support for Ukraine, but the hometown of Ukraine’s Eurovision act was struck by Russian missiles shortly before they were due to perform.

Europe

The European Commission revised its growth forecasts for EU members upwards, predicting that its 27 nations will see average growth of 1% in 2023 and 1.7% in 2024. Eurozone members, meanwhile, are expected to see growth of 1.1% this year and 1.6% next year.

However, these average figures hide a number of issues in individual member states. For example, the German economy shrank by 0.3% in the first quarter of the year, which sent the country into recession following a 0.5% contraction in the previous three months.

The French government announced a significant new measure to tackle climate change during May, banning domestic short-haul flights if train alternatives that take under two-and-a-half hours are available.

Meanwhile, the European Union has sought to prepare for climate change-related forest fires by doubling its supply of aircraft that can tackle blazes. Janez Lenarčič, the EU’s Commissioner for Crisis Management, said 2023 has already been “much drier than average” in places such as Spain, Portugal and the south of France, and that its 28 aircraft will be ready to act in what is expected to be a “busy, busy summer”.

In the technology sector, the clash between policymakers and artificial intelligence developers took a new turn, when OpenAI boss Sam Altman backed down on a threat to leave the European Union. Mr Altman had said he would leave the trading bloc if it imposed tough regulations on the AI market. According to the European Commission, agreement among member states on laws governing AI is likely to be reached this year, but it could be up to two years until these rules come into effect.

EU Internal Market Commissioner Thierry Breton has announced that social media giant Twitter has pulled out of its voluntary code to tackle disinformation, although the company itself has made no official comment.

On the financial markets, Germany’s DAX index fell by 1.61% in May to end the month at 15,665 points. Meanwhile, the French CAC 40 index fell by 5.24% to end at 7,099 points.

US

The US government has faced the very real prospect of running out of money and borrowing to keep funding essential operations. As a result, President Joe Biden has been working to reach an agreement on raising the debt ceiling, which has now been approved by the House of Representatives.

This comes amid a period of sluggish economic growth in the US, as GDP grew by just 1.3% between January and March 2023, when compared with the same period of the previous year. Inflation, meanwhile, dropped from 5% in the year to March to 4.9% in the year to April. That means inflation has slowed for ten months in succession.

The US Federal Reserve has been seeking to control inflation by raising interest rates, and at the start of May, its key interest rate was increased by 0.25%, taking the benchmark rate to between 5% and 5.25%. Despite the rising cost of borrowing, employers continued to create new jobs, with 253,000 jobs being added in April. The unemployment rate dropped to 3.4%.

Ongoing woes in the banking sector continued throughout May, with shares in PacWest and Western Alliance falling after recent banking failures led to a loss of confidence in sections of the market. The US Treasury Department has sought to ease concerns by insisting that the banking system has “substantial liquidity” and “deposit flows are stable”.

Elsewhere in the banking industry, First Republic was bought by JP Morgan Chase for $10.6bn after it was closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation was appointed as receiver. It has subsequently been reported that about 1,000 jobs at First Republic will be cut following the takeover. Jobs are also expected to be lost in Silicon Valley Bank’s US Operations following its takeover by First Citizens.

In the technology sector, Apple saw a 3% drop in revenue during the first three months of 2023, when compared with the same quarter of 2022. That means sales at the tech giant have fallen for two consecutive quarters.

There was better news for the travel industry, with the White House confirming that international air travellers no longer have to show proof that they’ve received a Covid-19 vaccination.

On the financial markets, the Dow Jones fell by 3.89% to end the month at 32,771, while the more broadly-based S&P 500 index went up by 0.09% to end at 4,173.

Far East

China’s economic recovery following the end of Covid restrictions took a blow during May when its official manufacturing purchasing managers’ index fell to 48.8 in May, down from 49.2 in April. Any figure below 50 indicates contraction and means factory activity is now at its lowest level in five months.

However, China’s automotive industry was a relative bright spot for the economy, with official figures showing the number of car exports in the first quarter of 2023 was 58% higher than it had been a year earlier. 1.07m vehicles were exported from China between January and March, compared with 954,185 from Japan.

China also saw an upturn in domestic tourism, with people making 274m trips within the country during its five-day May Day holiday period. That’s nearly a fifth up on the number recorded in 2019.

The tourism industry received a further boost in May with the first commercial flight of the C919 plane. The aircraft, China’s first domestically-manufactured large passenger jet, was built by the Commercial Aviation Corporation of China and flew from Shanghai to Beijing on its maiden flight.

It was a different story at Chinese fast fashion brand Shein, as Republican and Democrat lawmakers in the US have called for the company to be investigated over claims that some of its clothes are made by Uyghur forced labour. Shein has insisted it has “zero tolerance” for forced labour, but the US lawmakers insist they have heard “credible allegations” against the firm.

Growing tensions between China and the US were also laid bare when China’s cyberspace regulator said that products made by US memory chip maker Micron Technology pose a serious national security risk. Products made by Micron will now be banned from major infrastructure projects being carried out in China.

Tesla chief executive Elon Musk visited China at the end of May for the first time in more than three years, and met with Foreign Minister Qin Gang and Industry Minister Jin Zhuanglong. China’s Foreign Ministry has confirmed that Mr Musk is seeking to expand Tesla’s presence in the country, which is the company’s biggest market outside the US.

China is not alone in seeing a slump in factory output, as industrial production in Japan fell by 0.4% in April, when compared with the previous month. This was a disappointing figure, as analysts had expected to see a rise in output of about 1.4%.

All eyes were on Japan during May when it hosted the G7 summit, where world leaders met to discuss issues such as further sanctions against Russia. The summit also saw Japan sign a renewed science and technology deal with the UK, which will see it deepen their relationship in this area.

The scale of attacks by North Korean hackers and ransomware users was highlighted in a new report by Elliptic, commissioned by Nikkei, which revealed that Asian nations account for nearly two-thirds of losses in these attacks. Japan alone accounted for 30% of the world total of over $2.3bn in 2022, seeing losses of $721m throughout the year.

In South Korea, President Yoon Suk Yeol had meetings with several international dignitaries in his diary. Canadian Prime Minister Justin Trudeau met with him to discuss boosting security ties and how to manage relations amid growing tensions between the US and China.

The President also met with European Council President Charles Michen and European Commission President Ursula von der Leyen during the 10th EU-Republic of Korea summit in Seoul. This marked the 60th anniversary of EU-South Korea diplomatic relations, where they discussed issues such trade, sustainable development and supporting Ukraine.

On the financial markets, Hong Kong’s Hang Seng index fell by 8.35% to end May at 18,234. Meanwhile, Japan’s Nikkei index rose by 7.04% to 30,887. China’s Shanghai Composite index fell by 3.57% to 3,204 and the Korea Composite Stock Price Index rose 4.66% to 2,357.

Emerging Markets

India’s economy accelerated to 6.1% in the first quarter of 2023, which means the country is now one of the fastest growing economies in the world. This is up from 4.4% in the previous quarter. Nevertheless, the Reserve Bank of India has suggested this impressive rate of growth might be hard to sustain, due to “slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility”.

May also saw Indian budget airline Go First file for bankruptcy. This was despite domestic air traffic in the country hitting a record high in the previous month, with 456,082 passengers flying on April 30th. Writing on Twitter, Aviation Minister Jyotiraditya Scindia said: “The skyrocketing domestic passenger traffic post-Covid is a reflection of India’s high growth.” Domestic airlines carried more than 37.5m passengers in the first quarter of 2023 – up 51.7% on the same period of 2022.

India’s burgeoning status as a technology hotspot hit the brakes slightly, as the International Data Corporation (IDC) reported that although 31m smartphones were shipped in India between January and March this year, this was 16% lower than in the same period of 2022. This was also the lowest first-quarter figure for four years, and was blamed partly on uncertainty over the economic outlook.

In sanction-hit Russia, the economy contracted by almost 2% in the first quarter of 2023 year-on-year. Match Group, owner of dating apps Hinge and Tinder, is the latest company to pull out of Russia in response to its invasion of Ukraine, and is aiming to have completely withdrawn from this market by the end of June.

Meanwhile, concerns about Russia’s revenues from oil and gas have been raised by Finance Minister Anton Siluanov, but this was downplayed by President Vladimir Putin, who attributed lower revenues to “voluntary cuts” in oil production, and said the situation was “absolutely stable”.

In Brazil, President Luiz Inacio Lula da Silva met with his counterparts from Colombia, Bolivia, Argentina and Chile at the South American Summit at Itamaraty Palace in Brasilia. The visit of Venezuelan President Nicolas Maduro was particularly notable, as he had been banned by former Brazilian President Jair Bolsonaro in 2019. “What’s important about Maduro coming here is that it’s the beginning of Maduro’s return,” President Lula said.

Meanwhile, the Brazilian government has declared a six-month animal health emergency following outbreaks of avian flu in Rio de Janeiro and Espírito Santo.

On the financial markets, India’s BSE Sensex index rose by 2.47% to end at 62,622 points. Russia’s MOEX index rose by 3.05% to close at 2,715 points, while Brazil’s Bovespa index ended the month at 108,564 points.

And Finally…

We’re used to seeing leaves and crisp packets flying around during strong winds, but during one particularly bad storm in Turkey, a sofa was blown off the balcony of a block of flats. The furniture was caught on camera flying through the sky for several seconds before crashing to the ground.

Another neighbourhood that saw disruption recently was Framlingham in Suffolk, where locals complained about the noise being made by a cockerel called Rory. Owner Julie Smith, who has been ordered to keep the noise down, is angry that “someone obviously has a problem with him”, as she claims that her neighbours have told her they can’t hear Rory if they shut their windows.

In other animal news, police in Colorado recently pulled over a speeding driver, but rather than accept his punishment, the motorist tried to switch places with…his dog! Needless to say, officers weren’t fooled and he was detained for driving under the influence of alcohol or drugs.