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October Market Commentary

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October Market Commentary

Wednesday, October 6th, 2021

You will no doubt be aware that September was a month when shortages dominated the headlines. As we will see below, it was by no means a problem confined to the UK: sadly it does not look like a problem that will quickly disappear. We have, for example, written previously about the shortage of semiconductor chips which has hit car production around the world. In September the boss of Daimler suggested that this could last through 2022 and “into 2023.” 

September was also a month when global diplomacy, and its possible implications for trade, reared its head. Chinese jets flew into Taiwan’s air defence zone and North Korea launched a test cruise missile into the Sea of Japan. Most significantly, the US, UK and Australia signed the AUKUS deal, allowing Australia to receive nuclear powered submarines. 

Predictably China criticised the deal as a “threat to stability” in South East Asia, and France was said to be outraged after losing the contract to build the submarines. Any Australia/EU trade deal will now not happen until next year at the earliest.  Despite talks between Boris Johnson and Joe Biden, a UK/US trade deal also looks unlikely at the moment, with the US President saying, “We’re going to have to work that through…” 

September saw the oil price rise above $80 for the first time in three years and, perhaps unsurprisingly, it wasn’t a good month for world stock markets, with the majority of those we cover in the Bulletin falling in the month. 

As Joe Biden might say, let’s “work through” all the details…

UK 

When he was Chancellor of the Exchequer, George Osborne seemed to preface every Budget speech by reminding us that the UK was only a small part of the world economy. Whatever action he took, events elsewhere could easily render it irrelevant. September, and perhaps the months running up to Christmas, may well be a period when Osborne’s Law holds true. Supply-chain problems have caused shortages, whether that is on the supermarket shelves or at the petrol stations. As City AM reported, the shortages also “clamped down on UK manufacturing growth.”

Where you put the blame for the shortages may well depend on your political point of view but, as we report below, supply-chain issues are not a problem confined to the UK, and the power shortages in China may make the position worse, and push up prices, around the world. 

Away from the headlines about shortages there was the usual mixture of good and bad news. In the middle of the month it was reported that the UK economy grew at the fastest rate of any of the G20 countries in the second quarter, with growth of 4.8% between April and June. By the end of the month this figure had been revised upwards to 5.5%. The ratings agency Fitch has predicted that the UK economy will grow at 6.6% this year which is well ahead of the forecast from the Office for Budget Responsibility. 

The UK has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and September brought the formal start of the talks. The CPTPP is a $9tn (£6.7tn), 11 country trading bloc. Donald Trump famously withdrew the US from the agreement but, as we report below, China has now applied to join it. 

Much of the work on the UK’s application to join the CPTPP was done by Liz Truss when she was International Trade Secretary. In September’s re-shuffle she became Foreign Secretary, with Anne-Marie Trevelyan taking over her previous role. 

The Government was in the news for much more than a reshuffle in September, as it broke two manifesto commitments, increasing national insurance to pay for social care and temporarily suspending the triple lock on pensions. 

The end of September brought the end of the furlough scheme, the Coronavirus Job Retention Scheme to use its full title, which will unquestionably see some workers lose their jobs. The BBC reported that approximately 1m workers were still on the scheme as it ended. 

That said, job vacancies went past the 1m mark in September, and there are plenty of stories of companies, including Amazon, offering inducements as they look to recruit temporary staff for the Christmas period. 

Let us end the UK section where we began it, with the Chancellor of the Exchequer. Rishi Sunak will present his second Budget of the year on October 27th. What was a difficult task in March looks even tougher eight months on, as he tries to keep the recovery going and start to pay the Coronavirus bill. He will also need to keep a lid on inflation, which reached 3.2% in August as food prices rose, and has been forecast to reach 4% by the end of the year. 

For now the Bank of England is saying it does not expect any interest rate rises, to counter inflation, this year. Any rate rises would, of course, push up the cost of servicing the Government’s debt. Borrowing in August was higher than expected at £20.5bn, down on the same month last year but still the second-highest August figure on record. 

The FT-SE100 index of leading shares had a relatively quiet month. Having started September at 7,120 it ended the month down just 34 points at 7,086. The pound was down by 2% against the dollar, closing at $1.3458. 

Europe 

September got off to a positive start in Europe, with Ryanair predicting a rapid rebound in air travel and revealing that it had beaten its forecast numbers for August. 

Wizz Air announced similar figures, with passenger numbers up more than 50% in August to around 3.5m. However, passenger numbers were down 44% for the twelve months to August, illustrating the long shadow the pandemic still casts over the travel industry. 

The main story in Europe, though, was the German General Election, held on September 26th. Having stepped down as leader of the Christian Democrats (CDU) in March 2018 Angela Merkel had made it known that she would not be seeking a fifth term as Chancellor, leaving new leader Armin Laschet as the party’s candidate. 

Opinion polls throughout the campaign did not make good reading for the CDU. The Social Democrats (SPD) topped the poll with 25.7% of the vote and a provisional 206 seats in the Reichstag, with the CDU on 24.1% and 196 seats. With 368 seats needed to form a government there could, in theory, be a CDU/SPD coalition. However, at the time of writing both Laschet and SPD leader Olaf Scholz are claiming that they will be able to form a government and a three way coalition made up of one of the main parties, the Greens (who came third with 14.8% of the vote) and the pro-business Free Democrats (who came fourth) looks much more likely. 

Like other major economies around the world Germany is suffering supply-chain problems and shortages in the wake of the pandemic. What it emphatically does not need is a prolonged period of paralysis while a new Government is formed. 

Germany is also facing worries about inflation and demand for gold coins and gold bars in the country has reached its highest level since 2009. According to the World Gold Council demand for coins and bars in Germany was up by 35% in the first half of the year, compared to a rise of 20% for the rest of the world. 

While Germany was preparing to go to the polls Europe as a whole was reacting to the AUKUS submarine deal, with France predictably outraged. It now looks as though any trade deal between the EU and Australia won’t happen until after the next French elections, due to be held in April next year. 

The EU also unveiled a new strategy for boosting economic, political and defence ties in the Indo-Pacific region in the immediate aftermath of the AUKUS deal. The aim of the strategy is to “strengthen and expand economic relations, help partners fight and adapt to climate change and boost co-operation on healthcare.” Make of those grand ambitions what you will!

There was definitely no grand ambition on Europe’s major stock markets in September. The German DAX index was down 4% to close at 15,261: the French stock market fell back 2% to end the month at 6,520. 

US 

The US, like every major economy, has had its share of good and bad news as it recovers from the pandemic. But is the bad news starting to outweigh the good? 

The month began with disappointing news on employment, with the US economy adding just 235,000 jobs in August, well down on the 1.05m created in July. The unemployment rate did fall, from 5.4% to 5.2% but the jobs figures, combined with a decline in consumer confidence, prompted several banks to cut their forecasts for US GDP growth in the third quarter. Morgan Stanley did not so much cut their forecast as slash it, reducing it to 2.9% from a previous 6.5%. Goldman Sachs cut its forecast from 5.5% to 3.5%. 

The other worry, which it shares with every major economy at the moment, is inflation. Prices rose again in August to take consumer price inflation on a year-on-year basis up to 5.3%. 

There was, though, some good news. The US manufacturing sector strengthened, largely driven by an increase in new orders. The Purchasing Managers’ Index rose from 59.5 in July to 59.9 in August. The housing sector remained strong, with one index measuring US house prices showing a 19.1% annual increase in June 2021. 

The US Federal Reserve was certainly in the glass half full camp, saying in a statement that the US economy was continuing to strengthen, that the jobs market was improving and that “currently high levels of inflation remain transitory.” In the accompanying press conference Jerome Powell, Chairman of the Fed, gave a clear indication that the central bank would start to reduce its economic stimulus measures later this year. 

None of the above, of course, mattered to the good ship Amazon, which continued to sail merrily along. September brought the news that it would need to recruit another 55,000 people, to add to the 1.3m it already employs worldwide. That’s roughly equivalent to the population of Estonia. 

This was in stark contrast to the “old economy,” with GM announcing that it would halt production at most of its US plants in September, as the shortage of semiconductor chips continued to hit carmakers. Ford and Toyota also reduced production during the month. 

The Federal Reserve may have had its glass half full in September, but for Wall Street it was very much half-empty. The Dow Jones index fell 4% to end the month at 33,844 while the more broadly-based S&P 500 index fared slightly worse, dropping 5% to 4,308. 

Far East 

There has been so much news in the Far Eastern section of the Bulletin this month, especially with regard to China, that it is difficult to know where to start. 

Perhaps the most appropriate place is at the end of the month, when Goldman Sachs became the latest bank to cut its growth forecast for China, as the country continues to struggle with energy shortages. Having previously forecast that the Chinese economy would grow by 8.2% this year, the bank is now forecasting growth of 7.8% following estimates that up to 44% of China’s industrial activity has been adversely affected. 

Perhaps even more significantly, the bank is forecasting zero growth for the third quarter, citing a ‘perfect storm’ of increased regulation, tight global energy supply, surging coal prices and a crackdown on carbon. China’s “factory gate inflation” is the highest it has been for 13 years, due to a shortage of raw materials. 

The other major story was Evergrande, the Chinese property company which was ranked the most valuable real estate company in the world in 2018. It now has hundreds of billions of dollars of debt and, according to one source, owes money to 171 domestic banks and 121 other financial firms. 

There are real worries as to whether Evergrande will be able to meet its debt repayments. Will the company be bailed out by the Chinese government? Is it “too big to fail?” We may not have to wait long to find out, by the end of the month Evergrande was selling assets to meet debt repayments and reportedly missing a payment of £35m to foreign bondholders due on the 29th. Angry investors in the company have apparently moved on from simply protesting outside the company’s headquarters to taking senior management hostage. One executive in the south eastern province of Jiangxi was blockaded in his office by 300 protesting investors. They were described by one publication as having gone “full pitchfork.” 

More worryingly, perhaps, bankers UBS estimate that there are ten property developers in China with combined debt nearly three times the size of Evergrande. 

In previous Bulletins this year the words “Chinese authorities” and “crackdown” have frequently appeared in the same sentence. September was no exception as the country’s National Radio and Television Administration trained its sights on “vulgar influencers” as they pursued Xi Jinping’s stated goal of common prosperity. The general clampdown on online games, and the time spent playing them, also continued. 

At the end of the month China’s central bank made the move it seemed to have been edging towards for some time, when it announced that all transactions of crypto-currencies, such as Bitcoin, would be illegal. Such transactions, it said, “seriously endanger the safety of the people’s assets.”

We have commented above on the UK’s continuing application to join the CPTPP. The day after the UK, the US and Australia announced the AUKUS pact China duly applied to join the CPTPP, a move which many analysts saw as a bid to leave the US increasingly isolated on the world stage.  

September proved to be a very mixed month for the region’s stock markets. The Japanese Nikkei Dow index was up 5% to end the month at 29,453. China’s Shanghai Composite index managed a gain of just 1% to 3,568 while the South Korean market went in the opposite direction, falling 4% to 3,069. Hong Kong’s Hang Seng index seemed to bear the brunt of the worries about Evergrande and the possible slowdown in China, falling 5% in the month to close at 24,576. 

Emerging Markets 

September was an unusually busy month for news in the Emerging Markets section of the Bulletin. El Salvador, not a country we have previously covered, became the first country in the world to accept the cryptocurrency Bitcoin as legal tender. 

As we reported above, China has now made cryptocurrency transactions illegal as it trials a digital yuan. However it may well be that smaller currencies opt to go down the Bitcoin route, with Ukraine expected to make it legal tender by 2023. 

Despite a second wave of the pandemic the Indian economy rebounded sharply, with figures for the three months to June showing growth of 20.1%, compared to a drop of 24% in the same period last year. 

Elections were held in Russia, with United Russia, the party that supports Vladimir Putin, winning 315 out of 450 seats in the Duma. No surprise there, but what was striking was the very low turnout in the election, with many constituencies having turnout well below 40%. 

The month ended with the BBC reporting that Afghanistan’s banking system was close to collapse, with international aid to the country having dried up since the Taliban took power. 

On the stock markets, September was a good month for both the Russian and Indian markets. Russia’s stock exchange rose 5% to close at 4,104 while the market in India was up 3% to 59,126. The Brazilian stock market went sharply in the opposite direction, ending the month down 7% at 110,979. 

And finally…

You may well remember the Ever Given, the giant container ship which blocked the Suez Canal for six days earlier this year and was subsequently blamed for all manner of shortages including garden gnomes. 

Now comes news of a fully autonomous ship, based in Japan, which is about to face its first real test as it sets out on a 236 mile journey. Ultimately, Japan hopes that half of its ships will be piloting themselves. Clients may remember the fully autonomous security guard robot which drowned itself in a fountain. The hotel which replaced those irritating, unreliable staff with robot waiters, and had to hastily backtrack. Fully autonomous ships roaming the world’s oceans, what could possibly go wrong? 

September was unquestionably robot month. Amazon launched Astro, the home robot. Or, as it has already been dubbed, “Alexa with wheels. Staying on the subject, there is good news for any reader whose football team may not have made the best start to the current season. Founded by a group of robotics scientists, the Robot Soccer World Cup AKA the RoboCup, has set itself an ambitious target. The aim is that by the middle of the century a team of robot footballers will beat the most recent winners of the real World Cup. 

The robots use artificial intelligence to make decisions such as whether to pass or shoot. There you are, the term “midfield dynamo” could take on a whole new meaning…

Lockdown last year brought us any number of tales of people doing what can only politely be described as unusual activities. An Italian gentleman ran a full marathon round his dining room table, a chap in Cardiff was stopped by the police as he wandered round a local beauty spot in medieval armour and carrying a toy sword. Now comes news from Indonesia, where Agus Widanarko is apparently bringing joy to those isolating in Central Java province by dressing as “Super-isoman”. Donning a Spider-Man costume, with an extra mask for safety, Agus has been providing entertainment to children who have been in self-isolation. Truly an effort to marvel at. 

4 Key takeaways from the Spring Statement

Wednesday, March 20th, 2019

The Spring Statement is an opportunity to hear the latest updates on the state of the UK economy and what to expect of its growth over the coming months and years. With most people setting their focus firmly on the amorphous hokey-cokey of Brexit negotiations, it’s something of a breath of fresh air to take a moment to look at concrete upcoming strategies and measurable realities.

With that in mind, here are 4 key points you can hang your hat on while what’s on or off the table continues to be debated in the background.

1) Taxes, Taxes, Taxes

Employment is up and that means more tax receipts for the Government’s coffers. 2018 ended with 440,000 more people in work than 12 months prior, with 60,000 fewer people relying solely on zero-hours contracts. Government borrowing fell in January to the lowest we’ve seen since 2001 and £21bn of income and corporation tax was raised, leaving a healthy monthly surplus of £14.9bn.

2) Even more taxes

The Making Tax Digital scheme is set to come into effect on April 1st 2019. Looking at it broadly, it’s an effort to modernise the tax system. The first step comes in the form of mandatory digital record keeping for VAT, for those businesses which find themselves above the VAT threshold. It’s undoubtedly a strong example of intent for the future.

3) You guessed it… taxes

No Safe Havens is an initiative that was introduced in 2013 to crack down on those who seek to evade their tax through hiding their income and assets overseas, and those who advise them on how to do so. The Spring Statement brought with it a declaration of further commitment to this cause by investing in the latest technology and enforcing tough new penalties while, at the same time, making sure it’s easy for law abiding taxpayers to handle their tax correctly.

4) Growth is good

Okay, it’s not all about taxes. The Office for National Statistics’ January figures demonstrate the UK Economy has grown to the tune of 0.5%, blowing the economists’ predictions of 0.2% out of the water with the biggest monthly increase we’ve seen since 2016. Construction saw notable growth of 2.8%, with the service sector up 0.3% and manufacturing up 0.8%. We saw inflation fall to 1.8% in January and the general consensus is that we can expect to see UK growth of between 1.3% and 1.4% this year.

That’s your breath of fresh air over. You can get back to talking about Brexit now. If you have any questions surrounding any of these topics or the Spring Statement in general, please feel free to get in touch with us directly.

IR35, the biggest Budget revenue raiser

Thursday, November 8th, 2018

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

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

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

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

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

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

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

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

July market commentary

Wednesday, July 18th, 2018

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

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

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

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

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

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

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

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

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

But let us try and find some good news…

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

May market commentary

Thursday, May 3rd, 2018

Introduction
It looked for a long time that the main headline for this commentary would be the opening salvos in a trade war between China and the USA. The International Monetary Fund published a bullish report on world trade, saying that global growth will hit a 7 year high of 3.9% this year – giving a stark warning at the same time that trade risked being ‘torn apart’ by a protracted trade war.

But then came the news of North Korean leader Kim Jong-un’s, historic visit to South Korea and his meeting with President Moon Jae-in. There followed a bromance which would have been impossible just a few months ago, and a commitment to rid the Korean peninsula of nuclear weapons. The meeting would have been unthinkable at the beginning of the year when North Korea was boasting of being able to reach the US mainland with its rockets: now Pyongyang says it will invite US observers to witness the shutdown of its nuclear site in May.

By the end of the month even the China/US threats and counter-threats seemed to have receded a little and most of the major stock markets which we cover made up losses suffered early in the month on fears of a trade war. There was, however, one significant fly in the ointment as the price of oil continued to climb: Brent crude went past $72 a barrel in light of the continuing troubles in Syria and the instability in the region.

UK
Let’s start the UK section with some really good news: 2017 was a record year for the UK wine industry, as figures showed 64% more bottles of UK-made wine reached the market than in 2016. The Wine and Spirit Association said the industry was reaping the benefits of ‘huge’ investment over the last decade.

…But if April brought good news for wine, it brought yet more bad news for retail as the wet Easter proved a washout for the UK high street, following the bad weather which kept shoppers at home in March. Carpetright announced the closure of 92 stores – and you have to think that the merger of Asda and Sainsbury’s, announced at the end of the month, will ultimately lead to store closures and job losses. There have been plenty of warm words from both sides but it is hard to see that the merger can be good for jobs or, in the long term, for consumers as the number of big supermarket groups in the UK reduces from four to three.

We have commented above on the IMF forecast for world trade: that same forecast included a prediction that UK growth this year would be 0.1% higher than originally thought at 1.6%. HSBC also predicted that UK exports would rise this year by their fastest rate since 2011.

Other numbers for the UK made mixed reading: a slowdown in construction and the effects of the ‘Beast from the East’ meant that UK growth in the first quarter of the year was just 0.1% – the lowest figure since 2012. Mortgage lending was also down, as figures for March showed it falling 2.3% to £20.5bn.

There were some positive figures: wages finally climbed above inflation as the year long squeeze on pay showed signs of ending earlier than expected, and unemployment fell to 4.2% – its lowest level since 1975. And London was voted the world’s top financial centre, finally climbing above New York for the first time in five years.

The vote was presumably taken without reference to TSB: April ended with TSB taking the phrase ‘banking chaos’ to a whole new level. The bank upgraded its systems – inevitably in order ‘to improve customer service’ – and ended up seemingly giving customers access to anyone’s account except their own.

Fortunately, there was no such chaos for the FT-SE 100 index of leading shares. After some lacklustre months, it rose 6% in April to end the month at 7,509. As so often happens, the pound went in the opposite direction, falling 2% to end the month trading at $1.3754.

Brexit
Throughout April, the debate raged about whether the UK should stay in some sort of customs union with the EU after March next year. Doing so would avoid a ‘hard border’ between Northern Ireland and Eire – but would severely limit the UK’s ability to do trade deals with countries outside the EU.

It would, sadly, be possible to write an entire 2,500-word commentary on the various models of customs union – or partnerships – that are currently being discussed: we will attempt to do it in less than 200.

The first option – favoured by the Brexit supporters and known in Whitehall as ‘Max Fac’ (short for Maximum Facilitation) would see the UK and EU agree to minimise all checks, using smart technology and building on best practice from around the world (for example, the USA and Canada do not have a customs union). This means that there would be a border between the UK and the EU, but it would be as light touch as possible.

The second option is a hybrid model – the Customs Partnership – which rests on the EU recognising UK customs checks as equivalent to their own, so that goods entering the EU at say, Rotterdam, could in theory travel on to the EU without further checks.

This appears to be Theresa May’s favoured option, but has been described by hard right Tory Jacob Rees-Mogg, as ‘cretinous’ while the International Trade Secretary Liam Fox, has come out firmly against any form of customs union. With eleven months to go until March 2019, the debate will undoubtedly rumble on: but we have reached the 200 word limit, we promised. Don’t worry, the politicians will undoubtedly still be discussing it next month…

Europe
April was a busy month for French President Emmanuel Macron, who made a high-profile visit to Washington and, earlier in the month, made a speech in Strasbourg calling for ever-closer union between the EU’s member states and, as the EU faced up to the loss of the UK’s contribution, more tax and revenue raising powers for the EU.

Many commentators perceived this as Macron’s bid for the de facto leadership of the EU, with German Chancellor Angela Merkel widely seen to be in a weaker position following her eventual coalition agreement with the Social Democrats. German dominance no longer a safe bet, ran a headline in City AM.

Away from the corridors of power and in the banking halls, the European Central Bank announced it would leave interest rates unchanged, despite the pace of growth in the Eurozone starting to slow. There was bad news from Deutsche Bank, which announced ‘significant’ job cuts as it scaled back its corporate and investment banking operations. Christian Sewing, the new CEO of Germany’s biggest lender, said that the cuts were ‘painful but unavoidable’ as the bank reported a sharp drop in first quarter corporate and investment banking revenues.

Fortunately, there was no pain on the German stock market, as the DAX climbed 4% in the month to end April at 12,612. The French stock market had an even better month as it rose 7% to 5,520 – and there was even good news from Greece, with the Athens stock market up 10% to 858.

US
All the attention at the beginning of the month focused on the war of words – and potential trade war – between the US and China. It ended with the historic meeting in Korea and South Korean President Moon Jae-in suggesting that Donald Trump be awarded the Nobel Peace Prize.

Away from that potential plaudit, the US President had some troubling numbers to contend with. The US trade deficit widened in February to $57.6bn (£42bn) and there are suggestions that the US could have a trade deficit of a trillion dollars a year by 2020.

Jobs growth slowed in March, with just 103,000 jobs created in the month, and there were disappointing figures for the first quarter, as annualised growth slowed to 2.3%. Those figures are unlikely to be helped by suggestions that the US could get as many as four interest rate rises this year, as the Federal Reserve pursues a more aggressive line in a bid to keep inflation under control.

April was, however, a good month for both Alphabet (the parent company of Google) and Amazon as their sales and profits surged ahead. But it was a lot less fun for Facebook’s Mark Zuckerberg: he endured an uncomfortable month as he apologised for his company’s massive data breach at a Congressional hearing. Not a good month for Wells Fargo either, as the bank was fined a record $1bn (£730m) for failing to resolve investigations into car insurance and mortgage lending breaches.

What did the Dow Jones index make of it all? Virtually nothing. Having opened the month at 24,103, the Dow closed April up just 60 points at 24,163.

Far East
The news from the Korean border rather overshadowed China’s news in the month – specifically that the country had seen its economy grow at 6.8% in the first quarter, ahead of the government’s growth target for the year of ‘around 6.5%’ – although obviously, this figure would be under pressure from a prolonged trade war with the US.

In Chinese company news, Didi Chuxing, China’s equivalent of Uber, the world’s largest ride-hailing app and currently reckoned to be worth nearly £40bn, announced modest plans for world-wide expansion.

The Economist Intelligence Unit published an interesting article, listing the countries which were most ready for the robotics revolution: South Korea headed the list, with Japan and Singapore joining it in the top four. (The UK was in 8th place, just ahead of the USA.)

Obviously, the news of the détente between North and South Korea had a positive influence on the region’s stock markets. Only China – perhaps still worrying about a possible trade war – saw its stock market fall during the month, with the Shanghai Composite down 3% at 3,082. Hong Kong went in the opposite direction, up 2% to 30,808 and the South Korean market rose 3% to 2,515. Japan, free of the worry of North Korean missiles flying over its islands, saw the Nikkei Dow rise 5% to close April at 22,468.

Emerging Markets
US sanctions hit Russian shares said a BBC headline in the middle of the month, reporting that sanctions imposed by the US had hit the shares of companies controlled by Russian oligarchs, ‘as the Russian stock market tumbled in the wake of the sanctions.’ This followed the diplomatic crisis sparked by the poisoning of former spy Sergei Skripal and his daughter, and President Trump’s threats of tariffs on aluminium and steel.

Well, sanctions or no sanctions the Russian stock market had recovered by the end of month, closing April up 2% at 2,307. There was an even better performance from the Indian stock market, up 7% in April to end the month at 35,160 – and Brazil completed our Emerging Markets hat-trick as the market there rose 1% to close at 86,115.

And finally…
April was a good month for the ‘And finally’ section of the commentary – but we start with something that is probably best not read while you are eating breakfast.

NASA, America’s space agency has been looking for a material that can be transported into space and used for the spare parts that are inevitably needed on a long space mission. The idea is that the parts would be made using a 3D printer: but what material to use? The rocket scientists at NASA have decided that, well… human waste would be ideal. Transported into space and put to use: that’s an idea that Major Tom never discussed with ground control…

There had been widespread rumours of an exodus of London’s leading bankers after Brexit. Apparently, that is not now going to happen. A report in Politico said that the bankers’ wives – and one husband – had been to inspect Frankfurt, the rumoured new banking capital of Europe, and found it to be ‘dark, grey and dull’. So there you are: David Davis and Michel Barnier can huff and puff all they like – in the end it looks like bankers’ wives will decide the shape of Brexit.

Sadly, one wife who had rather less influence was the wife of Tanzanian gambler, Amani Stanley. So sure was Amani that his beloved Manchester City would clinch the Premier League title by beating Manchester United at home that he bet his wife on the result. All was looking good when City were leading 2-0 at half-time. Unfortunately, United stormed back in the second half to win 3-2 and Amani lost his wife for a week to his United supporting friend Shilla Tony. As yet there is no news on her husband’s gambling from Mrs Stanley…

How to approach student loans with your kids

Wednesday, April 11th, 2018

University is always going to be at least partially a financial decision both for prospective students and their parents, or whoever they rely on financially. Calculating the rising total bill for tuition fees and cost of living for a degree course can make university seem like an impossibility for some. But it’s essential that all involved carry out proper research into the cost of higher education before making a decision about the future, rather than letting sensationalist reporting in the media surrounding student debt scare them away.

Firstly, it’s crucial to remember that the cost of higher education never needs to be paid all in one go. Once a university place has been secured, tuition fees are paid automatically by the Student Loans Company for those who have taken out a student loan, and loans are also available for living costs.

Importantly, no student will need to start repaying their loan until the April after they graduate at the very earliest. Even then, only those students earning above £25,000 per year will be required to start making payments (the threshold has been increased from £21,000 to £25,000 in April 2018). Under the system, a graduate pays 9% of everything they earn annually over the £25,000 threshold. Someone earning £26,000 would therefore pay 9% of £1,000, or £90 over a whole year.

If a graduate’s earnings drop below the threshold or they find themselves out of work, the payments stop automatically. As student loan repayments are collected through your salary, you don’t have to worry about making them on time or debt collectors chasing you.

It’s important to remember that this isn’t something to feel ashamed or worried about: the system has been designed to ensure only those who can afford to pay back their student debt after graduating will be required to do so. If you still have outstanding student debt thirty years after graduating, this will be cleared no matter how much you still owe. As such, it’s expected that most graduates won’t repay their entire loan plus interest within thirty years.

A student loan is not the same as a bank loan, and as such doesn’t appear on your credit file. The amount you owe in student loan repayments will therefore not impact upon your ability to apply for other types of loans or credit cards when you graduate. The only time it may potentially come into play is in mortgage applications, where your take-home income is considered in assessing whether you can afford repayments on your home.

These are just some of the points which warrant consideration before making a decision about going to university. Each prospective student and the people they rely on financially will have individual circumstances to consider. The most important thing to remember therefore is to do your own research and make an informed decision about the financial facts and myths surrounding higher education.

Spring Statement – March 2018 Overview

Wednesday, March 21st, 2018

Introduction

In 2016 Britain voted to leave the EU and new Prime Minister Theresa May invited George Osborne to consider an alternative career and replaced him as Chancellor with Philip Hammond, the MP for Runnymede and Weybridge nicknamed ‘Spreadsheet Phil’ by his Commons colleagues.

Five months later, Hammond stood up to deliver his first Autumn Statement and immediately announced it would be his last. “No other major economy,” he said, “has two financial statements in a year.” Thus the Budget was moved to Autumn and, from 2018, the Spring Budget would become the Spring Statement.

And here we are… Eighteen months on from Mr. Hammond’s first announcement, the UK continues along its road towards Brexit and the Chancellor – who seems secure in his job for now – continues to be a man who will “choose our course and stick to it” (or words to that effect).

The Economic Background

Expectations for the speech were not high among journalists and commentators: ‘Don’t expect Hammond to pull a rabbit – or even a March hare – out of the hat’ was the general consensus.

Nevertheless, the Chancellor would have some good news on public finances to deliver in his speech. Borrowing has reduced significantly and was expected to be around £45bn for this year as opposed to the forecast £50bn, with day-to-day public spending finally in surplus for the first time since 2002/2003. However, the UK’s total national debt currently stands at £1.8 trillion, equal to 86% of the country’s annual economic output.

Would this mean the Chancellor announcing an end to austerity? After all, some local councils are claiming that they are effectively bankrupt and the NHS has seen spending increase by just 1.1% in real terms since 2010. But the Chancellor will not be changing course: speaking on the BBC’s Andrew Marr Show on the Sunday before the Statement, he said: “This (austerity) isn’t about some ideological issue. It’s about making sure we have the capacity to respond to any future shock in the economy.”

This view was backed up by Liz Truss, Chief Secretary to the Treasury, who wrote in The Times, “There will be no red box, no rabbits out of the hat and no tax changes. Our message is simple. Let’s keep on course, keep our economy strong and focus on the opportunities ahead of us. We want to keep taxes low so that the weekly budget goes further.”

With the OECD predicting that the UK economy would grow at the slowest pace of all the G20 countries this year, what could we look forward to in the speech? The rumours suggested there would be more details of taxing the tech giants such as Facebook and Google, consultations on taxing and discouraging the sale of single-use plastics and even the possibility of a tax on chewing gum to pay for cleaning up the mess it makes.

The Speech

As is now traditional, the Chancellor began his speech with a joke at the expense of Labour Shadow Chancellor, John McDonnell. “I won’t be producing a red book, Mr. Speaker,” he said. “But I can’t speak for the Shadow Chancellor,” – a reference to McDonnell brandishing ‘The Thoughts of Chairman Mao’ in the Commons chamber.

Even more traditionally, he spent the next few minutes outlining what had gone right as the Government, “made solid progress building an economy that works for everyone.” But eventually, the chamber ‘rapport’ was put aside and Philip Hammond turned to what he does best: reading out lists of figures…

The Numbers

The Chancellor began with the forecast growth figures for the UK economy, which the Office for Budget Responsibility (OBR) has increased for this year, now forecasting growth of 1.5% in 2018. That will be followed by growth of 1.3% in 2019 and 2020, then 1.4% in 2021 and 1.5% in 2022. These forecasts are up in the short term and down in the long term, presumably reflecting some uncertainty over the impact of Brexit.

Employment and Inflation

The Chancellor pointed out that the number in work had increased by 3 million since 2010, the equivalent of 1,000 people finding work every day. The unemployment rate is close to a 40 year low and the OBR is predicting that there will be 500,000 more people in work by 2022.

Equally importantly, it is expected that inflation will start to fall over the next 12 months, “closer to the target rate of 2%” which should see most working people start to enjoy real growth in their wages again.

Public Finances

“Borrowing has fallen by three-quarters since 2010,” said the Chancellor and – as we noted in the introduction – this means that the amount the Government spends on servicing the national debt has reduced significantly. The UK now borrows £1 in every £18 it spends, compared to £1 in every £4 in 2010. The Chancellor also confirmed that debt as a percentage of Gross Domestic Product will also fall, from 85.6% of GDP in 2017/2018 to 78.3% in 2021/22.

He confirmed that borrowing would be £45.2bn for this year, £4.7bn lower than had been forecast in the Autumn Budget. “And,” he announced proudly, “£108bn lower than in 2010.” Borrowing would be 2.2% of GDP this year and would gradually fall to 0.9% in 2022/2023.

Progress since the Autumn Budget of 2017

Despite it only being five months since the Autumn Budget, the Chancellor was keen to summarise a list of achievements. There was nothing new in this section: rather it was a re-statement of the commitments made in the Autumn and a confirmation – at least in the Chancellor’s eyes – that the country is on track.

The Autumn Budget contained a pledge to increase the supply of homes to 300,000 a year by the mid-2020s, via an investment programme of £44bn over 5 years and the Chancellor confirmed that the Government was working with 44 areas throughout the UK to bring this about. In addition, London will receive a further £1.67bn to start building 27,000 affordable homes by 2021/22 and the Housing Growth Partnership, which provides additional finance for small builders, was more than doubled to £220 million.

To loud cheers from the backbenches behind him, Philip Hammond announced that an estimated 60,000 first time buyers had already benefited from the abolition of stamp duty announced in the Autumn Budget.

To some muted jeers, though – quite possibly from some of his own Eurosceptic backbenchers – the Chancellor said that “substantial progress” had been made in the Brexit talks. He looked forward to “another step forward” at the forthcoming EU summit and confirmed that the Treasury would be publishing information about how the initial £1.5bn of the £3bn set aside for Brexit planning would be allocated to Government departments.

Wages and Taxation

In the lead up to the speech, the Chancellor had worked hard to set expectations that there would be little by way of new tax or policy announcements. As it turned out, the Chancellor did mention some previously announced changes, but he was also true to his word when it came to brand new announcements or significant new initiatives.

What The National Living Wage will rise to £7.83 per hour
When From April 2018
Comment All the other minimum rates will rise in line with the increase in the headline rate, with the youth rate seeing the largest increase for 10 years. In total, around 2 million people are expected to benefit from the increases.
What The tax free personal allowance will increase to £11,850
When From April 2018
Comment This will mean that a typical taxpayer will be paying £1,075 less income tax than in 2010/11. The threshold for higher rate tax will also increase to £46,350 from April (or £43,431 in Scotland).

Business

What The next revaluation of business rates will be brought forward
When Moved forward to 2021, instead of next being revisited in 2022
Comment This will be welcomed by businesses, especially those in retail and catering/hospitality which have been hit hard by the high level of business rates. Revaluations will also now take place three yearly rather than five yearly, meaning that there will now be reviews in 2021 and 2024.

Other business measures

In the Autumn Budget, £1.7bn was announced for measures to improve transport in English cities. Half of this was given to cities with mayors, but bids are now being invited from other cities across the UK for the remaining £840m.

Hand in hand with this went the Government’s commitment to improve digital connectivity across the UK. In total, £190m was allocated to this and we will now see the first wave of funding, with £95m allocated to 13 areas across the UK.

There will also be £50m made available to help employers prepare for the new T-levels, the technical qualification the Government is introducing.

The Chancellor also discussed three consultations that may impact businesses, though the detail behind these was missing from the summary published on the government website.

Productivity

A long-standing topic in the Chancellor’s speeches (and his predecessor’s), productivity made it on to the formal agenda again, with the Chancellor promising “to understand how best we can help the UK’s least productive businesses to learn from, and catch up with, the most productive.”

Late payments

The Chancellor also promised, if not action, then at least the promise of action, on what he called “the continuing scourge of late payments”. Small businesses everywhere will doubtless be very keen to see what the Chancellor comes up with on this topic.

“Human capital”

A slightly odd choice of phrase, but the Chancellor surmised that the government and business currently know more about measuring the value of investing in infrastructure than they do about measuring investments in “human capital”. For this reason, he said, he had “asked the ONS to work with us on developing a more sophisticated measure.”

There was then a further consultation announced via the treasury website on the same day as the Chancellor’s speech, though Mr Hammond did not refer to it directly.

Enterprise Investment Scheme

Aimed at the current range of venture capital schemes (including the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts), this consultation is ultimately aimed at attracting more investment into innovative firms. The consultation is considering “additional incentives to attract investment” but, as with many other announcements from the Spring Statement, we will have to wait to see whether that promise comes to fruition.

What might we see in the future?

The pundits had speculated that the Chancellor would only speak for 20 minutes or so. 20 minutes came and went and MPs who had planned on a decent lunch started looking nervously at their watches. But in some senses, this last section of the speech was the most interesting, as it gave a clear indication of the measures we might see in future Budgets, depending on the outcome of various consultations.

The plastic tax

This has been widely trailed – it is also referred to as the ‘litter levy’ – and the Government will use the tax system to ‘encourage the responsible use of plastic throughout the supply chain.’ This will include items such as coffee cups, plastic cutlery and foam takeaway trays. The Chancellor did not mention chewing gum specifically but the rumours are that it will also be included in the measures. “Some of the money raised from any tax changes,” for which you can read, ‘there will be tax changes’ – will be used to encourage the creation of newer, greener products, while £20m will also be given to businesses and universities to fund research into ways of reducing the impact of plastic on the environment.

Taxing the tech giants

What would a Budget speech – or a Spring Statement – be without an attack on the tech giants who are “not paying their fair share of tax?” The Government will once again be considering ways in which to tighten up on Facebook, Amazon, Google and friends: looking 10 years down the line it may also need to consider the impact of the Chinese tech giants such as Alibaba, Tencent and JD.com.

White van man goes green?

At the moment there is tax relief given for agricultural diesel but the Chancellor said he would “call for evidence” on whether this is contributing to air pollution. And in the days when every delivery from Amazon arrives in a white van, he announced that he would consult on tax cuts for low-emissions vans.

Giving people the skills they need

Clearly, improving skills benefits not just the individuals concerned but the wider UK economy, and the Chancellor gave a clear hint that he will offer tax relief to both employees and the self-employed who fund their own training.

Goodbye to cash?

Far more of us now use digital payments rather than cash – although the UK has some way to go to catch up with some countries (such as Sweden) where cash has all but disappeared. The Chancellor is ‘seeking views’ on encouraging business who want to use digital payments. And why wouldn’t he? Digital payments can be tracked and taxed and would represent a way to strike back at the black economy.

Conclusion

The Chancellor’s final point may have read as something of a warning to those up and down the country who currently deal heavily in cash (think hairdressers and window cleaners), but he was determined to finish on a high for all, repeating a message that his party has long promoted. He was keeping the UK on course to be, “an outward-looking, free-trading nation, confident that its best days lie ahead.”

The detail of exactly how he plans to make that happen, though, may well have to wait until the Autumn Budget, where many of the Chancellor’s plans will be made clearer.
For now, however, the new, slimmed down Spring Statement acted as a useful summary of our current economic outlook and an interesting trailer of both things to come and plans being made.

May Market Commentary

Wednesday, May 3rd, 2017

Introduction
It’s difficult to know where to begin this month. In France? Where we now know the French Presidential election will be a straight fight between Emmanuel Macron and Marine le Pen. In the UK? Where, having declared several times that she saw no need for a General Election, Theresa May summoned everyone to the polls on 8th June. Or in North Korea? Where the simmering tensions between Kim Jong-un and Donald Trump threaten peace and stability in the region.

Politically, the world was a volatile place in April – but the world’s major stock markets reacted with studied indifference. The French index was the biggest gainer, up 3% in the expectation of a victory for Macron on 7th May. Two markets – the UK and China were down by 2% – and the rest inched ever-so-slightly upwards.

…Or maybe we should start this commentary in the corridors of Brussels, where the EU was busy setting out its negotiating position for Brexit – negotiations which are not now expected to begin in earnest until after the UK General Election. For good or ill, Brexit is going to dominate the news agenda between now and March 2019, the supposed date when the UK will leave the EU. Clearly we need to report on Brexit in this commentary and – rather than distort the UK or Europe sections – it seems more sensible to introduce a separate ‘Brexit’ section from this month. Naturally we have placed it between the UK and Europe…

UK
As Chancellor Philip Hammond led a trade mission to India there was disappointing economic news to start the month in the UK. Figures for February confirmed a fall in output in both the industrial and construction sectors, down by 0.7% and 1.7% respectively. The pound duly fell back on the weak economic data and the Halifax announced that house prices were growing at their slowest rate for four years.

But all this paled into insignificance when Theresa May changed her mind and called a General Election. She’d spent the previous week walking in Wales, and clearly views Jeremy Corbyn as somewhat less of a challenge than Mount Snowdon. All the indications are that she can expect to be back in Downing Street with an increased majority, allowing her to pursue the Brexit negotiations without needing to worry about the House of Commons.

Back with the economy, cheaper air fares held inflation steady at 2.3% and there was finally some good news as the International Monetary Fund upgraded its forecast for UK growth, lifting it to 2% for the year from the 1.5% it had forecast in January.

Good news too for the UK taxpayer, who has now recouped the £20.3bn used to bail out Lloyds Bank. Could the same eventually happen with RBS, with the troubled bank posting its first quarterly profit – £259m in the first three months of 2017 – for nearly two years?

There was also good news from British car manufacturers, with March being their most productive month for seventeen years, as they produced 170,691 vehicles and exported a car every twenty seconds.

…But sadly, the bad news returned at the end of the month with overall growth slowing to just 0.3% in the first three months of the year, and retail sales falling at their fastest rate since 2010. With online sales continuing to grow, you can unfortunately expect future commentaries to be reporting ‘yet more job losses on the nation’s high street.’

Eventually, the bad news won out with the FT-SE 100 index of leading shares being one of only two major markets to fall in April, dropping by 2% to end the month at 7,204. It was a different story for the pound, however, which ultimately rose by 3% against the dollar to $1.2952.

Brexit
April was the month when Theresa May decided to seek the clear Commons majority she apparently needs for the negotiations – and when Europe set out its position that the divorce must be settled before there are any talks on a future trade deal.

As we noted above, substantive talks will not begin until the result of the General Election is known so – in public at least – the next six weeks are likely to see a lot of sound and fury and little of real significance. You need no more evidence of this than the recent meeting over dinner, which according to the German press, led Jean-Claude Juncker to describe Theresa May as ‘delusional,’ whilst UK Government sources said they simply did not recognise that version of events.

Even after the Election result is known it remains to be seen whether any genuine progress will be made before the summer holidays and the subsequent German elections in September. With twenty-two months to go to the March 2019 deadline, it’s easy to see the negotiations being concluded in one very late night sitting on 28th March 2019…

Europe
The big story in Europe was, of course, the French Presidential Election with Emmanuel Macron (23.9%) and Marine le Pen (21.4%) finishing first and second in the initial poll, and going through the run-off on Sunday 7th May. That is widely expected to see a comfortable victory for Macron, and both stock and currency markets duly breathed a huge sigh of relief. The ‘Macron rally’ added $290bn to the value of world stock markets, and the euro jumped to a five month high against the dollar.

Whoever wins on 7th May is going to face some big problems as they walk into the Elysee Palace. Clearly terrorism and immigration will be high on the list, but so too will be unemployment. While France has a high standard of living and high productivity, it also has a high unemployment rate – around 10% with some 3m people out of work. This is roughly double the rate of neighbours like the Netherlands and Austria, whilst the rate is below 5% in the UK and below 4% in Germany.

There are, however, some encouraging signs for the wider European economy, with the Purchasing Managers’ Index in Germany recently hitting its highest level since May 2011: the indicator for the Eurozone as a whole also stands at a six year high. Consumer confidence also appears to be improving, with indicators such as retail sales and new car registrations all moving in the right direction.

There was even good news on Greek debt as Eurozone finance ministers finally agreed terms with the Athens government, allowing them to ‘unlock’ a delayed bailout programme. For those of you that haven’t been keeping up, Greece is now part of the way through its third Eurozone bailout programme, with this one worth up to €86bn.

Both of Europe’s major stock markets were up in April: the German DAX index rose by just 1% to 12,418 while as we noted above, the French index – anticipating a Macron victory – rose 3% to finish April at 5,267. And we must put in a word for Greece – the Athens stock market was up 7% in April, reaching the giddy heights of 712 as it breathed a sigh of relief at the latest bailout.

US
Having announced a separate section for Brexit, it is tempting to do the same for ‘the pronouncements of the President.’ Donald Trump campaigned on drastic tax reform to stimulate the US economy, simplifying the tax system for individuals and slashing US corporation tax from its current level of 35% to just 15%. In April, Treasury Secretary Steve Mnuchin appeared to pave the way for this reduction, calling it “the biggest tax cut ever.”

Meanwhile, his boss was promising a “haircut” for US banking laws – at the moment, it seems that this may involve the separation of retail and investment banking – plus a renegotiation of the North American Free Trade Agreement.

Let’s turn to some concrete news: the US economy added only 98,000 jobs in March – far fewer than economists expected and only half the number for January and February. Despite this, though, the unemployment rate fell to 4.5%, the lowest since May 2007. Perhaps the low number of jobs created was a function of the US economy growing by only 0.7% in the first quarter of the year – the slowest rate of growth since the first quarter of 2014 and leaving the President some way to go to meet his election pledge of raising growth to 4%.

In company news there was another sign of the ‘new’ economy as the increasing share value of electric car maker Tesla saw it overtake General Motors in total capitalisation, having passed Ford in late March. Tesla’s total valuation is approximately $52bn: next up is Honda, which is currently worth $53bn.

Like all other world markets the US Dow Jones index rallied after the first round of the French Presidential election, and eventually finished the month up by 1%: having started April at 20,663 it ended at 20,941.

Far East
Tesla may be moving upwards but Toshiba seems to be heading in exactly the opposite direction. Having reported a loss of 532bn yen (£3.8bn) for April to December 2016, the company delayed publishing its audited accounts and admitted that its future may be in doubt.

Meanwhile, there was much better news in China, where growth in the first quarter of the year beat expectations. Growth was 6.9% according to official figures, compared to a target of 6.5% for the year as a whole. State-led infrastructure investment, demand for new property and an increase in consumer spending were all responsible for the higher growth rate, with retail sales in February up 10.9% on the same period in 2016.

Having spent his campaign criticising China for using an artificially low currency to “rape” American industry, the newly diplomatic President Trump had a meeting with Chinese leader Xi Jinping and said that China “was not a currency manipulator.” In truth, the almost weekly missile tests in North Korea are giving both men far more to worry about than currency manipulation.

Despite the tension in the region three of the four leading Far Eastern markets rose by 2% in April. Hong Kong was up to 24,615, Japan rose to 19,197 and the South Korean market advanced to 2,205. The one exception was China, where the Shanghai Composite index was down by 2%, ending April at 3,155.

Emerging Markets

April was a quiet month for the three major emerging markets we cover, but the corruption scandal in Brazil centring on the state oil provider Petrobras continues to have repercussions. A US judge has now fined Brazil’s engineering giant Oderbrecht $2.6bn in a case inevitably connected with Petrobras, as the engineering company agreed to a plea bargain deal with the US, Brazilian and Swiss authorities, pleading guilty to bribery in twelve Latin American countries.

Other than that a quiet month, but a pleasantly uniform one. It may be some time before this happens again, but all the three emerging markets we cover in this commentary saw their stock markets rise by 1% in April. India was up to 29,918: Brazil rose to 65,403 and the Russian market had its first positive month of the year, ending April at 2,017 – although it remains down by just over 9% for the year as a whole.

And finally…
Last month was, of course, a vintage crop for the ‘and finally’ section of this commentary. We were worried how this month would maintain the high standard – but it got off a good, slithery start with news from the Association of British Insurers that an anorexic python had swallowed £790 in vet’s bills. This was in their annual report, which revealed that the average cost of a claim on your pet insurance is now £757 – something of a shock for those of us that spent the bank holiday watching re-runs of James Herriot and thought it was seventeen shillings and sixpence.

Costing rather more than a trip to the vets was a trip from Taunton to Trowbridge. The towns are just 64 miles apart but that didn’t stop Great Western Rail offering a ticket for £10,000 on its website. The company blamed a (very expensive) ‘anomaly…’

Sources

January market commentary

Wednesday, January 4th, 2017

Introduction

At the start of 2016, Brexit was seen as unlikely and President Trump was seen as impossible. David Cameron was busy negotiating a deal with his European counterparts which would surely secure a comfortable majority for the ‘Remain’ camp – and while Donald Trump might manage a few wins in the primaries, he’d eventually give way to one of the mainstream Republican candidates, who would in turn be beaten by Hillary Clinton.

We all know what happened and with elections due next year in Holland, France and Germany 2017 could be equally dramatic. But let’s first look back at December, and also cast an eye over the whole of 2016. It was a year when the pound fell by 15% against the dollar, when the FTSE ended at a record high and the Dow Jones index closed within touching distance of 20,000 – and when the price of crude oil nearly doubled from the low it reached in January.

All but three of the major stock markets we cover in this commentary were up in December, whilst for the year as a whole, eight were up, two virtually unchanged and only one (China) was down in the year. We also keep a watchful eye on Greece, where the market advanced 2% in 2016 as the country continued to battle with its creditors and the far-left government of Alexis Tsipras became increasingly unpopular.

UK

December started on a downbeat note in the UK, with the pace of manufacturing growth slowing slightly and Bank of England Governor, Mark Carney, warning that increasingly sophisticated robots posed a threat to 15m jobs in the UK. (But not, fortunately, to the Governor of the Bank of England…)

Presumably some of the jobs under threat will be those concerned with burgers and fries, but McDonalds gave the UK a big vote of confidence when it announced that it would move its non-US tax base from Luxembourg to the UK. This means that UK tax will be paid on royalties the firm receives outside the US.

There was mixed news for the UK housing market in December. Nationwide reported average house price growth across the UK at 4.5% in 2016, with London for once below the average at 3.7%. The average price of a house in the UK is now £205,937 – but home ownership among the young has fallen significantly over the past 20 years. In 1996 46% of those aged 25 owned their own homes: that figure has now fallen to just 20%.

Very firmly in the ‘good news’ column, eight months of uncertainty came to an end for the steelworkers at Tata’s Port Talbot plant when the company gave a commitment to secure jobs and production there and at other steelworks across the UK. The growth of the UK economy was revised upwards for the third quarter – from 0.5% to 0.6% – and in company news Sky agreed to an £18.5bn takeover from 21st Century Fox.

We won’t weary you with the progress – or lack of it – of Brexit. The Chancellor dared to voice the opinion that perhaps a four year period of withdrawal might be sensible, duly raising the blood pressure of some newspaper headline writers. Meanwhile, Europe turned its collective back on Theresa May, discussing Brexit without her.

Whatever the Prime Minister’s problems, they weren’t shared by the FT-SE 100 index of leading shares, which finished the year at a record high of 7,143. The market was up 5% in December and 14% for the whole of 2016.

Europe

As we mentioned in the introduction, 2017 will be a significant year in Europe with elections due in Holland, France and Germany. This time next year will we be reporting on the European equivalent of Brexit and President Trump? It wouldn’t be surprising, and there was an indication of the popular mood when the Italian government of Matteo Renzi was heavily defeated in a referendum on constitutional reform held in early December.

Commentators are now predicting a “period of uncertainty” in Italy. That’s also a phrase which can be applied to the Italian banks with suggestions that the Italian government will be asking for €15-20bn from the European Stability Mechanism to help the country’s banking system.

The chief casualty appears to be Monte dei Paschi, the world’s oldest bank, which failed to raise the €5bn it needed to re-capitalise from private investors. The Italian government was forced to step in, with the bank crippled by years of losses and loans that can never be repaid. Before Christmas the bank’s funding shortfall was put at €5bn – a rather less festive assessment after the holiday put the figure at €8.8bn.

No doubt Angela Merkel tut-tutted at this Southern European profligacy as she announced plans to run for a fourth term as Chancellor: and no doubt the right wing Alternative fur Deutschland will have plenty to say on that score by the time the elections are held in September…

As we all know Christmas is a time for traditions, and VW reaching another deal over its emissions crisis is fast becoming one. This time it was with the US authorities over 80,000 VW, Audi and Porsche cars. There was equally bad news for Deutsche Bank as it reached a $7.2bn ‘settlement’ with US authorities over its mis-selling of mortgage-backed securities.

Despite these seasonal gremlins December was a good month for the German stock market, with the DAX closing up 8% in the month at 11,481. This enabled the market to post a 7% rise for the whole of 2016, and it was a similar story in France where a strong performance in December – up 6% to 4,862 – allowed the market to finish up 4% for the year as a whole.

US

Donald Trump is due to become the 45th President of the United States on 20th  January. His cabinet is now complete, with new Treasury Secretary Steven Mnuchin vowing a tax overhaul ‘not seen in decades’ in a bid to boost the US economy.

Peter Navarro – the man Trump has picked to head US trade and industrial policy – also appears to have been making vows, specifically about China. Navarro has described the Chinese government as ‘despicable, parasitic, brutal, amoral, callous and ruthless’ – and that’s just a start. Clearly, the Trump presidency will see an entirely different style of negotiating and diplomacy to the Obama years: to say that 2017 will be worth watching is an understatement.

…But the President-Elect appears to have made a promising start economically, with the news that Japanese company SoftBank is to invest $50bn in the US, creating up to 50,000 jobs. Trump also claimed the credit for air-conditioning company Carrier Corp’s decision not to re-locate to Mexico, keeping another 1,000 jobs in the US.

Meanwhile, the US Federal Reserve raised its benchmark interest rate by 0.25%, only the second increase in a decade. The rate was moved to a range of 0.5% to 0.75% as the Fed cited stronger economic growth and rising employment. Some analysts are expecting further rises, with Kathleen Brooks of City Index saying “the US economy will be on fiscal steroids in the next few years.”

Wall Street certainly seems to have taken steroids since Trump’s victory, with the market constantly reaching new highs in December and threatening to go through the 20,000 barrier. In the event the Dow Jones index closed the month at 19,763 – up 3% for the month, 8% for the last quarter of the year and 13% for the year as a whole.

Far East

Gambling seemed to be the key theme in the Far East in December, as Japan legalised casinos and those investors who’d taken a punt on the Chinese ‘selfie firm’, Meitu, hit the jackpot after it was valued at $4.6bn. Meitu’s key selling point is that it lets you ‘beautify’ your own selfies – a service a few of us might need  after Christmas and New Year…

More seriously, concerns were expressed that the Chinese property market is overheating, with many first time buyers in the major cities being priced out of the market: according to the National Bureau of Statistics the average property price rose by 11% in China’s seventy biggest cities for the year to September 2016.

Tackling this problem will be a job for the next leader of China’s central bank, as Zhou Xiaochaun steps down in 2017 after steering the Chinese economy for fifteen years: commentators have suggested that this will allow President Xi to further consolidate his hold on power.

Across the China Sea, Japanese Prime Minister Shinzo Abe signed off a record defence budget, reflecting a year of continued tensions with China, and North Korea’s nuclear and missile threats to the region. Presumably, the outlook is therefore good for Japanese defence contractors – but it is much less rosy for Toshiba, whose shares fell 20% in one day last week and are now down by 40% since  26th December. Most people think of Toshiba as an electrical firm: in fact, it’s now a diverse conglomerate, with the shares falling due to worries that its US nuclear business – responsible for a third of the company’s revenue – may be worth less than previously thought.

On the region’s stock markets the best performer in December was Japan, with a rise of 4% to 19,114. The market there is more or less unchanged for the year, but it is worth noting that it is up 16% in the final quarter of the year. China’s Shanghai Composite index fell by 4% in December to end the year at 3,104: it is down by 12% for the year as a whole, but all the damage was inflicted early in the year, with a slight recovery taking place in the second half of 2016. Hong Kong was down 3% in December to 22,001 and is another market to be virtually unchanged for the year as a whole. Finally, South Korea ended the year at 2,026 – up 2% in December and 3% for the whole year.

Emerging Markets

It’s the Emerging Markets section of the commentary with takes the New Year’s Honours, with Brazil the best performing stock market of the twelve we cover, closely followed by Russia. Despite falling 3% in December to end the year at 60,227 the Brazilian stock market rose by 39% in 2016, having ended last year at 43,350. The Russian index was up 6% in December to finish at 2,233 where it is up 27% for the year as a whole and 13% in the final quarter of 2016.

There was an interesting development in Russia as commodities trader Glencore and Qatar’s sovereign wealth fund together bought a 19.5% stake in Rosneft, Russia’s largest oil company. They paid $11.3bn for the stake (which equals that already held by BP) as Russia sought to sell some state assets in a bid to balance its budget and end a two year long recession.

The other major emerging market we cover, India, saw its stock market virtually unchanged in December at 26,626: it finished up just 2% for the year as a whole. The Indian central bank surprised most observers by holding interest rates at a six year low of 6.25% and the deadline for depositing discontinued 500 and 1,000 rupee notes came and went. The notes – worth approximately £6 and £12 – will no longer be legal tender as Prime Minister Narendra Modi bids to combat widespread corruption.

And finally…

We cover the thorny subject of debt in the first ‘and finally’ of 2017 – specifically, Cuba’s debt to the Czech Republic. Cuba owes the Czech Republic $276m, a debt dating back to the time when Cuba and the then Czechoslovakia were part of the Communist bloc.

On the very sensible grounds that they don’t have much money but do have a lot of rum, Cuba has suggested repaying the debt with bottles of rum – an offer which would give the Czechs enough Cuban rum to last a century. Sadly, the curmudgeonly, unimaginative Czech officials have said they’d like to be paid in cash. Perhaps the Cubans should throw in a few million cigars to clinch the deal…

Happy New Year…

October market commentary

Wednesday, October 5th, 2016

Introduction

September was the month when nothing much happened on the world’s stock markets. Three of the 11 major markets on which we report were up, three were unchanged and five were down – but none of them by very much. The UK led the way, albeit only up 2%, while Japan and China were the laggards, both markets declining by 3% in the month.

One thing that was definitely up was the price of oil: at the beginning of the month the price rose after Russia and Saudi Arabia agreed to discuss ways to ‘stabilise the market’ and at the month end the oil producers cartel, Opec, agreed a preliminary deal to cut production for the first time in eight years. Brent crude rose 6% to nearly $49 a barrel on the news.

There was widespread international condemnation as North Korea claimed a fifth successful nuclear test. South Korean President Park Guen-hye called it an act of “self-destruction” and the US warned of “serious consequences.” Meanwhile, life in North Korea continued in its normal, rational way as Supreme Leader Kim Jong-un banned sarcasm, apparently worried that people would, “only agree with me ironically.”

UK

UK Prime Minister Theresa May began the month at the G20 Summit in China, where she found very few people agreeing with her, ironically or otherwise. Japan’s government warned that Brexit could result in the country’s firms moving their European head offices out of the UK, “if EU law ceases to be applicable.”

That will perhaps be tested sooner rather than later: we will report on this fully in next month’s Bulletin, but the Prime Minister has now confirmed that Britain will trigger Article 50 and begin the formal process of leaving the EU, “by March 2017.” With new Chancellor Phillip Hammond also saying that he will abandon many of his predecessor’s key targets, there’ll be plenty to write about next month!

For September, most of the economic news for the UK was good. Figures reported at the beginning of the month showed the manufacturing sector had rebounded sharply in August, with the Purchasing Managers’ Index rising to 53.3 from July’s figure of 48.3 – with any figure above 50 indicating expansion.

There was also good news for the services sector, with the PMI jumping from a seven year low of 47.4 to post its biggest monthly rise in 20 years, up to 52.9. These two pieces of good news prompted most commentators to suggest that any recession in the immediate aftermath of Brexit was now unlikely.

Figures for July showed that the UK trade deficit had shrunk from £5.6bn in June to £4.5bn and UK car production hit a 14 year high in August as 109,004 vehicles rolled off the production line, up 9.1% on August 2015.

In the face of all this positive news, the OECD toned down its warnings of post-Brexit gloom – but there were still a couple of dark clouds on the horizon. The British Chambers of Commerce cut its forecast for UK growth for this year from 2.2% to 1.8%, and the BBC reported that small business confidence was down for the first time in four years.

What of the UK numbers? Inflation held steady at 0.6% and the Bank of England kept interest rates on hold at 0.25%. And as reported above, the FTSE-100 index of leading shares was up 2% to close the month at 6,899: it is now up 11% on a year-to-date basis.

Europe

By now you could probably write the opening paragraph of this section yourselves. Another month, another problem for Volkswagen. Or two in this case, as Australia announced plans to sue the beleaguered car maker, and the bill for the emissions scandal in the USA came in at $10bn.

Another German institution appears to be under threat, with the IMF recently describing Deutsche Bank as ‘the world’s most dangerous bank’ – the weakest link in a chain of globally significant institutions. Shares in the bank are at their lowest level for 30 years with Chancellor Angela Merkel having apparently ruled out any prospect of state aid.

With Commerzbank announcing plans to end dividend payments and cut 9,600 jobs, these are not happy times for the German banking sector.

…Or for EU chief Jean-Claude Juncker, who announced that the EU, “is facing an existential crisis” as member states co-operate less and less. His mood won’t have been helped by this weekend’s statement from Theresa May, or the referendum result in Hungary.

Meanwhile Austrian Chancellor Christian Kern became the latest European politician to berate multinationals like Amazon and Starbucks. “Every Viennese café, every sausage stand pays more tax in Austria than a multinational corporation,” he fumed.

So how did European sausage stands perform on the stock markets? They didn’t is the answer: the German market was down 82 points (just under 1%) at 10,511 whilst the French index had its second consecutive month of going virtually nowhere. It closed September up just 10 points at 4,448.

US

We’re now barely a month away from the US Presidential Election – due on November 8th – and Hillary Clinton remains the firm favourite: with new revelations coming out almost every day, the only safe prediction is that the contest will get a lot more heated and divisive before polling day.

US jobs figures for August were slightly disappointing, with 151,000 jobs created – down sharply on July’s revised figure of 275,000. The average monthly increase over the past 12 months has been just over 204,000 so these figures suggested that a rise in US interest rates might be delayed – although most commentators still expect a rise by the end of the year.

In company news, Apple launched the latest version of the iPhone, and media giant Liberty Media bought control of Formula One. Twitter shares were up on news of a possible takeover, and Yahoo conceded that ‘state-sponsored hackers’ had stolen data on 500m users, the largest publicly-disclosed data breach in history.

On Wall Street, the Dow Jones index was down 1% at 18,308. It is up by 5% for the year to date.

Far East

Fresh from warning North Korea about “serious consequences,” President Obama urged China to speed up measures to tackle over-production of industrial goods. Call me an old cynic but I suspect both will be roundly ignored.

Experts – this time it was former IMF chief economist Ken Rogoff – continued to warn about the slowdown in China, as suggestions continued that the economy is slowing down far more quickly than official figures suggest.

The Bank for International Settlements was the latest institution to warn about a possible banking crisis in China, as the banks continue to extend credit in a bid (presumably Government backed) to fend off the slowdown. This extension of credit may help to explain the record levels of Chinese investment overseas, with data for 2015 now showing that Chinese companies have invested more overseas (£111bn) than overseas companies invested in China.

Meanwhile the Bank of Japan was busy overhauling its massive stimulus package for the Japanese economy, setting long term targets for the economy and apparently abandoning its 2% target for inflation.

Despite the overhaul of the stimulus package – which initially sent world stock markets higher – it wasn’t a good month for the Japanese index, which was down 3% at 16,450. China’s Shanghai Composite Index was down by a similar amount to 3,005. The South Korean market was virtually unchanged at 2,044, with Hong Kong the only Far Eastern stock market to move up, although only by 1% to 23,297.

Emerging Markets

In Brazil, the new government of President Michel Terner has announced a privatisation plan in a bid to revive the country’s struggling economy. It plans to sell off four airports and two port terminals, as well as offer contracts for a range of projects from building new roads to operating mines. “The state cannot do it all,” said the new President.

Meanwhile, ex-President Lula and his wife have been accused of widespread corruption: with recent President Dilma Rousseff impeached for breaking fiscal and budget laws, politics in Brazil is coming to resemble Game of Thrones – but at least without the bloodshed.

Despite the ever revolving door of the courthouse, the Brazilian stock market was up 1% in September to 58,367. It’s now up by 35% on a year to date basis – easily the best performance among the markets we cover.

The Russian stock market was more or less unchanged in September at 1,978 while the Indian market fell back 2% to 27,866. They are respectively up 12% and 7% for the first nine months of the year.

And finally…

Numbers in China are often considered to have lucky or unlucky connotations. The number four is unlucky (because it sounds like the word for ‘death’) whilst the number eight – sounding like the word for ‘prosperity’ – is considered lucky.

But surely a group of Chinese investors were taking it too far when they bought 333 Kent Street in Sydney’s central business district? The price they paid was A$88,888,888.88, with the estate agent (who undoubtedly considers the number eight very lucky) reporting that this wasn’t the first time Chinese buyers had submitted ‘lucky’ bids.

On the off chance that the same investors are reading this Bulletin and would like a souvenir, various bits of the office are available including the mouse, keyboard and coffee cup used to produce this bulletin. Shall we start the bidding at £888.88?

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