May market commentary

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…

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

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?

c016septemberstockmarketbulletincompliance-doc

Introduction

Another month, another dire warning from the economic great and good. In March it was the International Monetary Fund’s turn to warn that the world faces ‘economic derailment.’

As always, the blame was laid firmly at the door of the Chinese economic slowdown, with IMF second-in-command, David Lipton, warning that steps needed taking to boost global demand. ‘We are clearly at a delicate juncture,’ he said, which may well be IMF-speak for something rather stronger.

Interestingly, world stock markets did not seem to be at a ‘delicate juncture’ in March, with all the markets on which we report moving upwards in the month, some quite significantly. One of the reasons for this was remarks by Janet Yellen, Chair of the US Federal Reserve, suggesting that the US will now ‘proceed cautiously’ with regard to any future interest rate rises.

In the US, the Presidential race is increasingly looking like Hillary Clinton vs. Donald Trump – although that won’t be to the liking of the Economist Intelligence Unit. In the middle of the month their Global Risk Assessment ranked a Trump presidency equal to Jihadi terrorism as a threat to global economic stability. The Intelligence Unit gave the prospect of ‘the Donald’ entering the White House a score of 12. China experiencing a ‘hard landing’ was the highest threat at 20: the UK leaving the EU rated only an 8.

…And March was, of course, the month when George Osborne presented his Budget in the UK. But by the end of the month his plans for deficit reduction and moving next door to succeed David Cameron had been very much overtaken by the continuing crisis surrounding the UK steel industry.

UK

March got off to a good start in the UK. Nationwide said that house price growth was ‘steady’ in February, and McLaren Automotive announced plans to invest £1bn in 15 new models and employ 500 more staff. Car manufacturing was at a 10 year high and car sales for February reached a 12 year high.

There was the now customary claim and counter-claim regarding Britain’s possible exit from the EU, with Bank of England Governor, Mark Carney, describing it as the ‘biggest domestic risk.’

But in the first part of the month everything was leading to Chancellor George Osborne’s Budget on March 16th. His plans started to unravel even before the speech, when the much-heralded and widely-consulted-on plans for pensions tax reform were abandoned in the face of opposition from Conservative backbenchers.

The British Chambers of Commerce also contributed to a worrying backdrop, downgrading its forecasts for UK economic growth: the BCC is now expecting 2.2% growth this year, from a previous figure of 2.5%.

Nevertheless, the Chancellor still managed to deliver his customary confident performance, buoyed by figures released on the morning of the Budget showing that unemployment had fallen a further 28,000 between November and January and more people were in work than ever before.

‘Britain,’ the Chancellor declared, was ‘Set to growth faster than any other major economy in the world.’ However his forecast for growth this year was even lower than that of the BCC, at 2%. Growth would then rise to 2.2% in 2017 and then level out at 2.1% for the following three years.

These forecasts, the Chancellor was not slow to point out, were based on the UK remaining within the EU. Leaving, according to the Office for Budget Responsibility, ‘could usher in a prolonged period of uncertainty.’

So despite the world presenting what the Chancellor described as a ‘dangerous cocktail of risks’ everything appeared to be on course, with Osborne still committed to removing the Budget deficit in the lifetime of this parliament.

Sadly, everything then started to unravel remarkably quickly…

Iain Duncan Smith resigned and the Chancellor’s plans for cuts to disability benefits were abandoned even before they’d reached the Commons. Welfare u-turn leaves Chancellor with £4.4bn black hole screamed the headlines.

However, the news was to get significantly worse by the end of the month, as Tata decided to put its Port Talbot steel plant up for sale, potentially threatening anything up to 40,000 jobs (depending on which newspaper you read). As the month ended the Prime Minister was hosting a cabinet committee and desperately looking for a buyer: with the UK now a relative minnow in global steel production you suspect it will prove difficult.

There was one last twist of the knife in March. Figures released at the end of the month showed the UK’s current account deficit had ‘soared’ in the last quarter of 2015: the deficit in the three months to December was £32.7bn – equal to 7% of GDP in that quarter according to the Office for National Statistics.

What did the FTSE-100 index of leading shares make of all this excitement? Not much was the answer, although it did manage to gain 1% in the month, closing March at 6,175. The index is down 1% for the first three months of the year.

Europe

There was yet more woe for beleaguered carmaker, Volkswagen, in March as prosecutors in Europe decided to widen their investigations into the emissions scandal, whilst the head of the company’s US arm resigned.

In the wider European economy, unemployment across the whole Eurozone came down to 10.3%, but there are worries the European Central Bank’s stimulus package is starting to falter. Falling energy prices meant that the Eurozone stayed locked in deflation, with consumer prices down for the second consecutive month.

The ECB has cut interest rates to zero against the backdrop of the fragile global economy, and its stimulus package is now running at €80bn a month. It’s difficult to see what other action the Bank can take.

It was however, a better month for the major European stock markets. The German DAX index rose 5% in March to close at 9,966 whilst the French index was up 1% to 4,385. The two markets are respectively down 7% and 6% for the first three months of 2016.

US

We’ve commented above on Janet Yellen’s statement that the Federal Reserve will proceed cautiously with regard to interest rate rises, and this was in evidence in March with the decision to leave rates unchanged. The ‘Fed’ said that the labour market was expected to strengthen – the US created 242,000 jobs in February – but that it was still looking for inflation to reach its 2% target figure. We may not now see the four interest rate rises this year that were mooted in December.

There was good news when it was revealed that US economic growth for the final quarter of 2015 had been revised upwards from the initial estimate of 0.7%: this was increased to 1.4%, with the economy overall estimated to have grown at 2.4% for the whole of 2015.

Despite now reputedly sitting on a cash pile of $216bn Apple didn’t have things all its own way in March as it battled the FBI over the unlocking of the San Bernardino killer’s iPhone. In the event, the FBI managed to do it without Apple’s help in a move the company described as ‘dangerous’ and ‘chilling.’ You suspect that this story of law enforcement vs. the tech giants has only just begun.

There was nothing ‘dangerous’ or ‘chilling’ for the Dow Jones index in March, which rose 7% to end the month at 17,685. It’s up just 1% so far in 2016 – one of four of the major markets we cover to be in positive territory through the first quarter.

Far East

There were contrasting views on the Chinese economy at the start of the month. Credit ratings agency, Moody’s, cut the outlook for China from ‘stable’ to ‘negative.’ Unsurprisingly, China’s chief economic planner took an entirely different view. Predictions of an abrupt economic slowdown ‘were destined to come to nothing’ said Xu Shaoshi, the head of China’s state planning agency.

The economic growth target for 2016 has nevertheless been cut to a range of 6.5% to 7% – compared to the 6.9% at which the Chinese economy actually grew in 2015.

China certainly doesn’t appear to be lagging behind in the knowledge economy, with the BBC reporting that the country is opening the equivalent of ‘a university a week’ – something which is contributing to a gradual shift in the composition of the world’s graduate population, with the trend inevitably being away from Europe and the US and towards the Far East.

There was good – or at least less bad – news in Japan, with the economy shrinking less than previously thought in the final quarter of 2015. Analysts had been predicting a reduction of 1.5% – in the event, the figure was only 1.1%.

The economy also slowed in South Korea, growing by only 0.7% in the final quarter of last year, compared to 1.2% in the previous quarter. Despite this, the South Korean stock market enjoyed a good month, rising by 4% to end March at 1,996 – up 2% for the first three months of the year.

Other Far Eastern stock markets followed a similar pattern, with the Chinese market up by 12% in the month to 3,004 – although it is still down by 15% for the first quarter of 2016. Japan was up 5% to 16,759 (down 12% for the first quarter) and Hong Kong rose by 9% to 20,777 (down 5% for the first quarter).

Emerging Markets

The three major emerging economies on which we report – Russia, India and Brazil – completed the ‘full house’ for us in March, with all their stock markets moving upwards in the month. Having started the month at 1,840 the Russian index ended at 1,871 – up 2% in the month and up 6% for the first quarter of the year.

There was a rather more spectacular performance in India, where the market rose 10% in March to close at 25,342 – however, it remains down 3% on a year-to-date basis.

Pride of place, though, goes to Brazil – for so long the source of nothing but bad news. The stock market powered up 17% in March to 50,055 and is now up 15% for the year. This came despite Brazilian oil giant, Petrobras, posting a record loss of $10.2bn for the last quarter of 2015 – thanks, inevitably, to the plunging oil price.

And finally…

Competition for inclusion in ‘And finally’ has never been fiercer than it was in March. An early front runner was Google’s driverless car and its seemingly fatal attraction for other vehicles. Its far-too-close encounter with a bus was widely reported in the media.

No doubt encouraged by this, the DVLA announced that trials of ‘driverless lorries’ would take place on the M6 later this year. They’ll be choosing a ‘quiet stretch’ of the motorway in a move that will apparently save fuel – but presumably hit sales of Yorkie bars.

But pride of place for March went to the nation’s pets, and the news that pet insurance claims have hit a record. No fewer than 911,000 claims were processed in 2015, including a python that was treated for anorexia. Claims for dogs increased at almost double that of claims for cats, with ‘swallowed owner’s sock’ among those conditions showing an upward trend!

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