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November market commentary

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November market commentary

Thursday, November 9th, 2023

Introduction

All eyes have been on the Middle East following Hamas’ terror attack on Israel on October 7th, which led to the deaths of more than 1,400 people.

The resulting conflict has led to a humanitarian crisis in Gaza, fears of a possible escalation across the wider region, and a surge in oil prices.

We will be keeping a close eye on the unfolding situation in the Middle East and if it has an effect on the wider global economy.

As always, let’s take a closer look at what’s been happening in key markets across the world over the last month.

UK

Economic growth in the UK remains sluggish, as official figures showed that GDP went up by just 0.2% in August 2023. According to the Office for National Statistics (ONS), this was driven largely by strong growth in services, but offset by falls in sectors such as manufacturing and construction. Data also showed that the fall in GDP in July was bigger than originally thought, with the figure being revised from 0.5% to 0.6%.

Meanwhile, ONS figures indicated that efforts to drive down inflation are still yielding limited results. The rate of inflation remained unchanged from the previous month in September at 6.7%, which is well above the Bank of England’s target of 2%. The ONS attributed the high rate partly to petrol and diesel costs, but noted that food and non-alcoholic drink prices have fallen.

This was backed up by the British Retail Consortium, which reported a 0.1% fall in food prices in September – the first monthly drop for more than two years. However, food prices are still 9.9% up on where they were a year earlier.

Ken Murphy, Chief Executive of supermarket chain Tesco, believes the pace of rising food prices will continue to slow this year. Speaking to BBC News, he insisted that Tesco is trying to “lower prices wherever we can”, and acknowledged “how challenging it is for many households across the country”.

There was another indication that cost of living pressures may finally be easing, as ONS data showed wages rose by 7.8% between June and August year-on-year. This means that average pay growth rose above inflation for the first time in nearly two years.

With a general election looming, you might expect the government to start talking about or dangling tax cuts in front of a hard-pressed electorate. But while recent figures may suggest we may be starting to turn a corner, the Institute of Fiscal Studies (IFS) believes there is no compelling case for net tax cuts “any time soon”.

“The UK economy remains stuck between weak growth on the one hand and the risk of persistently high inflation on the other,” the IFS said. “An ill-timed fiscal loosening – such as an unfunded package of pre-election tax cuts – might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession as interest rates rise even further to bring inflation back under control.”

The IFS added that the “Chancellor is in a terrible bind, as will be whoever is Chancellor after the general election”.

There was more positive news from credit rating agency Moody’s, which has dropped its negative outlook on the UK, partly in response to Chancellor Jeremy Hunt’s decision to scrap most of the measures announced in last year’s Mini-Budget.

Meanwhile, the International Monetary Fund has been forced to defend itself against criticism from the Treasury that its UK economic assessment is too pessimistic. Chief Economist Pierre Olivier Gourinchas told the BBC that its growth forecasts exceed the Bank of England’s estimates, and that it is trying to be “honest interpreters of the data here”.

October also saw confirmation that the UK’s biggest infrastructure project would be dramatically scaled back, with Prime Minister Rishi Sunak announcing that the leg connecting the West Midlands and Manchester would not go ahead.

It has been a mixed few months for the banking sector, with Metro Bank recently being denied permission from the Bank of England to use its own internal models to assess its mortgage risks. However, a £925m deal was later struck that enables the business to raise extra funds from investors – an agreement that secures its financial position, but means it has to cut about £30m in costs every year from 2025. By contrast, Lloyds revealed a pre-tax profit of £1.9bn for the three months to September, up from £576m a year earlier.

October also saw the removal of the cap on bankers’ bonuses, a move first announced in last year’s controversial Mini-Budget, and one of the few measures announced by Kwasi Kwarteng to be retained by Jeremy Hunt. The government hopes that the move will help to make London a more attractive place to do business post-Brexit.

On the high street, fashion retailer Next has confirmed it is to buy clothing brand Fatface for £115m. This follows Next’s acquisition of Cath Kidston and Joules in recent months.

Meanwhile, a proposed merger of Vodafone and Three is still under close scrutiny, with bosses having to deny it would lead to price rises after concerns were raised by the Unite union. If the merger goes ahead, it would lead to the creation of the UK’s biggest mobile network and service around 27m customers.

The pound ended October unmoved against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,321 points, up 3.76% on September.

Europe

The European Central Bank (ECB) left its interest rates unchanged for the first time in over a year, following ten consecutive rate hikes.

Policymakers had been rating hikes in order to tackle the rising cost of living, but thankfully, inflation across the eurozone has started to come down. The rate of inflation hit 4.3% in September, which is well down on the peak of 10.6% seen in October 2022.

The ECB believes that while inflation is likely to remain fairly high for some time yet, interest rates are now at a level where they could substantially contribute to it meeting its 2% target.

Christine Lagarde, President of the institution, added: “The economy is likely to remain weak for the remainder of this year. But as inflation falls further, household real incomes recover and the demand for euro area exports picks up, the economy should strengthen over the coming years.”

The eurozone economy contracted during the last quarter, according to new data from S&P Global, as rising borrowing costs and higher prices led to consumers limiting their spending. The report also showed that declining output in the services and manufacturing sectors also contributed to the downturn.

Speaking after the data was published, Franziska Palmas of Capital Economics said it still expects the eurozone economy to fall into recession in the second half of 2023.

Germany, in particular, is going through a tough period economically right now, with the European Commission predicting that the country will face a prolonged recession this year.

It is likely to be the only major economy in Europe to see its economy shrink during 2023, and according to the latest European Commission estimates, output will fall by 0.4% this year. The body has also downgraded its growth forecast for Germany in 2024 from 1.4% to 1.1%.

This comes after the International Monetary Fund predicted that Germany’s economy would contract by 0.3% in 2023.

It was a much more positive picture in Spain, where officials are hopeful it will outpace eurozone growth in the coming months. Pablo Hernández de Cos, Governor of the Bank of Spain, believes the country is performing relatively well because it relies less on sectors such as manufacturing than many other key European nations, and is less dependent on exports from China and Russia.

October also saw progress in the European Union’s efforts to bolster the banking system and make it more resilient. The European Banking Authority has published guidance for banking regulators in each member state, which includes a call for specific checks on the impact of higher interest rates on their business models, as well as their liquidity and funding risks.

The move is being taken in the wake of the recent collapse of Silicon Valley Bank and UBS’s forced takeover of Credit Suisse to ensure regulators in Europe learn lessons from what happened across the Atlantic.

Francesco Mauro of EBA said: “This is an exercise that has always looked at supervision, but the novelty is that, being more targeted, we can be more specific on what are the expectations that we are putting on supervisors. The spring events reminded us of the importance of proper management of liquidity risk.”

October also saw voters come out for the Polish general election. While the incumbent Law and Justice (PiS) party secured the biggest share of the vote, opposition parties secured enough votes to oust the government. Donald Tusk’s Civic Coalition, which attracted almost a third of the popular vote, looks to be in the strongest position to be able to form a coalition.

On the financial markets, Germany’s DAX index fell by 3.75% in October to end the month at 14,810 points. Meanwhile, the French CAC 40 index fell by 3.50% to end at 6,885 points.

US

October ended with better than expected economic figures, official data showing GDP rose by 4.9% between July and September, up from 2.1% in the previous quarter. This was the biggest increase in economic output since the final quarter of 2021, and was attributed partly to healthy levels of consumer spending.

This was welcome news, particularly as last month began with the US government narrowly avoiding a federal shutdown, after a short-term deal ensuring funding until November 17th was agreed.

However, the congressional budget deal did not include further military funding for Ukraine, which had been a key demand for the Democrats. Despite this setback, President Joe Biden has insisted the US will continue to support Ukraine, and said it cannot “under any circumstances allow US support to Ukraine to be interrupted”.

Meanwhile, economists are keeping a close eye on interest rates and wondering which way they will be heading over the coming months. In a poll by Reuters, 45% said they don’t expect to see any rate reduction until the second half of next year at the earliest.

Interest rate movements will also be of particular interest to anyone planning to take out a mortgage on a property in the coming months. According to Mortgage News Daily, the average interest rate on the typical 30-year fixed rate home loan rose to 8% for the first time in 23 years.

Consumers across the board were under financial pressure as a result of higher housing and petrol costs, which contributed to the inflation rate remaining static in September at 3.7%. Although inflation is significantly lower than it was this time last year, it is still well above the Fed’s target of 2%.

Nevertheless, the retail sector has continued to perform strongly, with figures showing that retail sales went up by 0.3% in September, when adjusted for inflation.

There was also positive news in the employment market, with figures from the Labour Department showing that employers added 336,000 jobs in September. This was almost double the amount that had been widely anticipated.

In the business sector, chip company Nvidia and iPhone maker Foxconn confirmed they are collaborating to create new data centres capable of powering various applications, including AI-powered electric vehicles and other AI-based services.

However, many sectors have been hit by ongoing industrial action. For example, more than 75,000 nurses, pharmacists and technicians at healthcare company Kaiser Permanente went on a three-day strike to call for improved wages and staffing levels. A tentative deal has since been struck, although the terms of the agreement have not been disclosed.

Industrial unrest also hit the car manufacturing sector, as the United Auto Workers union has been taking strike action against Ford, Stellantis and General Motors (GM) since September. GM believes the strikes could cost the company approximately £164m a week.

The ongoing actors’ strike in Hollywood also continued throughout October. Negotiations between actors’ union SAG-AFTRA and major Hollywood studios had been on hold for almost two weeks but have since resumed. Members of the union have been on strike since July over issues such as pay and the use of artificial intelligence.

In the tech industry, Microsoft is in dispute with the Internal Revenue Service over its allocation of profits across various countries and jurisdictions. The tax authority has asked for the tech giant to pay an additional £23.5bn in back taxes for the years 2004 to 2013. However, Microsoft is contesting the request, arguing that the issues raised by the body are “relevant to the past but not to our current practices”.

Meanwhile, Microsoft has announced that about 670 roles are set to go at professional networking site LinkedIn. This follows the loss of more than 700 jobs in May and accounts for approximately 3% of its current workforce.

On the financial markets, the Dow Jones fell by 1.36% to end the month at 33,052, while the more broadly-based S&P 500 index fell by 2.20% to end at 4,193.

Far East

Embattled Chinese real estate giant Evergrande saw its shares soar after it resumed trading in Hong Kong following a two-day suspension. The property company’s chairman Hui Ka Yan is currently under police surveillance “due to suspicion of illegal crimes”.

Evergrande also recently filed for bankruptcy protection in the US, after it defaulted on its debts two years ago. Real estate developer Country Garden has also defaulted on its US debts, Bloomberg reports, which could prove problematic for the wider Chinese economy, as the sector accounts for a significant share of its GDP.

According to the latest official figures, China’s economy grew by 4.9% between July and September, down from 6.3% in the previous quarter.

Ongoing tensions between the US and China have shown no signs of easing, following the US government’s decision to place restrictions on advanced chip exports. China’s foreign ministry argued the curbs, which affect major companies such as Nvidia, “violate the principles of the market economy and fair competition”.

Elsewhere in the tech industry, Apple Chief Executive made an unexpected visit to China, meeting with gamers in the city of Chengdu. Meanwhile, MG Motors, which is owned by China’s SAIC Motor Corp, believes it is in a “very strong position” to capitalise on growing demand for electric cars, after posting pre-tax profits of £54.2m in 2022.

While relations between China and the US remain frosty, the same cannot be said of China and Russia. Russian President Vladimir Putin recently attended a global summit in Beijing, hosted by Xi Jinping, where he was the guest of honour.

In Japan, business sentiment has continued to pick up, according to a survey by the country’s central bank.The headline big manufacturers’ confidence index rose to 9 in September from 5 in June, exceeding analysts’s expectations of 6. Meanwhile, the non-manufacturers index rose from 23 to 27, again beating forecasts. This bodes well for Japan’s economic output in the coming months, against the backdrop of sluggish growth worldwide.

Nevertheless, inflation remains a problem in Japan, as the central bank is expected to raise its core consumer inflation forecast for the year to March 2024 from 2.5% to 3%. How this affects interest rates remains to be seen, although a poll of economists by Reuters suggests that Bank of Japan will end its negative interest rate policy in 2024.

The export market looks set to be one ray of light for Japan’s economy, as exports from the country rose by 4.3% in September year-on-year. This upturn was driven by increased shipments of electronics, machinery and vehicles.

In South Korea, meanwhile, the central bank has opted to leave its policy rate on hold at 3.5%, partly in response to rising private sector debt and growing inflationary pressures.

The central bank believes inflation will average at 3.5% this year, down from 5.1% last year but still well above its 2% target. Furthermore, it is predicting that South Korea’s economy will grow by 1.4% in 2023, following an upturn of 2.6% in 2022.

On the financial markets, Hong Kong’s Hang Seng index fell by 3.91% to end October at 17,112. Meanwhile, Japan’s Nikkei index slumped by 3.14% to 30,858. China’s Shanghai Composite index fell by 2.95% to 3,018 and the Korea Composite Stock Price Index went down by 7.59% to 2,277.

Emerging Markets

India’s status as one of the world’s leading emerging markets was reinforced recently by the International Monetary Fund (IMF), which predicted that India and China will jointly account for about half of all global growth in 2023 and 2024.

The IMF expects to see growth of 6.3% in 2024, thanks to strong domestic demand and a steady inflow of investment. This is higher than the 5% growth it is predicting in China. For the Asia Pacific region a whole, the IMF is forecasting growth of 4.6% in 2023, up from 3.9% in 2022. This will then slow to 4.2% in 2024.

In sanction-hit Russia, the government confirmed it would force many exporters to convert their foreign revenues into roubles, in order to help prop up the struggling currency as its invasion of Ukraine continues. Russia’s financial regulator will monitor and enforce the capital controls on 43 companies in industries such as metal and energy.

Andrei Belousov, First Deputy Prime Minister of Russia, commented: “The main purpose of these measures is to create long-term conditions for increasing the transparency and predictability of the currency market, [and] to reduce the opportunity for currency speculation.”

Meanwhile, President Vladimir Putin has confirmed Russia will continue increasing the production of military equipment “not by some per cent, but by several times”. This suggests that the prospect of Russia standing down and ending the war in Ukraine is remote and the country is preparing to continue with its invasion for some time.

In Brazil, economic growth has remained robust, with a survey of investors by the Central Bank showing their median GDP growth projection has risen from 2.56% to 2.92%.

This strong performance was reflected in the labour market in particular, as employers added nearly 221,000 jobs in August. This was well above the expectations of many economists, who had expected an upturn of between 180,000 and 200,000.

On the financial markets, India’s BSE Sensex index fell by 2.97% to end at 63,874 points. Russia’s MOEX index rose by 2.16% to close at 3,200 points, while Brazil’s Bovespa index ended the month down 2.94% at 113,143 points.

And Finally…

When you hear the words “on the run”, we’re betting that a tortoise doesn’t spring immediately to mind. But a runaway tortoise that went missing in 2020 has amazingly been found.

The tortoise was seen happily crossing a major road in Florida and was taken to a local animal refuge, which launched an appeal to find the owner.

Thankfully, a person came forward and they revealed that it had been missing for more than three years. We hope to find out what measures they put in place to prevent the pet from, er, running off again.

 

 

July Market Commentary

Wednesday, July 5th, 2023

Introduction

Sluggish growth and high inflation were recurring themes in many major and emerging economies last month, as central banks across the globe sought to manage the impact of global economic headwinds. But interestingly, many emerging markets bucked this trend.

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

UK

The UK economy saw surprise growth of 0.2% in April 2023, despite many analysts predicting a decline. However, other positive economic news has been hard to find in recent weeks, with the Bank of England raising interest rates by half a percentage point to 5% – the highest level in 15 years.

Chancellor of the Exchequer Jeremy Hunt argued that the UK has “no alternative” but to hike interest rates in order to tackle inflation, which remained stuck at 8.7% in May – the same as in April. This has caused huge concerns about the impact of rising mortgage rates, which led to the bank bosses meeting with Mr Hunt, and agreeing to offer more flexibility to mortgage holders who are struggling to keep up with their payments. Prime Minister Rishi Sunak, meanwhile, called on homeowners and borrowers to “hold their nerve” over rising interest rates.

The wider economic situation led to annual house prices falling for the first time in 11 years, according to UK’s largest mortgage lender Halifax. Figures showed typical house prices in May were £3,000 down on the previous year. However, retail sales did hold up, with the Office for National Statistics reporting that sales volumes rose by 0.3% in May, partly because of better weather in the second half of the month.

Energy prices have also been a huge contributor to the ongoing cost of living crisis, but the government has confirmed that if prices fall to normal levels for a sustained period, its windfall tax on oil and gas firms – which has helped to fund a support scheme for struggling households and businesses – will be scrapped.

On the international stage, Rishi Sunak and US President Joe Biden unveiled the Atlantic Declaration. While this is some way short of the full trade deal that the British government has hoped for following Brexit, it does still represent a strengthening of economic ties between the UK and the US.

The UK has also signed a new pact with the European Union, which will see the two parties meet twice a year to discuss financial regulation and standards. Mr Hunt believes this forum will be mutually beneficial, as the UK and EU financial markets are “deeply interconnected”.

It was a difficult month for the London Stock Exchange, with natural soda ash producer We Soda scrapping plans to sell shares on the index, and cinema chain Cineworld confirming it is to file for administration and suspend trading on the London Stock Exchange as part of a major bankruptcy restructuring plan. This comes shortly after microchip designer Arm Holdings opted to list its shares in the US rather than London.

There was brighter news in the mobile phone sector, with Vodafone and Three agreeing a deal to merge their operations and create the country’s biggest mobile phone operator.

The pound ended June up 0.82% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,544 points, up 1.32% on May.

Ukraine

Global leaders and bodies such as the World Bank attended the Ukraine Recovery Conference in June to discuss what can be done to rebuild the war-torn nation.

World Bank Managing Director of Operations Anna Bjerde pointed out that Ukraine will need the help of the international community for many years. However, she told the BBC that the country also has great potential to turn “a lot of its assets into economic opportunity and recovery”.

Among the topics under debate was the idea of fast-tracking Ukraine’s entry into Nato, which the British government said it supports.

Ukraine’s President Volodymyr Zelensky addressed the conference by video link, and told attendees that Ukraine could be “the largest source of economic, industrial and technological growth in Europe for decades and decades”.

The meeting came amid a military counter-offensive to recapture Russian-occupied areas of the country, which President Zelensky has admitted has led to slower progress than he hoped for.

Europe

The European Central Bank (ECB) increased its benchmark rate of interest by 0.25 percentage points to 3.5% – its highest level in more than 20 years. The cost of borrowing is being hiked as part of an effort to tackle inflation, which fell from 6.1% in May to 5.5% in the year to June – a welcome fall but still a stubbornly high figure.

Rising prices led to the eurozone falling into recession over the winter, official figures have revealed, with the 20-nation bloc’s economy shrinking by 0.1% between January and March. This followed a contraction in the final three months of 2022. Falling household spending contributed to the drop in economic output, as this fell by 0.3% in the first quarter of 2023, following a 1% slump in the previous three months.

There was some positive news, however, with the ECB reporting that the international role of the euro was resilient in 2022, with its share across multiple indicators of international currency use averaging close to 20%. This means the euro is still the second most widely used currency, despite high inflation and geopolitical problems such as the Russian invasion of Ukraine.

The invasion has led to another problem for the EU, as member states are set to be asked to make bigger budget contributions following recent crises. Johannes Hahn, Commissioner for Budget and Administration, argued that the EU budget has been “instrumental” to its recovery from the pandemic and continued support for Ukraine. However, he said “the multiple challenges over the past years have exhausted its flexibilities and capacity to react to future crises”.

Europe’s largest economy, Germany, has been in particular difficulty over the last few months, but the German Bundesbank believes its recession will end in the April to June quarter, thanks to factors such as improving supply chains and falling energy prices. The Bundesbank has predicted that GDP will fall by 0.3% across the whole of 2023, but grow by 1.2% in 2024 and 1.3% in 2025.

Ireland also provided some positive economic news for the EU, as its economic output went up by 2.7% in the first quarter of 2023, compared with the final quarter of 2022.

On the financial markets, Germany’s DAX index rose by 3.14% in June to end the month at 16,156 points. Meanwhile, the French CAC 40 index went up by 4.39% to end at 7,410 points.

US

All eyes were on the US Congress after a deal to lift the country’s borrowing limit was agreed. The US had risked defaulting on its £25trn debt had the measure not been approved by the Senate and the House of Representatives.

Interest rates remained another key focus of attention, as the US Federal Reserve opted against increasing the cost of borrowing for the first time in over a year. The benchmark rate remained at 5%-5.25%, as the Fed wants time to assess the effects that previous rate hikes have had in recent months.

However, interest rates do not look set to remain at this level for much longer, as many analysts are forecasting further increases in the coming months. Inflation, meanwhile, fell from 4.9% in the year to April to 4% in the year to May, according to official figures, which means the rate of inflation has now fallen for 11 months in a row.

Curiously, high inflation and interest rates failed to dent job creation in the UK, with employers adding 330,000 jobs in May. This has led to some analysts becoming increasingly confident that the economy could avoid slipping into recession this year, although figures also showed that the unemployment rate rose from 3.4% to 3.7% month-on-month.

According to a poll by The Associated Press and NORC Center for Public Affairs Research, just 34% of US adults currently approve of President Biden’s handling of the economy. Against this backdrop, the President has been talking up his economic approach, which has been termed “Bidenomics”, which involves growing the economy “from the middle out and bottom up, not the top down”.

Business activity in the UK expanded in early June, according to the latest S&P Global Composite Purchasing Managers Index. However, the index fell 1.3 points to 53, which indicates growth is at its slowest level in three months, partly because of a decline in manufacturing activity. Chief Business Economist Chris Williamson said: “Growth remains dependent on service sector spending. The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes.”

Nevertheless, small businesses in particular appear to be quite confident about the future. According to the latest MetLife and US Chamber Small Business Index, a record 71% of small business owners expect to see an increase in revenue over the next year, while the share of respondents expecting to hire more staff in the coming 12 months has gone up from 37% in Q1 to 47% in Q2.

On the financial markets, the Dow Jones rose by 4.52% to end the month at 34,376, while the more broadly-based S&P 500 index went up by 6.22% to end at 4,439.

Far East

China’s National Bureau of Statistics has revealed that the country’s industrial output went up by 3.5% in May year-on-year. This was slightly down on the 5.6% increase seen in April, indicating that demand for Chinese manufactured goods is easing both domestically and worldwide. Retail sales, meanwhile, also dropped off slightly, falling from 18.4% growth in April to just 12.7% in May.

Commenting on the figures, analysts at Nomura said the post-Covid recovery “appears to have run its course” and that “an economic double dip is nearly confirmed”. Nevertheless, Chinese premier Li Qiang remains bullish, insisting that the country remains on course to achieve its economic growth targets of 5% this year.

Ongoing diplomatic tensions with the US continued to cast a shadow throughout June, although a visit by US Secretary of State Antony Blinken to Beijing saw both sides seek to improve their relationship.

President Xi Jinping said progress had been made and Mr Blinken stated that while there are major differences between the two nations, both sides are open to additional talks.

Shortly after Mr Blinken’s visit, President Biden criticised President Xi, referring to him as a “dictator”, who was embarrassed after the US shot down an alleged Chinese spy balloon.

Thankfully, there appears to be little appetite for any escalation, as China’s Defence Minister General Li Shangfu said war with the US would be an “unbearable disaster” for the world. He added that the Earth is big enough for both nations and that they should try to find common ground.

Against this backdrop, Microsoft co-founder Bill Gates met President Xi in Beijing. However, iPhone maker Foxconn has said it is planning for the worst-case scenario in case relations between Washington and Beijing deteriorate further by moving some of its supply chains away from China.

Speaking to the BBC, Foxconn Chairman Young Liu said: “We hope peace and stability will be something the leaders of these two countries will keep in mind, but as a business, as a CEO, I have to think about what if the worst case happens?”

In Japan, gross domestic product went up by 2.7% in the first three months of the year, exceeding forecasts from economists polled by Reuters of 1.9%. This was fuelled partly by a 1.4% increase in capital spending, although exports and imports both fell by 4.2% and 2.3% respectively.

The Bank of Japan remains cautiously optimistic about the economic outlook, saying it expects to see a moderate recovery this year. However, it noted that the global economy and markets pose a risk to Japan’s future growth.

South Korea, meanwhile, saw minimal growth of just 0.3% in the first quarter of the year. However, this was enough to prevent the country slipping into recession, following a 0.4% contraction in the final three months of 2022.

The Bank of Korea has revised down its 2023 growth forecast of 1.4% slightly, partly due to sluggish conditions in its semiconductor industry, which Bank Governor Rhee Chang Yong said is “pivotal to our exports”. He also noted that exports to China are not “picking up as fast as we wish”, although he was hopeful the overall economic growth rate would pick up in the second half of the year.

On the financial markets, Hong Kong’s Hang Seng index rose by 3.74% to end June at 18,916. Meanwhile, Japan’s Nikkei index rose by 7.45% to 33,189. China’s Shanghai Composite index fell by 0.08% to 3,202 and the Korea Composite Stock Price Index fell 0.50% to 2,564.

Emerging Markets

Foreign ministers from Brazil, Russia, India, China and South Africa met in Cape Town to call for the global order to be rebalanced away from western countries. Speaking at the meeting, Brazil’s Foreign Minister Mauro Vieira described the Brics nations as an “indispensable mechanism for building a multipolar world order that reflects the devices and needs of developing countries”.

Brazil has seen impressive economic growth in recent months, with the Central Bank’s economic activity index showing growth reached 0.56% in April. This was the biggest monthly increase since December 2013 and well above many analysts’ expectations.

Brazil’s President Luiz Inacio Lula da Silva is confident about the country’s economic outlook, saying he expects to see growth of at least 2% this year. Speaking after S&P revised its outlook for Brazil from “stable” to “positive”, he said the nation is regaining its international credibility under his leadership.

Meanwhile, S&P is expecting India to be the fastest-growing economy in the Asia Pacific region during 2024, with growth likely to be about 6%. Louis Kuijs, Asia-Pacific Chief Economist at S&P Global Ratings, said: “The medium-term growth outlook remains relatively solid. The Asian emerging market economies remain among the fastest growing ones in our global growth outlook through 2026.”

Fitch Ratings is also confident about India’s outlook, raising its growth forecast for the current fiscal year from 6% to 6.3%. In a statement, it described India as one of the fastest-growing economies in the world, as it is benefiting from “high bank credit growth and infrastructure spending, with more to come from the latter”.

The Indian government has sought to build on this strong performance by consolidating its global relationships. June saw Prime Minister Narendra Modi go on a state visit to the US, where he met with President Biden and enjoyed a lavish reception at the White House.

India’s tech sector, meanwhile, received a boost when Foxconn announced it would start manufacturing iPhones in the state of Karnataka by April 2024, in a move that will create around 50,000 jobs.

In Russia, President Vladimir Putin’s grip on power was questioned after Yevgeny Prigozhin, head of mercenary group Wagner, staged an apparent mutiny. Following a day in which Wagner fighters moved towards Moscow, the insurrection was eventually called off. Commenting on the rebellion, Antony Blinken said it represented a “direct challenge” to Mr Putin that shows “real cracks” in his authority.

As Russia continues with its assault on Ukraine and continues to suffer global sanctions, the economy looks set to suffer, with Bloomberg Economics predicting growth of just 0.8% this year. By contrast, Russia’s central bank is forecasting growth of 2% in 2023.

This comes as Russia aims to raise about 300bn rubles by imposing a one-off windfall tax on big companies. It is hoped the move will boost its coffers after posting a first-quarter deficit of nearly 2.4trn rubles.

On the financial markets, India’s BSE Sensex index rose by 3.47% to end at 64,718 points. Russia’s MOEX index rose by 2.63% to close at 2,789 points, while Brazil’s Bovespa index ended the month at 119,110 points.

And Finally…

Many of us might have wondered how people would react if we died suddenly, but one Belgian TikToker took it a step further by faking his own death. His wife and children, who were in on the prank, announced news of his “death” on social media, and even went as far as holding a fake funeral to see who would turn up and hear what they really thought of him.

Staying on the funeral theme, funeral firm Go As You Please is offering people the chance to pick their own custom-made coffins before they die. Among the suggested themes for the caskets are a Greggs sausage roll, a pint of Tennent’s Lager and Doctor Who’s Tardis. Each to their own…

To end on a lighter note, spare a thought for Iain Grant, 49, who ordered a curry online after arriving in Falmouth, Cornwall for a holiday. So far, so good, but upon arriving at the restaurant, it was clearly closed. Although he admitted to seeing the funny side, he was clearly incensed enough to contact the newspapers to share the details of his ordeal.

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. 

September Market Commentary

Wednesday, September 4th, 2019

Introduction 

August is traditionally known as the ‘silly season’. The great and the good are on holiday. Nothing is happening: there are no world events. So the newspapers have to resort to any number of peripheral and not-at-all-serious subjects to fill their columns. 

Not this year. 

Most of the headlines in the UK concerned Brexit. This Commentary is written on 1st September with no idea what will have happened by the end of the week, never mind by 31st October when the UK is – currently – scheduled to leave the European Union. 

But the big story of the month was not Brexit, but the continuing trade war between the US and China. The President didn’t mince his words: 

“Our country has lost, stupidly [sic], trillions of dollars to China over many years. They have stolen our intellectual property […] and they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them. […] Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.” 

China was not slow to respond as these words went hand-in-hand with another raft of tariffs. China has hit back against the Trump administration with a drastic exchange rate devaluation, almost guaranteeing a superpower showdown and a lurch towards a full trade war. The yuan blew through the symbolic line of seven to the dollar for the first time since the global financial crisis. […] The calculated action by the People’s Bank threatens to unleash a wave of deflation across the world and risks pushing East Asian countries and much of Europe into recession. It is certain to provoke a furious response from the White House. 

Capital Economics commented rather more succinctly that Beijing had taken the fateful step of ‘weaponising’ its currency. 

It is therefore hardly surprising that Reuters described the world economy as ‘probably being in recession with most business indicators flat or falling.’ And this was reflected on world stock markets, as none of the major markets we cover managed to gain ground in August. 

UK 

Boris Johnson ‘enjoyed’ his first full month as Prime Minister with Brexit dominating the agenda: as always there is a special Brexit section below, so let’s push it to one side for the moment. 

Figures released in the middle of the month showed that the UK economy had contracted for the first time since 2012, shrinking by 0.2% between April and June. However new Chancellor Sajid Javid has said that he does not expect the UK to slide into recession. 

There’s plenty of gloom on the UK’s high streets. July 2019 was the worst month on record for retail sales growth as consumer spending fell to a record low. Unsurprisingly this will result in job losses – Tesco is to cut 4,500 jobs at its Metro stores – and store closures. Shoe retailer Office is to close half its UK stores and empty shops are at their highest level for four years. 

There was one ray of sunshine – literally – as the good weather saw pubs and restaurants post modest monthly growth, although those with the beer glass half empty will point out that restaurant closures are continuing to rise. 

There was, though, plenty of news for those who prefer to see their glass as half full. 

Figures for June confirmed that wage growth had reached an 11 year high at 3.9% and that the employment rate was at its highest since 1971. The rate is estimated to be 76.1% with 32.81m people in employment – 425,000 more than a year ago. 

There was plenty more good news: Derby train maker Bombardier won a £2.34bn contract to make trains for the Cairo monorail, beating off ‘pharaoh-cious’ competition from Chinese and Malaysian firms. Overall, exports from the UK were up by 4.5% in June, the best performance since October 2016. 

There was also news of booming investment in the UK tech sector, especially from the US and Asia, as tech start-ups attracted a record $6.7bn (£5.58bn) in funding in the first seven months of this year. 

Mortgage lending also jumped to a two-year high as figures for July confirmed the approval of 67,306 mortgages, up from 66,506 in June. 

It wasn’t just the high street where there was bad news. Belfast ship maker Harland and Wolff – the firm best known for building the Titanic – called in the administrators, putting 120 jobs at risk. Optimism in the UK services sector also fell sharply and – in line with the rest of Europe – output was down in the UK car industry. 

Unsurprisingly, the FTSE 100 index of leading shares – along with the world’s other markets – had a difficult time in August, falling by 5% to 7,207. The pound was unchanged in percentage terms, ending the month at $1.2165. 

Brexit planning 

This section could be out of date within a matter of hours. 

Over the last month we have Boris Johnson in talks with Angela Merkel and Emmanuel Macron. One of his key demands has been the removal of the Irish backstop: do that, he has said, and then we can talk about the rest of the Withdrawal Agreement. 

His threat has always been that the UK would otherwise leave the European Union with ‘no deal.’ There seems to be a growing number of MPs getting ready to fight the Government and oppose a ‘no deal’ by seizing control of the House of Commons agenda – possibly aided by the Speaker – and making ‘no deal’ illegal. The Government hints that if this happens they will simply ignore the legislation. 

All this is, of course, set against the background of the Prime Minister’s decision to prorogue parliament (ending what has been a very long sitting) in readiness for a Queen’s Speech. Depending on your view, this is either a ‘coup against democracy’ or a perfectly normal decision by the Executive. 

As of early September, the country faces a possible General Election on 14th October, with the Prime Minister and Jeremy Corbyn trying to outwit each other. As we said earlier, there’s every possibility this is old news by the time you read this. 

Europe 

It was hard to find much good news in Europe. The month opened with the news that growth in the Eurozone economy had slowed as German output fell to a six-year low and the manufacturing sector continued to struggle. Germany’s overall Purchasing Managers’ Index was down to a 73-month low of 50.9 as the economy dealt with the US/China trade tensions, the overall global slowdown, weak demand from China and the uncertainty over Brexit. 

Against this, the service sector did well and wages rose, as the Eurozone reflected what is now a familiar pattern for so many developed economies. 

Figures in the middle of the month confirmed that the overall German economy had shrunk by 0.1% in the three months to June. A similar story in the three months to September would see Europe’s biggest economy officially in recession. 

August saw the return of political uncertainty in Italy – inevitably leading to a sell-off of Italian bonds and a fall in the stock market – as Matteo Salvini, leader of the right-wing League party, called for a snap election. 

By the end of the month a new government had been formed without Mr Salvini, as the anti-establishment Five Star movement formed a new coalition with the centre-left Democratic Party (PD). “We consider it worthwhile to try the experience,” said Nicola Zingaretti of the PD. We shall see…

Despite the gloom it was a relatively quiet month on Europe’s major stock markets. In keeping with the majority of world markets both Germany and France were down, but not significantly. The German DAX index dropped 2% to 11,939 while the French stock market fell just 1% to end the month at 5,480.  

US 

Given its impact on the wider world economy it seemed sensible to cover the US/China trade dispute in the Introduction, so this section deals purely with matters domestic. 

August started with a spat between the President and the Federal Reserve, as the Fed – as expected – cut US rates by 0.25% to a range of 2% to 2.25% and the President – as expected – said that it wasn’t enough. Federal Reserve Chairman Jerome Powell described the cut as a ‘mid-cycle adjustment to policy.’ His boss demanded ‘an aggressive rate-cutting cycle that will keep pace with China, the EU and other countries around the world.’ 

A few days later it was announced that the US had added 164,000 jobs in July – well down on the 224,000 jobs created in June but broadly in line with expectations. Unemployment remained flat at 3.7% and hourly earnings were 3.2% up on the same period last year. 

There was worse news later in the month as inflation rose to 1.8% (from a previous 1.6%) thanks to rises in gasoline and housing costs. This, of course, means that the Federal Reserve are likely to be more cautious about future rate cuts, which will presumably not do much for the President’s temper. 

In company news, Uber’s shares dropped 13% as it unveiled what were coyly termed ‘disappointing profit figures’ but which were really a thumping record loss of over $5bn (more than £4bn) for the three months to June 2019. Meanwhile co-working space provider WeWork unveiled a loss of $900m (£750m) in the first six months of the year and announced that it would seek a stock market listing. Whatever happened to that quaint notion of companies making a profit and paying a dividend to shareholders? 

By the end of the month the President was back on the attack, confirming that he was planning a new, temporary cut in payroll tax in a bid to further boost the US economy. “A lot of people would like to see it,” said the President. 

Wall Street generally likes to see news of tax cuts, but in August there were just too many worries about the trade war with China for the Dow Jones index to make any headway. It was down 2% in the month, closing at 26,403. 

Far East 

All roads in the Far East led to Hong Kong in August as the pro-democracy protests continued and the authorities became more and more determined to quash them. The month ended with tear gas, water cannons and threats of five-year jail sentences for anyone taking part in the protests. 

Throw in the continuing trade war between the US and China and August was inevitably a difficult month for the region’s stock markets, as we will see below. 

The month had also started with another trade row, albeit on a much smaller scale. Japan has removed South Korea from its list of ‘trusted trading partners,’ citing security concerns and poor export controls. Unsurprisingly, Japanese car sales in South Korea duly slumped. 

There are now growing fears that the US/China trade war and general worries about the global economy will push some of the smaller, ‘innocent bystanders’ in the Far East – such as Hong Kong and Singapore – into recession. 

In the region’s company news Samsung launched a range of new phones – but Samsung heir Lee Jae-yong, along with disgraced former President Park Geun-hye, now faces a retrial on bribery charges. Meanwhile China’s leading specialist facial recognition company Megvii decided to seek a stock market listing. 

Inevitably the pro-democracy problems and general unrest in Hong Kong had to impact economic growth at some point. Figures for the second quarter of the year showed that the economy had grown at just 0.5% year-on-year, which was below expectations. So it was no surprise to see the Hong Kong stock market down by 7% in the month, as it closed August at 25,725. 

China’s Shanghai Composite index was down 2% at 2,886 and the South Korean market fell 3% to 1,968. Japan completed a miserable month for the region’s stock markets as it dropped 4% to close August at 20,704. 

Emerging Markets 

It is easy to think that the big story in Emerging Markets was the fires in the Amazon rainforest. The G7 offered Brazil money to combat the fires – which President Jair Bolsonaro immediately rejected as he traded insults with French President Emmanuel Macron. 

Of greater long term significance to the financial markets – and the wider economy of South America – might well be the political and economic developments in Argentina. Both the peso and the Argentinian stock market plunged after a shock defeat for President Mauricio Macri in mid-month primary elections. The peso fell 15% against the dollar, while some of Argentina’s leading stocks lost 50% of their value. 

In early September, the Argentine Central Bank imposed currency controls as the crisis deepens, with the country also looking to suspend debt repayments to the International Monetary Fund. 

Fortunately, it was a much more sober month for the three major emerging stock markets we cover. The Russian market barely moved at all, rising just one point in the month to 2,740. The Indian market was also unchanged in percentage terms, closing August at 37,333 and, despite all the controversy and criticism of the government’s response to the fires, the Brazilian stock market was down just 1% in the month at 101,135. 

And finally…

All too often, the news was depressing. That is especially true if you are one of the directors of that well-known financial institution the Bank of Mum and Dad, now one of the biggest mortgage lenders in the UK. 

According to recent figures from L&G the Bank of Mum and Dad lent (or gave) a total of £6.3bn last year to help its children get on the housing ladder. The UK’s 10th biggest mortgage lender, the Clydesdale Bank, lent just £5bn. 

The average amount lent by the Bank of Mum and Dad is £24,100 – up by £6,000 on the previous year. But not content with running a bank, it appears that Mum and Dad have decided to diversify – and the Hotel of Mum and Dad is doing record business. 

According to the Office for National Statistics a quarter of the young adults in the UK – those aged 20 to 34 – live at home, with the number growing steadily over the past 15 years. According to a survey by MoneySuperMarket of 500 adults living at home and 500 parents who had adult children living with them, the ‘kidults’ were at home for an average 9.7 months and cost Mum and Dad £895 as they emptied the fridge, had their washing done for them and demanded that the old people open a Netflix account. 

This year the stay has extended to more than 10 months and the cost has escalated to more than £1,600 as water, heating and electricity costs have risen at the hotel. 

Apparently many of the guests are also demanding a steady stream of takeaways. A welcome distraction, perhaps, from reading the latest Brexit updates.

August Market Commentary

Wednesday, August 7th, 2019

Gold hit a six-year high as nervous investors looked for alternatives to stock markets. The IMF cut global growth forecasts amid continuing trade tensions.

In any normal month these would have been perfectly normal introduction, but July was not a normal month. With Boris Johnson becoming UK Prime Minister and sweeping into 10 Downing Street on a wave of promises to deliver Brexit ‘do or die’ by 31st October – only a handful of months away. 

How you feel about that commitment will almost certainly depend on how you voted in the 2016 Referendum. If you voted Leave then Boris is showing real leadership, we finally have a Prime Minister who is negotiating from a position of strength and he has achieved more in a week than Theresa May achieved in three years.

If you voted Remain then Johnson is threatening the union of the UK, driving the pound to dangerously low levels and risking – if not actively seeking – a catastrophic ‘no deal’ exit on 31st October. 

The one thing we think you can now say is that the UK will leave the European Union on 31st October. The public commitments to that date have been so clear that any backtracking is unthinkable. But there remain any number of imponderables, as we discuss in the Brexit section below. 

And so to the other world news that made the headlines in July. And yes, gold did hit a six year high of $1,450 (£1,190) an ounce as jittery investors looked for a safe haven. Gold is up by 6% over the last month and 12% in the last year as the US/China trade dispute, lower growth prospects for world trade and worries about inflation if the US Federal Reserve cut interest rates all added to investors’ uncertainties. 

Meanwhile, the International Monetary Fund (IMF) has trimmed its growth forecasts for the global economy for both this year and next year. Growth for this year is now forecast to be 3.2% – down from the 3.3% forecast in April – with growth for 2020 forecast to be 3.5%. Growth “remains subdued” said the IMF, with an “urgent need” to reduce trade and technology tensions. However, the IMF did raise its forecast for UK growth, from 1.2% to 1.3%. 

July was a generally uninspiring month for world stock markets. Of the major markets we cover in this Commentary only four made gains, and none of those gains were significant. Let’s look at what happened in more detail.

UK 

June was a wet month and UK high street retailers duly reported a ‘wash out.’ Total sales decreased by 1.3% in the month, taking the yearly average down to a 20-year low according to research from the British Retail Consortium. 

Bookmaker William Hill added to the gloom with plans to close 700 shops – putting 4,500 jobs at risk – and there are suggestions that up to 3,000 betting shops could close up and down the UK as gamblers increasingly move online and the reduction in stakes on fixed odds betting terminals starts to bite. 

And it is not just betting shops. A report from Retail Economics predicted that internet shopping will overtake physical stores by 2028 as deliveries become faster, cheaper and more convenient. The trend will be driven by millennials and Generation Z, who will form 50% of the adult population in the next decade. Ten years from now our high streets will be very different places – if they exist at all. 

Away from the high street there was good news in July though, as Amazon (who else?) announced plans to create up to 2,000 new jobs, taking its UK workforce up to nearly 30,000. 

Japanese telecoms company NTT announced that it would be opening a global HQ in London for one of its subsidiaries and at the end of the month Hitachi Rail announced a £400m investment at its plant in Newton Aycliffe, County Durham.

Jaguar Land Rover also unveiled an investment of ‘hundreds of millions’ to build a range of electric vehicles as its Castle Bromwich plant, which will secure the jobs of 2,700 workers at the plant. But – as there was across Europe – there was also bad news for the UK car industry, with Nissan threatening to cut 10,000 jobs worldwide and the Society of Motor Manufacturers and Traders saying that overall investment in the industry has ‘plummeted.’

From the roads to the rail. Boris Johnson has long been sceptical of HS2 and the chairman of the project has now written to the Department of Transport saying that it ‘cannot be delivered within its £56bn budget and the cost could rise by £30bn. There is bound to be a review of the project but meanwhile the Prime Minister used a speech in Manchester to commit to a faster trans-Pennine rail link – something the North of England has long needed. 

Let’s end the new Prime Minister’s first UK section with some more good news. ‘Fintech’ (financial technology) investment is booming in the UK and 2019 is set to be a record year, as funding reached £2.3bn in the first six months of the year. And household finances are looking up – June saw consumers saying they were optimistic about their personal finances for the first time this year. 

Also looking up was the FTSE 100 index of leading shares, which closed July up 2% at 7,587. But if the stock market was going up, the pound was definitely going in the other direction with the financial markets anticipating a ‘no deal’ Brexit. The pound closed the month down 4% against the dollar at $1.2218. 

Brexit 

To no-one’s surprise, it was Boris. The result was, perhaps, closer than many had predicted but Boris Johnson comfortably beat Jeremy Hunt in the vote by Conservative members, kissed the Queen’s hand and took over from Theresa May as Prime Minister. He duly appointed Sajid Javid as Chancellor, and we can expect a radical Budget when the new man in 11 Downing Street presents it. Whether that will be before or after 31st October remains to be seen, but one suspects that the speech – and the measures proposed – will be in stark contrast to anything Philip Hammond might have had in mind. 

Boris Johnson has had meetings in Northern Ireland, having already visited Scotland and Wales. He has demanded that the Irish backstop – the most contentious part of Theresa May’s Withdrawal Agreement – be scrapped and he’s been met with the predictable response from Europe. 

Are we now headed for a ‘no deal’ Brexit? Boris Johnson says he doesn’t want that, but has ramped up preparations just in case, with Sajid Javid committing an extra £2.1bn and meetings of the relevant Cabinet committee taking place every day. 

There remains, however, a significant number of MPs vehemently opposed to ‘no deal’ and the Government’s majority is wafer-thin. It’s unlikely, but you cannot rule out a General Election before 31st October and there will certainly be further attempts in parliament to thwart a ‘no deal’ Brexit. Meanwhile the Brexit Party and the hard-line Eurosceptics will be holding the Prime Minister’s feet to the fire.

‘May you live in interesting times’ is supposedly a Chinese curse. If nothing else the next 90 days in UK politics will certainly be interesting.

Europe 

There was plenty of economic news in Europe in July, but we should perhaps start in the corridors of power where, after much talking, negotiating and deal-making, German Defence Minister Ursula von der Leyen emerged as the only name on the ballot paper to replace Jean-Claude Juncker as European Commission chief. 

Von der Leyen makes no secret of her wish to move to closer European integration and – while the headlines were all about how her appointment will impact Brexit – she could, in the long run, be very bad news for a country like Ireland, which has benefitted from a lower corporation tax rate. 

It was all change in the top jobs as Christine Lagarde left the IMF to take over as head of the European Central Bank. 

Lower down the bankers’ food chain it was very much all change at the beleaguered Deutsche Bank as it announced plans for 18,000 job losses. There are rumours that the bank’s customers are pulling out $1bn (£800m) a day amid worries about the bank’s continuing solvency. 

There was also more gloom for the European car industry as car sales dropped by 7.9% in the European Union in June, the biggest fall since December and 130,000 registrations down on the same period last year. 

More generally the German manufacturing recession worsened as the Purchasing Managers’ Index for the sector dropped to 43.1 from 45.0, with any figure above 50 reflecting ‘optimism.’ This was the lowest level since 2012 as export orders showed their sharpest decline for a decade. 

How did all this translate onto the European stock markets? The German DAX index was down 2% in July to 12,189 while the French stock market fell just 20 points – unchanged in percentage terms – to 5,519. In Greece the market rose 4% to 900 as the centre-right under Kyriakos Mitsotakis won the snap general election. 

US

It was a good start to the month in the US, as figures for June confirmed that 224,000 jobs had been created against the expected 160,000. Normally this would have persuaded the Federal Reserve to keep interest rates on hold 

However, revised figures at the end of the month showed that the US economy had grown by less than expected in 2018, increasing by 2.5% and missing the President’s target of 3%. 

With Donald Trump continuing to describe the Fed’s decision to keep interest rates on hold as a ‘faulty thought process’ something clearly had to give and it duly gave on the last day of the month, as the Fed reduced US interest rates for the first time since 2008. The rate was cut by 0.25% to a target range of 2-2.25% but this wasn’t enough for the President. He scorned Federal Reserve chairman Jerome Powell on Twitter: ‘As usual, Powell let us down.’ 

In company news, there was the now seemingly-monthly bad news for Facebook, which faced a $5bn (£4.1bn) fine over privacy breaches, while US Treasury Secretary Steve Mnuchin criticised its plans for a crypto-currency, telling a press conference that it could be used by money launderers and terrorist financiers and was a national security issue. 

Apple posted a small rise in sales for the third quarter of its year – although iPhone sales and profits both dipped. Alphabet (Google’s parent company) and Amazon posted more impressive figures, with both firms reporting sales increases of close to 20% for the latest quarter. 

Meanwhile Elon Musk – of Tesla, SpaceX, the Boring Company and other future fame – brought us what may be his most revolutionary project yet. His company Neuralink revealed a brown and white rat with thousands of tiny electrodes implanted in its brain. It is, apparently, the first step towards linking the human brain to artificial intelligence, with the company betting that millions of people will eventually pay to become cybernetically enhanced. 

If Wall Street was cybernetically enhanced in July it wasn’t by much. The Dow Jones Index rose by just 1% in the month, closing at 26,864. 

Far East 

There was plenty of news in the Far East in July, but one story dominated all the others. The month began with Hong Kong leader Carrie Lam condemning the extreme use of violence as pro-democracy protesters stormed the parliament building. 

The protests continued throughout the month, and it seems inevitable that they will go on into August, quite possibly with ever increasing violence. Beijing – through the Hong Kong legislature – is determined to stamp down on any show of dissent and when then-Foreign Secretary Jeremy Hunt tried to intervene he was told in no uncertain terms to show some respect.

Away from the protests figures confirmed that China’s economy had grown at just 6.2% in the second quarter of the year. Obviously ‘just’ is a relative term, but this is the slowest rate of growth in China since the 1990s. 

Unsurprisingly the continuing trade tensions with the US meant that both China’s exports and imports were down when figures for June were reported, with exports down by 1.3% and imports down by 7.3% as domestic demand slowed. With China’s economy now driving so much growth around the world – not just in the Far East – it was hardly surprising that the IMF reduced its projection for global growth this year. 

In South Korea, Samsung announced that it was finally ready to sell its long-awaited folding phone after the April launch was delayed due to problems with the screen. The phone will go on sale in September in selected markets but – with the phone costing nearly $2,000 (£1,630).

A week later, Samsung faced rather bigger problems than fixing the screen on a folding phone, as the world’s biggest smartphone and memory chip manufacturer saw profits fall 56% in the three months to June. Samsung said results were in line with expectations as it blamed the continuing China/US trade war and a trade dispute between the South Korean and Japanese governments. 

It was – perhaps unsurprisingly – a disappointing month on Far Eastern stock markets as three of the four major markets fell.  China’s Shanghai Composite Index was down 2% to 2,933 while the Hong Kong market was down by 3% to 27,778. South Korea suffered a sharper fall as the market dropped by 5% to end July at 2,025. The one bright spot was Japan’s Nikkei Dow index, which was up 1% in the month to 21,522. 

Emerging Markets 

It was a relatively quiet month for our Emerging Markets section. Of the three markets we cover, Brazil was the only one to make any gains in the month with the stock market rising just 1% to 101,812. The Russian market slipped back by a similar amount, closing down 1% at 2,739. However, India suffered a sharper fall, sharing the month’s wooden spoon with South Korea as it fell 5% to end July ay 37,481. 

And finally…

News from the French Civil Service: Auditors for the Provence-Alps-Riviera region published a report in July showing 30 ‘ghost’ civil servants had been paid more than £22m to do nothing for the last three decades. Their jobs were phased out in 1989 but they continued to be paid, much to the embarrassment of the French President.

But, of course, we now know that the real way to riches is through your teenage son’s bedroom. Worried that he’s spending far too long in there playing video games? Nonsense, he’s working on his future career. July saw 16 year old US teenager Kyle Giersdorf win $3m (£2.46m) as he became world champion of the computer game Fortnite. 

With two British teenagers also picking up major prizes, it’s becoming an even bigger challenge for parents trying to convince their kids to wash the dishes. 

July Market Commentary

Thursday, July 4th, 2019

Introduction

Many of you will know the old stock market adage: ‘Sell in May and go away, and come on back on St. Leger’s Day.’ 

The theory was that with everyone out of London for the summer season there was little business to be done and the stock market drifted lower. These days, of course, we live in a very different, very connected world where the London stock market is affected far more by relations between the US and China than it is by deals done at Royal Ascot and Henley. And if you had ‘sold in May and gone away’ then you’d have missed out on an excellent month: with just one exception, all the world’s leading stock markets rose in June, some of them by significant amounts. 

This was despite June being another month where the US/China trade tensions continued to simmer, where Chinese industrial output fell to a 17-year low and where India also faced tariffs from the US President – and inevitably responded in kind. Although there was a glimmer of light at the G20 summit at the end of the month, as the US and China agreed to a pause in hostilities, with talks on solving the trade dispute set to resume.

Stock markets also overcame gloomy news from the World Bank, which had opened the month by suggesting that the global economy was weakening. It was now predicting global growth of just 2.6% in 2019, and a very slight increase to 2.7% in 2020. Inevitably ‘international trade tensions’ were to blame. 

There was also a bleak long term forecast on jobs. Oxford Economics forecast that up to 20m manufacturing jobs around the world could be lost to robots and automation by 2030, with the people replaced by the robots finding that comparable roles in the service sector had also been squeezed by AI. 

One job up for grabs is, of course, that of the UK Prime Minister. The battle to succeed Theresa May has been fought down to two – Boris Johnson and Jeremy Hunt. We will have a decision by the end of July: whether the winner will be able to command a working majority in Parliament will be a different matter.

UK

For a change, the UK section of these notes is not awash with ‘retail gloom.’ No doubt that will return, for now let’s start with the good news…

Despite all the uncertainty, UK consumer confidence hit an eight month high in May, with unemployment continuing at a record low level and wages growing faster than expected in the three months from February to April. 

Wage growth for the period was 3.4% with official figures confirming wage growth of 1.4% after inflation had been taken into account. Despite this, though, many people continue to need more than one job to make ends meet, with estimates from the TUC released at the end of the month suggesting 1-in-3 people are now working in the ‘gig economy.’ 

…And if you like your glass half-empty, the rest of the month’s news would have been just what you were looking for. 

UK house prices slipped in May in a subdued market and – not helped by car plant shutdowns – figures showed that the UK economy had contracted by 0.4% in April. Car manufacturing fell by 24% in that month, with the Society of Motor Manufacturers and Traders saying that production is now 45% down on a year ago. 

With the continued uncertainty over Brexit and the ongoing global trade tensions, audit firm KPMG forecast that UK GDP growth will be 1.4% in 2019, falling to 1.3% in 2020, with both figures 0.2% down on the firm’s forecasts in March. 

Hand in hand with the race to succeed Theresa May – covered below – went the ongoing debate on the future of HS2. Boris Johnson has admitted to ‘serious doubts’ but leading business groups (including the CBI and the IoD) have urged the Government to commit to the project, arguing it is vital for the UK’s infrastructure. 

By the end of the month the gloom-mongers had won the battle, with the consumer confidence that had been so high in May turning a complete 180 degrees. By the end of June consumers were feeling negative about both their personal finances and the general outlook for the UK. 

Fortunately this view was not shared by the FTSE 100 index of leading shares, which rose 4% in the month to close June at 7,426. The pound survived the buffeting of bad news to end the month unchanged in percentage terms, trading at $1.2696. 

Brexit 

As we mentioned in the introduction, the race to succeed Theresa May is now down to two – former Foreign Secretary and ex-Mayor of London, Boris Johnson, and the current Foreign Secretary, Jeremy Hunt. The final decision will be taken by Conservative Party members, with the result announced on Tuesday 23rd July. 

All the indications at the moment are that Boris Johnson will win – he is an overwhelming favourite with the bookmakers – so what does he have to say about Brexit?  

Part of the reason he is such a firm favourite is that he has given a commitment that the UK will – deal or no deal – leave the EU on 31st. With so many top positions in the EU currently changing, and with many heads of government – Ireland’s Leo Varadkar is the latest – resolutely trumpeting the ‘no re-negotiation’ line, leaving without a deal is becoming a real possibility. Whether you see this as ‘crashing out’ or very sensibly moving to World Trade Organisation terms probably depends on whether you voted Remain or Leave. 

What a Johnson victory may well mean is an early Budget. At the moment the Budget is scheduled for November. However, Boris Johnson is reported to want to give the economy a real shot in the arm before the UK leaves the EU, so there could well be a tax cutting Budget in September, with cuts to both higher rate tax and stamp duty. 

Europe 

Among a media storm questioning her health after being seen shaking, German Chancellor Angela Merkel vowed that her coalition government will continue. This despite the surprise resignation of Andrea Nahles, leader of the coalition’s junior partner, the Social Democratic Party. 

If the political clouds are gathering over Mrs Merkel, the economic ones may be gathering over Germany as a whole following the release of more gloomy financial news. 

Industrial production in April was down by 1.9% compared to the previous month, with exports 0.5% lower than the same period in 2018. The Bundesbank – Germany’s central bank – is now predicting growth of just 0.6% this year, compared to a forecast of 1.6% growth it made in December. 

Clearly this is bad news not just for Germany but for the whole of Europe, as the slowdown in China and the US/China trade dispute continue to impact the German economy. 

There was more bad news in the car industry as Volkswagen announced plans to cut ‘thousands’ of jobs as part of a modernisation drive. Meanwhile BMW joined forces with Jaguar Land Rover to co-operate on electric cars as the traditional car makers continued to battle against new entrants to the market. 

There was more bad news on jobs as Deutsche Bank revealed plans to cut 15-20,000 jobs – although those would be worldwide cuts, not just in Germany. Meanwhile in the wider European economy the ECB said that it would keep interest rates on hold at the current record low levels until at least the middle of 2020, as it continues to try and spark some life into the Eurozone economy. 

And, as they say, all good things come to those who wait. After 20 years of negotiation it was finally announced that the EU had agreed a trade deal with Mercosur – the South American trade bloc which includes Brazil, Argentina, Uruguay and Paraguay. Brazil’s President Jair Bolsonaro called it “one of the most important trade deals of all time.” Whether Irish beef farmers, suddenly facing competition from South American imports, will agree is another matter…

There was plenty of ‘beef’ in European stock markets in June, as both the German and French indices rose by 6% in the month, to close at 12,399 and 5,539 respectively. 

US 

The month did not get off to a good start in the US, as figures showed that the economy had only added 75,000 jobs in May, far fewer than the 180,000 analysts had been predicting. It is possible that another month of poor figures could see a cut in interest rates from the Federal Reserve – something the President has long called for. 

The figures showed that wage growth was also sluggish, although US unemployment remains at a 50 year low of 3.6%. 

Something that wasn’t sluggish – and hasn’t been sluggish through much of 2019 – was the performance of the virtual currency Bitcoin, which has risen from £3,133 at the end of March to £9,335 by the end of June. Bitcoin is, of course, a virtual (or crypto) currency and in June, Facebook announced that it would be launching a virtual currency of its own – the Libra – in 2020. 

This virtual currency already has the apparent backing of Uber, Spotify and Visa and with bank JP Morgan also creating its own currency – the JPM Coin – June 2019 may turn out to be the month when virtual currencies took a major step forward. 

Staying in cyberspace there was bad news for two US cities as Lake City in Florida followed Riviera Beach in paying a ransom (in Bitcoin, inevitably) to hackers after their computers had been offline for two weeks. According to reports, workers in Lake City disconnected computers within minutes of the attack but it was too late: they were locked out of email accounts and residents were unable to make payments and access online services. The ransom was reported as $500,000 (£394,000) and it is surely only a matter of time before the same thing happens to a local council in the UK. 

Fortunately Wall Street was not held to ransom and, in line with virtually every other major world stock market, the Dow Jones index enjoyed a good month, rising by 7% to close June at 26,600. 

Far East 

We have covered the US/China trade row above – at least the month ended with a commitment to restart the talks aimed at ending the dispute. But in June it was the China/Hong Kong row that really made the headlines, as the Hong Kong legislature sought to allow extraditions to mainland China, arguing that it “would keep Hong Kong a safe city for residents and business.” 

This sparked huge protests and some of the worst violence seen in decades, with protesters worried ‘keeping the city safe’ will inevitably come to mean ‘not criticising the Chinese government.’ 

There are also worries that the proposed legislation might damage Hong Kong’s status as a global financial centre. “The proposed legislation would undermine Hong Kong as a hub for multinational firms [and] as a global financial centre,” said a Washington-based think tank. Despite the protests, the legislation is likely to go ahead at some point. 

Another long term worry for China is the spread of its deserts, apparently caused by global warming, deforestation and overgrazing. At least in June it took comfort in the arms of Japan as Shinzo Abe and Xi Jinping had what appeared to be a friendly meeting ahead of the G20 summit, with the US/China trade wars and tensions about North Korea seemingly bringing the two countries closer together. 

All the leading Far Eastern stock markets were up in the month. Despite the protests Hong Kong led the way, rising 6% to 28,543. The South Korean market was up by 4% to 2,131 while China’s Shanghai Composite Index and Japan’s Nikkei Dow were both up by 3%, to end the month at 2,979 and 21,276 respectively. 

Emerging Markets 

If the US economy got off to a bad start with the jobs figures, the Indian economy got off to an even worse start in June as it lost the ‘fastest growing economy’ title to China. 

Figures for the first quarter showed the economy growing at 5.8% – mightily impressive compared to economies in Western Europe, but below the 6.6% recorded in the previous quarter and below the 6.4% posted by China. 

Worse was to follow a few days later as the US imposed a 10% tariff on a series of Indian imports including imitation jewellery, building materials, solar cells and processed food. Inevitably this led to fears of job losses and – equally inevitably – India was quick to retaliate as it imposed tariffs on 28 US products, some as high as 70%. 

Will this mean a US/India trade dispute to mirror the US/China dispute? While it looks unlikely, India was the only one to fall in June, dropping 1% to end the month at 39,395. 

Meanwhile the markets in both Russia and Brazil moved up in the month: both markets were up by 4% in June, with the Russian market closing at 2,766 and the Brazilian market going through the 100,000 barrier to reach 100,967. 

There was clearly good news for the South American economy with the trade deal agreed with the EU which we have mentioned above. There was less good news for Argentina and Uruguay in the middle of the month. A massive power outage left both countries completely in the dark, wiping out power to tens of millions of people. Argentine President Mauricio Marci has promised a “full investigation.” As soon as he can find the light switch…

And finally…

We have mentioned cyber-attacks above and one company particularly badly hit was Norwegian aluminium producer Norsk Hydro, who saw 22,000 computers go offline in 170 locations around the world. The company refused to pay the ransom demanded and instead fought back against the hackers using the latest cutting edge technology: the pencil and paper. 

…And June really was nostalgia month as 1990s toys are apparently making a comeback on a wave of millennial nostalgia. If you were in a school playground in the 1990s – or your children were – you may remember Tamagotchi (digital pets) and they’re being re-joined on shelves by Teenage Mutant Ninja Turtles, Power Rangers and Polly Pocket. There is also, according to analysts, an increasing market for the films of the same era as grown-up millennials feel nostalgic for their childhood.

If you haven’t made your fortune from your own version of Cash in the Attic, perhaps the answer is to get serious about Crazy Golf. You may have thought Crazy Golf was just a game to play at the seaside, but now the ‘sport’ is dreaming of Olympic recognition and hosting a series of championships up and down the UK. 

While Tiger Woods was pocketing $2m (£1.6m) for winning the US Masters, near-namesake Mark Wood, a local council finance manager, won £50 as he was crowned UK Crazy Gold champion. The secret? According to the sport’s insiders, it is to keep your ball safely tucked inside a sock. That way, it keeps an even temperature and rolls consistently. 

Get out there! With that vital piece of inside information there’s nothing to stop you…

May markets in brief

Wednesday, June 12th, 2019

The calm of the previous month ended sharply as May began, with Brexit arguments rolling on, the UK Prime Minister resigning, the European elections crushing the main parties, and Donald Trump imposing tariffs on Mexico and China. There was some positive light, however, from the emerging markets, with India, Russia and Brazil seeing economic gains.

UK

The British high street took a hit this month with the loss of Jamie Oliver’s chain of Italian restaurants, Boots’ decision to review the future of 200 stores and Marks and Spencer’s decision to close an as yet unspecified number of stores. Thomas Cook also revealed a loss of £1.45bn, seeing its shares fall 40%. Overall, retail shop vacancies are at a four year high.

There was better news away from the high street with the UK economy growing 0.5% in the first quarter and the Bank of England raising its growth forecast for the year from 1.2% to 1.5%. However, it also warned that interest rate rises might become more frequent.

The FTSE 100 Index closed down 3% at 7,162 while the pound was down against the dollar, closing the month at $1.2633.

Europe

Much of the continent’s news in May covered the European elections which saw the ‘Grand Coalition’ – the Centre-Right and Centre-Left groupings – lose significant numbers to more radical parties. In France, Marine Le Pen’s National Rally party defeated Emmanuel Macron by 24% to 22.5%. While in Italy, Matteo Salvini is reportedly preparing a new ‘parallel currency’, announcing ‘I do not govern a country on its knees’. Could this be the first step in taking Italy out of the EU?

Overall, the Eurozone economy grew in the first three quarters by 0.4%, though business confidence was said to have ‘crumbled’ according to a survey of more than 1,400 chief financial officers by Deloittes. Across the Eurozone, 65% reported the level of uncertainty as ‘high’ or ‘very high,’ with the US/China trade dispute and Brexit cited as the main reasons. Both major European markets fell in May. The German DAX index was down 5% to 11,727 while the French index fell by 7% to close the month at 5,208.

US

Strong labour data convinced the Fed to keep rates on hold as the US economy added 263,000 more jobs in April, with the unemployment rate now at its lowest since 1969. In company news, Facebook announced plans to launch a cryptocurrency to rival Bitcoin, and Ford said that it would need to shed 7,000 jobs as it looked to cut costs. On Wall Street, the Dow Jones index fell in the month, ending May down 7% at 24,815.

Far East

The trade war between the US and China intensified as the US re-imposed tariffs on $200bn of Chinese goods. China retaliated on 1st June by imposing tariffs of up to 25% on $60bn of US goods.

To add to the worries of a slowdown, analysts have started to ask if ‘winter is coming’ to the booming Chinese tech sector, with electric vehicles, industrial robots and microchip production all slowing down recently. In addition, big companies like Alibaba, Tencent and Baidu have all cut jobs, with one in five Chinese tech companies now planning staff cuts.

All the major stock markets in the region were down due to the trade war. Hong Kong was the worst affected, falling 9% to 26,901. The Japanese and South Korean markets were both down by 7% to 20,601 and 2,042 respectively, while China’s Shanghai Composite Index was down by 6% to end May at 2,899.

Emerging Markets

India saw the world’s largest democratic vote with 600m voting for a new Prime Minister – the victory went to the incumbent Narenda Modi by a landslide. One of the big questions is how Modi will handle the Indian economy. In his first term, India became the world’s fastest growing economy as he cut red tape and reformed the bankruptcy laws. But his biggest gamble, banning more than three-quarters of the notes in circulation in a bid to tackle corruption, backfired badly and delivered a significant blow to economic growth.

Brazil’s economy fell by 0.2% in the first three months of the year, the first decline since 2016. Despite this bad news, the Brazilian market still managed a gain of 1% in the month, closing May at 97,030. The Indian stock market rose 2% to 39,714 but the star performer this month was the Russian market, which rose 4% to finish the month at 2,665.

We hope you have great June and are preparing for a warm summer. If you have any questions about the latest stock market news, please don’t hesitate to get in touch.

April Market Commentary

Wednesday, April 3rd, 2019

Introduction

We have commented before on the difficulty of ‘hitting a moving target.’ Sometimes in writing this commentary you run the risk of what you write being overtaken by events, and that has never been more true than this month. In the short time between us publishing notes and you reading them it is possible that the Brexit section will be different.

Given the fact that Brexit continues to dominate the news headlines it’s tempting to think it is the only important story. Nothing could be further from the truth. There were clear signs that the US/China trade dispute might be moving to an end, and it was an interesting month in the US with clear pointers to a sea-change in the car industry – something that has worldwide implications.

In the UK we had Chancellor Philip Hammond’s Spring Statement, the usual gloom from the high street and continuing good news on employment.

World stock markets had a reasonably good month, buoyed by hopes of an agreement between the US and China. We have also taken a look at the performance of all the major markets in the first quarter of 2019. Let’s look at all the detail…

UK

There was, of course, the usual round of gloom from the UK retail sector. Debenhams issued a profit warning – failing to meet forecasts it made just two months ago – and Sports Direct boss Mike Ashley duly contemplated a £61m bid for the company. As of April 1st, the Debenhams board appears to have secured refinancing to fend off Mr Ashley’s amorous advances, but you suspect it is only a matter of time…

More widely the high street suffered its worst February for ten years with sales down 3.7% and John Lewis paid its lowest bonus to staff since the 1950s. What was once Staples and is now Office Outlet went into administration. There was also a very clear sign of things to come from the traditional high street travel agent as Thomas Cook announced plans to close 21 shops and cut 300 jobs.

Elsewhere in the UK there was the usual mixture of good and bad news…

Chancellor Philip Hammond delivered his Spring Statement: he made his opposition to a ‘no deal’ Brexit very clear, promising a £26bn ‘deal dividend’ if agreement was reached with the EU.

But despite the undeniable uncertainty, the UK economy continued to turn in some impressive figures as unemployment fell to its lowest level for 45 years and 32.7m people were in work. Figures from the Office for National Statistics showed that the economy had grown by 0.5% during January – more than double economists’ predictions of 0.2% – with the important services sector up by 0.3%.

Toyota announced that it would build its new hybrid car in Derbyshire – a welcome shot-in-the-arm for the UK car industry which saw manufacturing fall for the 9th month in a row. The BBC also reported that UK manufacturers were cutting jobs at a ‘record pace thanks to Brexit uncertainty’ as companies stockpiled raw materials ‘at a record pace’.

There was also bad news in the housing market, with prices in England falling by 0.7% in the first three months of the year, compared to the same period last year. This was the first fall since 2012, but Nationwide’s survey showed that rises in Northern Ireland, Wales and Scotland meant that the average price of a house across the whole UK was still increasing. UK inflation in February inched backed up to 1.9%, with increases in the cost of food and wine contributing.

What did the UK’s FTSE 100 index of leading shares make of all this confusion? It had a good month, rising by 3% to 7,279 where it is up by 8% for the first quarter of 2019. The pound fell slightly, ending March 2% down at $1.3036 – however, it is up by 2% for the first quarter of the year.

Brexit

Yet again, all the really important news regarding Brexit came at the end of the month as Theresa May brought her Withdrawal Agreement back to Parliament for a third time on 29th March – the day on which the UK should have left the EU – only to see it defeated yet again. The margin this time was 58 votes, with the DUP once again refusing to support it.

There were plenty of high profile Brexit supporters, such as Boris Johnson and Jacob Rees-Mogg, who did support the WA. They feared the only option left was to accept a bad deal or risk losing Brexit altogether – but in truth the Prime Minister never looked likely to do enough to convince either the DUP or 25 die-hard Brexit MPs.

So where does that leave us now? On Monday 1st April there will be another series of indicative votes as MPs look for something they can agree on. The Prime Minister has no control over this and – having promised to stand down if her deal passed – she will face plenty more calls for her immediate resignation as her deal lies in ruins.

If nothing is agreed – such as a further extension to Brexit – then the UK will leave the EU on 12th April. Depending on your point of view we will ‘crash out’ with no deal, or we will move to trading on World Trade Organisation terms. The situation is further complicated by European elections, due to be held in late May: if the UK is still in the EU then it must send MEPs to Brussels.

Europe

The news in Europe was not good. March began with the revelation that EU manufacturing was facing its worst downturn for six years. The European Central Bank was once again forced to act, offering banks cheap loans to try and revive the Eurozone economy.

But will it get any better? For decades there have been three basic facts of life about cars: cars were driven by people, they were owned by people (or the companies that employed those people) and they were powered by internal combustion engines. Now all of those are under threat and the implications are serious and wide-ranging. The German economy has been the engine powering Europe for the last 10 to 20 years. As countries like Italy have had a decade of virtually no growth, Germany has produced a remorseless balance of payments surplus.

The German car industry employs more than 800,000 people: it accounts for around 20% of the country’s exports. If car production switches to driverless cars made in the Far East and/or California, then the implications for Europe are severe.

So, given their less than cordial relationship with the EU of late, it was no surprise to see Italy roll out the red carpet for Chinese Premier Xi Jinping. We have written previously about China’s ‘Belt and Road’ initiative and – with worries about the German car industry and the French economy stagnating – why wouldn’t the populist government in Italy look to closer ties with China? Despite the concerns of her European neighbours the upside for Italy is clear – a flood of Chinese investment and greater access to Chinese markets and raw materials.

Meanwhile in the Netherlands a new populist, anti-immigration party led by Thierry Baudet – inevitably dubbed the ‘Dutch Donald Trump’ – became the largest party in the Dutch Senate. With European elections due in May we can certainly expect to see far more Eurosceptic MEPs returned – which perhaps explains why the EU would prefer the UK not to take part in those elections…

On European stock markets the German DAX index had a very quiet month, rising just 10 points to 11,526. The French market did better, rising 2% in March to 5,351 where it is up by an impressive 13% for the year to date. The German index is up by 9% for the first three months of 2019.

US

It’s interesting to note that as the German car industry faces its biggest-ever threat, most of my notes for the US section of the Bulletin also concern their car industry. But it is not the traditional players like Ford and Chrysler – rather it’s the new kids on the block: Tesla, Uber and Lyft.

March got off to a bad start in the US as figures showed that the US had created just 20,000 jobs in February, well below expectations of 180,000 and the lowest figure since September 2017 when employment was impacted by Hurricanes Harvey and Irma. It was therefore little surprise later in the month when the Federal Reserve announced that it does not expect to raise interest rates for the rest of this year, voting unanimously to keep the US interest rate range between 2.25% and 2.5%.

Facebook suffered its longest ‘down’ time for more than ten years as the company’s main social network plus Instagram and message-sharing were all down for 14 hours. Meanwhile Levi’s – a company that has been around for rather longer than Facebook – returned to the US stock market and saw its shares leap by 32% on the first day of trading.

But the really interesting news was in the car industry as ride-sharing app Lyft made its stock market debut valued at $24bn (£18.5bn), making it the biggest IPO since China’s Alibaba. However, that figure will be dwarfed when Uber comes to the market, with early indications that the ride-sharing company – which is still losing billions of dollars – will be valued at around $120bn (£92bn). With the news that Tesla is also on course to outsell BMW and Mercedes in the US, there are very clear warning signs for the traditional car industry – and for the places it is based and the people it employs.

On Wall Street the Dow Jones index had a quiet month: it finished March up just 13 points at 25,929. It is, though, another market which has done really well in the first three months of the year, rising by 11% since 1st January.

Far East

March ended with real optimism about the US/China trade talks, so it was no surprise to see China’s stock market up by 5% in the month.

At the beginning of March there was much less optimism, and some continuing tension as China temporarily stopped customs clearance for Tesla’s new M3 car.

The trade dispute had certainly taken its toll as figures revealed that Chinese exports in February suffered their biggest fall for three years – down nearly 21% on the previous year.

Unsurprisingly, the Chinese government looked to domestic demand to counter this, unveiling a raft of tax cuts. China’s de facto number two, Li Keqiang, warned that the country faced “a tough struggle” as he laid out plans to bolster the economy. Opening the annual session of China’s parliament, he forecast slower growth of 6% to 6.5% this year, down from the 2018 target of 6.5%. He duly unveiled plans to boost spending with tax cuts totally $298bn (£229bn).

Meanwhile the soap opera around Chinese telecoms company Huawei rumbled on as the US told Germany to drop the company, warning that any deal to let Huawei participate in the German 5G network could ‘harm intelligence sharing.’ Huawei continued to deny that their products posed any security threat, and had the last laugh as figures for 2018 showed that their sales had passed $100bn. Total revenues were 720bn yuan ($107bn £82bn) with profits up by 25%.

The Shanghai Composite Index’s 5% rise meant that it closed March at 3,091 where it is up by an impressive 24% for the year to date. The Hong Kong Market was only up 1% in the month to 29,051 but is up by 12% for the first quarter of the year. The Japanese and South Korean markets turned in much more subdued performances, falling by 1% and 2% to end the month at 21,206 and 2,141 respectively. For the first three months of the year Japan is up by 6% and South Korea by 5%.

Emerging Markets

March was a relatively quiet month for the Emerging Markets section of the Bulletin with two of the major markets we cover unchanged in percentage terms. The Brazilian stock market closed the month down just 169 points at 95,415 while the Russian market managed a gain of just 12 points to 2,497. However both markets have done well in the first quarter of the year, with the Brazilian market up by 9% and Russia up by 5%.

It was a much better month for the Indian stock market, which rose 8% to close March at 38,673. It is up by 7% for the first quarter of the year.

And finally…

Gloucestershire pensioner Stephen Mckears was baffled. Every night he left a few things out on his workbench (in his garden shed, where else) and every morning they were neatly back in their plastic tub.

It wasn’t Mrs Mckears doing some late night cleaning and neither was it a friendly neighbourhood ghost. So what was it? Questioning his own sanity, Stephen set up a camera in his garden shed with the help of a neighbour.

He discovered that a mouse was tidying his workbench. Whatever Stephen left out, the mouse duly tidied away in the plastic tub. “I’ve started calling him Brexit Mouse,” quipped Stephen, “As he’s stockpiling things for Brexit!”

Sadly, all too many of us are addicted to the occasional McDonald’s and, to help us with our choice, the chain has just spent $300m (£227m) on an Israeli technology company that specialises in artificial intelligence. According to McDonald’s CEO Steve Easterbrook “It [the AI] can know the time of day and it can know the weather” thereby helping the chain serve the right food for both the time of day and the weather.

Now call us old-fashioned but we wonder whether you really need to spend over £200m to know that you should take the breakfast menu off at three in the afternoon.

Maybe we’re wrong…

December Market Commentary

Thursday, December 6th, 2018

Introduction

It is always difficult writing a report like this, as you are always trying to ‘hit a moving target.’ While you can record the stock market levels at the close of business on, say,  30th November, there is always the risk that the commentary is overtaken by events.

That has never been more true than this month: we wrote these notes on Monday 3rd December and, of course, you have to press ‘publish’ at some stage. However, we are very conscious that the situation regarding Brexit – and perhaps also the civil unrest in France – may have moved on by the time you read this.

That said, on to business, and the majority of the stock markets on which we report in this commentary enjoyed a good, if unspectacular, November. There were also some signs at the end of the month that the trade war between the US and China might at least be thawing. Following a meeting at the G20 summit in Argentina, the two countries agreed not to impose any further tariffs for 90 days, to allow talks to take place.

Away from stock markets the oil price fell below $70 a barrel for the first time since April – leading to calls for a reduction in the price of petrol – and those of you who keep an eye on the performance of cryptocurrencies will have seen that Bitcoin had a disastrous month. The price of the virtual currency fell by 37% in the month, and – when we checked the price over the weekend – stood at £3,107.

UK

Despite the political chaos in the UK there was plenty of good news for the economy in November with figures for the third quarter (July to September) confirming that it had grown at 0.6%, three times faster than the equivalent rate in Europe.

There was more good news as figures showed that wages rose by 3.2% in the same three month period, the fastest rate of wage growth for almost a decade. However, people did not appear to be spending the money on the high street, which once again lost out to online shopping in the Black Friday/Cyber Monday bonanza. And there was more gloom for town centres as Thomas Cook issued its second profit warning in two months, blaming the record-breaking summer.

The retail picture did not improve when Marks and Spencer reported falling sales for food and clothing, and a report from management consultants PwC said that retailers were facing their ‘toughest trading conditions for five years’ with 14 shops closing every day.

New car sales were also down and 850 jobs were lost as Michelin closed its factory in Dundee.

But against that, profits at the UK’s publicly listed companies jumped nearly 14% in the third quarter of the year, pushing total profits over the last 12 months to a record £217.9bn.

Sadly, the FT-SE 100 index of leading shares sided with shop closures not record profits and closed November down 2% at 6,980. The pound had a relatively quiet month – despite the continuing uncertainty over Brexit – and ended the month trading at $1.2748.

Brexit

In 1942, as the tide of World War II finally began to turn in the Allies’ favour, Winston Churchill said, “It is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Is that where we are now with Brexit? Theresa May has done a deal with the European Union. According to the campaign group Leave Means Leave, it is ‘the worst deal in history’ seeing the UK paying £39bn and getting nothing in return.

According to Downing Street, it is the best possible deal and a triumph for the Prime Minister’s dogged diplomacy. It is vastly superior to a Canada or Norway-style deal,  the dreaded ‘no deal,’ or staying in the EU. It is a deal that ‘delivers on the result of the referendum’ and the full Government publicity machine has been wheeled out to support it.

Well, we shall see next week, when the MPs vote on the deal. At the moment it looks likely to be defeated, as Conservative MPs and ex-ministers line up to criticise it.

Quite possibly it will be heavily defeated and the Opposition will table a motion of no confidence in the government, leading to a General Election. Quite possibly there will be more late night meetings and trips to Brussels and a new deal will come back to parliament. Quite possibly Theresa May will be replaced as Prime Minister. Quite possibly we could have a second referendum – the so-called ‘People’s Vote.’

So no, it does not look like we have reached the beginning of the end, or even the end of the beginning. The picture may be a little less murky by the end of December, if only because some options – almost certainly the current deal – will have been ruled out.

At the moment, we are still due to leave the European Union on 29th March next year: We have written previously that we could see that date being pushed back to allow ‘more time for constructive talks with our European partners.’

Europe

The big story in Europe came at the end of the month as the worst civil unrest since 1968 broke out in France.

The headlines had French President Emmanuel Macron threatening to impose a state of emergency and demanding new police powers as he struggled to contain the unrest, with 75,000 people estimated to have taken part in the action over the weekend.

The Gilet Jaunes (Yellow Jackets/Vests) movement began three weeks ago as a protest against Macron’s climate change inspired fuel tax rises. But in reality it goes deeper than that as protesters claim that Macron is a ‘president of the rich’ who does not care about the concerns of ordinary French people and the higher living costs they are facing.

A recent poll showed that Macron had broken new ground by becoming the most unpopular French President ever at this stage of a Presidency – he is roughly 1½ years into a five-year term – with populist leader Marine le Pen (whom he beat in the Presidential election) now more popular.

Quite where Macron goes from here is anyone’s guess. It is not just the fuel protests: growth in the Eurozone has slowed to a four year low, and France still has a high level of unemployment – 9.3% in August, which is far closer to the 9.7% of Italy than it is to the 3.4% in Germany.

In other news, the government in Italy continued to defy the EU over its proposed Budget – although there were no such budgetary worries for France and Germany as they agreed a new budget for the whole Eurozone.

In company news, Volkswagen became the latest company to plough huge sums of money into electric cars as it committed to spending $50bn (£39bn) and announced plans to become the world’s most profitable manufacturer of electric vehicles. Given that the emissions scandal is reported to have cost the company $30bn (£23.6bn), it probably has some catching up to do…

Neither of Europe’s major stock markets enjoyed a good month. The German DAX index was down by 2% to 11,257 and the French index fell by a similar amount, ending November at 5,004.

US

Barely two months ago Apple won the race to be the first company valued at a trillion dollars (£780bn), but throughout November the shares slid as investors worried about declining iPhone sales and the company’s vulnerability to a protracted dispute between the US and China.

As we have written elsewhere, those fears may now be receding but Apple has now been overtaken by Huawei as the world’s second largest manufacturer of smart phones (and by Microsoft as the world’s most valuable company). There are mutterings that the innovation and attention to detail of former CEO Steve Jobs is being missed.

There was better news for the wider US economy, which added 250,000 new jobs in October, saw wages rise by 3.1% and unemployment down to 3.7%. “Wow! Incredible numbers. Keep it going,” tweeted the Commander-in-Chief.

But there was less good news for Donald Trump as the US mid-term elections saw the Democrats gain 40 seats in Congress and regain a measure of control. Previously, the President had benefited from Republican control of both the Senate and Congress, and this may make it more difficult to get some of his more contentious proposals approved.

In other company news, Amazon finally announced the location of its second HQ – and went for both New York and Virginia. Uber may be struggling to afford even one HQ: it lost a cool $1.07bn (£821m) in the three months to September, as it prepares for a public share offering next year.

Fortunately, the Dow Jones index does contain some companies that cling to the hopelessly outdated notion that the profit and loss account should be in the black, and rose 2% in November to end the month at 25,538.

Far East

The month began with Chinese leader Xi Jinping promising to cut import tariffs and open up the Chinese economy, amid continuing criticism that its trade practices are ‘unfair.’ Xi was speaking at a Shanghai trade expo and also made a robust defence of the global free trade system, widely seen as an attack on the US as the tariff war continued.

However, there was perhaps a glimmer of light at the end of the tunnel by the end of the month following the G20 summit in Argentina: as we noted in the introduction, the two countries agreed not to increase tariffs any further for 90 days to allow time for talks.

A week after Xi’s speech and China turned its attention to the annual shopping bonanza which is Singles Day (on 11th November) which far outstrips Black Friday and Cyber Monday. Once again all online records were broken as Alibaba – roughly China’s equivalent of Amazon – took $1bn (£780m) in just 85 seconds of trading.

Over in Japan, it was a very different picture as the economy contracted by an annualised rate of 1.2% in the third quarter, with the blame placed on natural disasters. Japan has been hit by both a typhoon and an earthquake this year, which have significantly impacted the economy.

Also ‘significantly impacted’ were the shares of Nissan which slumped after boss Carlos Ghosn was arrested, for under-reporting his income by the small matter of £34.5m over the last five years.

There were also problems for Huawei, as New Zealand became the latest country to ban purchases of mobile networks from the company, as it expressed security concerns, following similar action in Australia.

It was a better month on the region’s stock markets, with only China’s Shanghai Composite Index falling in November. That was down by 1% to 2,588, but the other three major markets in the region all rose. Hong Kong led the way with a rise of 6% to 26,507 whilst South Korea was up 3% to 2,097. Despite the gloomy news on the economy the Japanese market also rose, finishing November up 2% at 22,351.

Emerging Markets

It was a quiet month for the emerging markets which we cover, with no major news stories, although clearly the continuing tension between Russia and the Ukraine looks as though it has the potential to flare up at any moment.

On the stock markets India led the way with a rise of 5% in the month, ending November at 36,194. The markets in Russia and Brazil both rose by 2%, to close at 2,392 and 89,504 respectively.

And finally…

The month kicked off in good style as Bradley Stoke Town FC of the Bristol and District League signed a player called… Bradley Stokes. It would certainly make it easier for the fans if teams only signed players with a similar name…

Meanwhile in Holland, Emile Ratelband – presumably unable to find a team called FC Ratelband – contented himself with bringing a lawsuit to lower his age. “We live in an age where you can change your name and change your gender,” said 69 year old Emile, “So why can’t I change my age?” Being 69 is, apparently, harming Emile’s chances on the dating app Tinder.

Still young, but clearly with plenty to worry about, are the students of Leeds Trinity University. Lecturers there have been told to avoid capital letters in their handouts as they can ALARM STUDENTS and ‘scare them into failure.’

Fortunately, the students do not live in North Korea where they would be alarmed to find that only fifteen haircuts for men and women are approved by the state. And no, you are not allowed to sit in the chair and say “I’ll have a trim Jong-un, please.” No-one is allowed to have a haircut like the beloved leader…

Finally, a nod of acknowledgement to the state broadcasting corporation in China which has introduced virtual reality newsreaders powered by artificial intelligence. Our sources tell us that the BBC will not be following suit. We can understand that: after all, there’d be no-one left to appear on Strictly…

November Markets in brief

Thursday, December 6th, 2018

November was an average, if unspectacular, month for global markets. This will be welcome news for many investors – it followed an October that investors described using language ranging from ‘slightly worrying’ to ‘catastrophic’ depending on where their money was invested, and events were interpreted on a scale of ‘massive fall’ to ‘temporary speed bump’ or a ‘natural rebalancing of markets’.

UK

In spite of the political turmoil around Brexit, there was some good news for the British economy, with figures for the third quarter (July to September) confirming that it had grown at 0.6%, three times faster than the equivalent rate in Europe. Over the same period, wages rose by 3.2%. Great news for now. However, as political events around Brexit run their course, the potential for widespread economic disruption remains.

The FTSE 100 fell by 2%, to close November down at 6,980, with anxiety about the ability of the US and China to end their trade dispute at the G20 summit hanging over the market like a dark cloud.

Europe

France suffered its worst period of civil unrest since 1968, with widespread protests against Macron’s heavy taxation of fuel gripping the country. He is currently the most unpopular president at this early stage of his presidency; just 18 months into a 5 year term.

Elsewhere on the continent, Italy’s right-wing government continue to defy the EU over their proposed budget. This saw an iffy month for Europe’s major markets. The German DAX and the French index both fell by 2%, down to 11,256 and 5,004 respectively.

US

There was good news for the US economy, which added 250,000 new jobs in October, saw wages rise by 3.1% and unemployment down to 3.7%. A strong showing to say the least.

The stock markets performed intermediately with the Dow Jones rising 2% in November to 25,538 and the NASDAQ fell slightly to 7,330.

Far East

There is possibly a glimpse of light at the end of the tunnel in the US-China trade war. At the G20 summit, the two nations agreed not to increase tariffs for 90 days to allow time for talks. Supported by a retail boost on Singles Day, the Chinese annual shopping bonanza, the country’s stock markets had a ‘less bad’ month than the last few, with the Shanghai Composite Index falling just 1% to 2,588.

Elsewhere in the region, Hong Kong led the way with a rise of 6% to 26,507 whilst South Korea was up 3% to 2,097. Japan also rose, despite its economy contracting by 1.2% in the last quarter, finishing the month at 22,351, up 2%.

The next month looks to be unsettled, with Brexit chaos likely to crescendo over the next few weeks.