News

Please see below article received from EPIC Investment Partners this morning, which provides a global economic update.

The global economy is showing signs of recovery after a turbulent few years, with inflation easing and growth improving, albeit still subdued by historic standards. Beneath this surface calm lie significant challenges that threaten long-term stability. Policymakers now face a crucial opportunity to address these weaknesses by improving public finances, restoring business and consumer confidence, and implementing strategies to boost productivity. 

Despite relatively steady economic activity, businesses and households across major economies are struggling to rebound from the period of high inflation. Confidence remains fragile, as revealed by the Brookings-Financial Times Tracking Indexes for the Global Economic Recovery (TIGER). Political uncertainty, geopolitical tensions, and weak growth prospects have further dampened optimism. 

The TIGER index shows that while global growth is gaining momentum, it is uneven and largely driven by the United States. Other advanced and emerging economies, including China, are grappling with rising debt and ineffective policymaking. Although the US and India are relatively healthy, confidence levels have dropped significantly across both well-performing and struggling nations. Eswar Prasad, senior fellow at the Brookings Institution, has described a widespread “sense of gloom and uncertainty.” 

Ahead of the IMF-World Bank meeting, which begins today, IMF managing director Kristalina Georgieva has warned of a difficult combination of low growth and high debt, which could hamper efforts to stabilise public finances. While she urged governments to address their deteriorating finances, she cautioned that the challenging economic environment might limit progress. 

Political instability and weak consumer and business confidence are complicating global prospects. In the US, despite falling unemployment and strong demand, consumer confidence has declined due to concerns over rising public debt and political uncertainties. A similar disconnect between economic indicators and sentiment is evident elsewhere. 

Germany, the eurozone’s largest economy, faces high energy costs, stagnant productivity, and rising competition from China. France is struggling with fiscal problems that threaten both economic and political stability, while Japan’s interest rate hikes have failed to boost domestic consumption. Meanwhile, China is facing deflationary pressures and weak private-sector confidence, in stark contrast to its earlier role as a global growth engine. 

Though India remains a bright spot, with strong infrastructure investment and high-value sector growth, the global economy still faces significant risks. Policymakers must act decisively to strengthen public finances and restore confidence, or long-term stability will remain uncertain. 

Please check in again with us soon for further relevant content and market news.

Chloe

22/10/2024

We have had a lot of media speculation over the last few weeks about what we might get in the Budget.  I’ve been on a variety of webinars over the last few weeks that have covered politics in the UK and potential changes in the Budget.

The latest webinar was for 1.5 hours this morning from M & G Wealth, their senior technical manager and their political guru.

They opened with ‘Prioritise any tax rises on wealth and corporations – but there are no low hanging fruit.’

In addition, they made the general point ‘You should only advise on facts.’  It is difficult to advise on what might happen.

Media speculation could be higher than normal because it has taken longer than average for the Budget to be held after the election.   The media has had longer to dwell on things.

Key points covered this morning:

1. Changes in the Budget can be applied on the day, on the following 6^th of April, or take longer to implement if they could be complicated and/or be difficult to implement
2. Changes need to be approved in a Finance Bill that can take 3 to 4 months to implement
3. However, some changes are made immediately, and the Finance Bill is then backdated
4. Tax reliefs for pension contributions are unlikely to change on Budget day.  This could take a year or two to implement
5. If you are going to make sizeable pension contributions why wait?
6. Tax free cash and tax relief are incentives to funding pensions.  We need more pension funding not less
7. On pensions tax free cash withdrawals:  That is not something that can change immediately.  I can’t see it happening, but if it did there would be some sort of protection, otherwise it would be illegal and totally shatter confidence in the pension system.  Nobody should be rushing to take it (tax free cash) before 30^th October
8. They continued ‘I’d bet that the taxation of pension death benefits is the most likely thing to change.  I don’t think they’ll put pensions into inheritance tax.’
9. On lowering the Personal Allowance threshold from £100,000.00:  I don’t think it will happen for political reasons.  Lowering it is inconsistent with being aspirational
10. On changing Capital Gains Tax rates:  HMRC think changes could cost them money, behaviours would change
11. Entrepreneurs relief is more likely to get looked at (on the sale of a business)
12. The Capital Gains Tax uplift on death is more likely to be looked at
13. Maybe we will get a small increase in (capital gains tax) rates
14. Anything that makes Capital Gains Tax worse, by definition, means you should use more tax wrappers (pensions and ISAs etc.)
15. Inheritance tax politically is the least popular tax.  They (Labour) will be very concerned with the optics of it
16. Things like gift allowances, thresholds could change on the 6^th April.  IHT gifting could be more of a consultation
17. On Business Relief:  There is speculation they might take it away in AIM shares
18. An employer’s National Insurance increase is very likely
19. They could put employer NI in place on employer pension contributions too.  This would impact on Salary Exchange/Salary Sacrifice schemes for pensions
20. Will Labour reverse Jeremy Hunt’s cuts to employee NI contributions?  Not now, it would be a breach of the manifesto commitment.  Less likely now, one to watch next time
21. On a Wealth or Land tax:  A Swiss style wealth tax is very unlikely.  The obvious thing to do is re-value council tax bands
22. Will Labour increase dividend tax?  Perhaps.  They are going to publish a business tax review and a tax road map

Comment

A key point to note right now is that we know what the rules are today.  If you have any headroom and the capacity to fund pensions and ISAs etc. now, then you should.

It is a difficult balancing act for Labour, they are trying to portray themselves as a party to grow the UK economy, and yet, some of the more likely changes like increases in employer’s NI contributions, will only slow down growth. 

As ever, plenty to think about before the Budget.  The best course of action for now is to do nothing, wait and see what we get on Budget day.  Once we know what we have got, and seen the technical detail of the Budget, we can start to revise plans and strategies if appropriate, over the long term.

Interesting times – again!

Steve Speed

17/10/2024

Please see below article received from Tatton Investment Management this morning for your perusal.

Middle Eastern tensions dominated the headlines, but markets were surprisingly muted. Oil prices and the dollar gained, but risk assets remained strong. Markets clearly think pro-growth signals, like US employment and Chinese consumer spending, are more important. We don’t think the Israel-Iran conflict will have lasting impacts on risk assets.

Since the 1973 oil shock, conflicts have only had short-term effects on oil. Of course, a full Israel-Iran war – and especially a Saudi-Iran conflict – would be a different story. But the wider context is a global oil oversupply: Libyan production has come back online and Saudi Arabia is pumping to regain market share. The conflict introduces uncertainties, but the fundamentals are still against a higher oil price.

Markets are more preoccupied with central banks. The signs last week were that the Bank of England, European Central Bank and the Bank of Japan will be looser than previously expected. This is good news for liquidity, but a note of caution: the current easing cycle is ‘old school’ liquidity creation (banks creating money) rather than ‘new school’ quantitative easing (inject money directly), so it relies on banks transmitting liquidity. The banking system is not what it was, so this transmission might not be as strong. It’s positive for risk assets nonetheless.

The US non-farm payroll surprised by adding 254,000 jobs (versus 150,000 expected) in September, while unemployment fell and earnings growth rose. This seemingly confirms that the US soft patch bottomed in the summer, and the economy should strengthen from here. Even before that, the US Federal Reserve said that rate cuts would be moderate (as we predicted, contrary to market pricing). Bond yields moved up and rate cut expectations came in – though they are still on the table. Commentators talk about the ‘soft landing’ – lower rates without recession – but the US landing seemed to be so soft we didn’t feel it. If energy doesn’t shock, today’s market strength is justified.

September asset returns review

Sterling-based global stocks grew 0.3% in September – surprisingly flat considering the positive global growth signals. We had a larger-than-usual interest rate cut from the US Federal Reserve and a double boost of Chinese stimulus at the end of the month. This is partly down to sterling’s strength; returns were more positive in dollar terms.
 
Markets started September with a sell-off, but spent the rest of the month recovering – just like in August. Early nerves were relieved by the Fed’s 50 basis point rate cut, which was called a ‘surprise’ but was actually quite predictable after chairman Powell’s comments. Markets are pricing in several cuts from here, but we think this is a little optimistic, given US economic resilience. China’s stimulus packages were a genuine surprise – since all the signs before were that Beijing would keep things tight. That’s why Chinese stocks surged 21.5%, but this just shows how unpredictable and risky its market can be.

There was negativity around the UK Labour government’s expected tax raising, but this is probably unrelated to the FTSE 100’s 1.5% fall. UK stocks were in line with Europe and better than Japan, for example, while sterling strengthened. The move was more about the fact that UK rates are not expected to fall as steeply as elsewhere, as well as falling commodity prices. UK large-cap features many commodities companies, who did less well globally.

Falling crude oil prices were particularly stark – down 8.7%. Production is back on in Libya and Saudi Arabia will likely increase output to regain market share, meaning oil is in oversupply. Dramatic escalation in the Middle East obviously complicates this story, but at the moment the supply outlook still looks strong. That is all pretty decent for global growth going forward – particularly if the US and China start expanding in tandem.

Where do cars go next?

The automotive industry has disappointed in 2024 – highlighted by recent profit warnings from European carmakers. The biggest problem is China’s weak demand and overproduction, which resulted in an inventory overhang for electric vehicles (EVs). Tellingly, China’s recent stimulus announcements have boosted carmaker stocks.

But there are structural problems too: the EV transition has upended what was for decades a remarkably stable market. Current stock prices show big changes are expected. Tesla is worth 15 times Volkswagen’s market cap, despite currently earning a third of its revenue. Trade wars also weigh on the sector, with no one quite sure what tariffs will come next or how badly they might impact trade in cars.

Autos account for 3-5% of global GDP, employing millions across the world. The revenues of Germany’s top carmakers are worth 14% of its GDP, and that figure is 12% in Japan. The US autos sector accounts for less of its GDP and total jobs, but it is still culturally and politically important. Its workers are an influential constituency, one that Donald Trump had success in appealing to with his promises of rebuilding American industry. That’s partly why tariffs are Washington’s new orthodoxy, though ironically these tariffs have hurt carmakers globally.

There’s a solid case for a rebound in autos: central banks are cutting interest rates, China is enacting stimulus, and there is a global oil oversupply which should encourage driving through lower fuel prices. But you can challenge each point in that case. The US Federal Reserve is cutting rates because it’s nervous about unemployment, Chinese policy is notoriously erratic, and middle eastern conflict could raise oil prices. 

The deeper structural problems are even harder to untangle. Will governments continue pushing for EVs? Or will rivalry with China dictate industrial policy? We will know more after the US election.

Please check in again with us soon for further relevant content and market news.

Chloe

07/10/2024

Please see below article received from EPIC Investment Partners this morning, which provides an economic update for the UK.

The Organisation for Economic Co-operation and Development (OECD) has provided an updated economic outlook for the United Kingdom, projecting modest growth in the coming years. According to the latest forecasts, the UK economy is expected to expand by 0.8% in 2024, followed by a slight increase to 1.5% in 2025. While these projections indicate a gradual recovery from post-pandemic challenges and the economic impact of Brexit, they still represent relatively subdued growth compared to pre-pandemic levels. However, despite this moderate outlook, the UK’s growth is anticipated to be stronger than several of its European counterparts, including Germany, which is forecast to experience slower growth due to structural economic challenges. 

The OECD attributes the UK’s tepid growth to several factors, including persistent inflationary pressures, rising interest rates, and global economic uncertainties. The organisation noted that while the UK has made progress in stabilising its economy, it faces structural challenges that could hinder more robust growth. These include a tight labour market, stagnant productivity growth, and lingering uncertainties surrounding trade relations with the European Union. 

In its broader economic outlook, the OECD highlighted the importance of global fiscal discipline in sustaining economic stability and growth. The organisation emphasised that while short-term fiscal support measures were necessary during the pandemic, countries must now focus on prudent fiscal policies to manage public debt and support long-term economic resilience. According to the OECD, excessive public debt and deficits could undermine global economic stability, especially if combined with high interest rates and reduced market confidence. 

For the UK, this means balancing the need for public investment to support growth and the imperative of maintaining fiscal responsibility. The OECD recommends that the UK government should prioritise investments in infrastructure, education, and innovation to boost productivity while ensuring that these investments do not lead to unsustainable fiscal positions. 

Globally, the OECD pointed out that coordinated fiscal discipline among advanced economies is crucial to mitigating potential financial risks. The organisation suggested that countries should work together to avoid competitive devaluations and protectionist policies that could further destabilise the global economy. The OECD also warned that failure to adhere to sound fiscal practices could lead to increased volatility in global markets, higher borrowing costs, and reduced investment, which would be particularly detrimental for countries like the UK that are already navigating a challenging economic environment. 

Separately, for those planning to indulge in a restaurant meal this weekend, be sure to read the fine print! One Florida restaurant has taken things to a new level by slapping a “crime” fee on diners who dare to share a meal. Yes, sharing is now a luxury service! The menu reads more like a legal contract, insisting that every guest order their own entrée. So, unless you want to be penalised, keep your fork to yourself! 

Please check in again with us soon for further relevant content and market news.

Chloe

27/09/2024

Please see below article received from EPIC Investment Partners this morning, which offers an update on Hong Kong markets.

Midea Group raised HK$31bn (USD3.9bn) through its secondary listing on Hong Kong this week. It is the largest IPO in more than three years. The issue was heavily oversubscribed, priced at the top end of the range (HK$54.80) and is trading some 15-20% above the IPO price. The household appliances manufacturer is reasonably well known to investors having listed on the Shenzhen Stock Exchange back in 2015. The company’s market capitalisation is approximately US$75bn and it trades on a low double-digit price earnings multiple. 

Bonnie Chan, chief executive of Hong Kong Exchanges and Clearing Ltd, hailed the “very positive momentum” for listings following Midea’s debut. A resurgence in the IPO pipeline would do wonders for Hong Kong Exchanges and Clearing, which is held in our Asian portfolios. 

The other side of the coin is equally encouraging. Stock buybacks in Hong Listed stocks have soared over the past five years. In 2019 buybacks totalled $1.4bn. This rose to $2.1bn in 2020, $5.5bn in 2021, $13.2bn in 2022 and $23.9bn in 2023. Year to date buybacks total $30.7bn suggesting total buybacks for 2024 could exceed $45bn. A thirty two fold rise over five years! 

Over the past five years (to end August 2024) the Hang Seng Index has declined 16.6%. This compares to the 28.8% gain in the regional index (Asia ex Japan) and the 109.1% rise in the S&P500. 

With the Hong Kong market trading on 0.9x book value and yielding 4.4% the incentive to accelerate buybacks is obvious. 

On a more humorous note, we spotted this quote from a Chinese lady bemoaning the authorities proposed upward adjustment to Chinese retirement ages. “When I was born, they said there were too many. When I gave birth, they said there were too few. When I wanted to work, they said I was too old. And when I retire, they say I am too young”. Priceless. 

Please check in again with us soon for further relevant content and market news.

Chloe

20/09/2024

Please see below article received from EPIC Investment Partners this morning, which provides a global market update with particular focus on China.

China’s digital yuan has experienced remarkable growth since its inception in 2014. By June 2024, transactions using the digital yuan soared to CNY 7tn (USD 982bn), quadrupling from the previous year’s figures, according to Lu Lei, Deputy Governor of the People’s Bank of China (PBoC). 

The PBoC’s decade-long research and four-year pilot program, spanning 17 provinces and municipalities, have validated the digital yuan’s feasibility across various sectors, including retail, dining, and wage payments. Operating on a unique “two-tier structure,” the digital yuan balances central bank oversight with operational institution involvement, enhancing financial inclusivity and payment efficiency. 

Internationally, China is collaborating with Hong Kong, Thailand, and the UAE on mBridge, a cross-border digital currency project led by the Bank for International Settlements (BIS). This initiative aims to revolutionise global payment systems, as demonstrated by the recent successful international remittance between China’s eCNY and the UAE’s digital dirham via the National Bank of Ras Al Khaimah. 

Despite these advancements, the digital yuan faces significant hurdles in challenging the US dollar’s global dominance. The dollar, used in 88% of foreign exchange trades and comprising 60% of global reserves, derives its strength from America’s deep capital markets and trusted government securities. For the yuan to compete, China would need to implement substantial financial liberalisation, including removing capital controls and increasing economic transparency – steps Beijing appears hesitant to take. 

However, the dollar’s true vulnerabilities lie not in external challengers but in potential US policy missteps, such as overusing financial sanctions or mishandling debt obligations. These actions could gradually erode global trust in the currency’s stability. 

As China refines its digital currency, the global financial community watches with keen interest. According to the BIS, 24 central banks are looking to launch their own versions of digital currencies by 2030. 

While the digital yuan represents significant technological progress, its long-term impact on international monetary systems and economic relationships remains uncertain. Nevertheless, the PBoC’s commitment to steady development suggests that the digital yuan will continue to play an increasingly important role in shaping the future of global finance and cross-border transactions. 

Please check in with us again soon for further relevant content and market news.

Chloe

17/09/2024

Please see below article received from Brooks Macdonald this morning, which provides a global market update for your perusal.

What has happened

After last week’s dismal performance for global equities in general, Monday saw a modest bounce as trader ‘dip-buying’ took over. In local currency terms, the UK FTSE100 equity index was up +1.09%, the pan-European STOXX600 equity index was up +0.82%, while the US S&P500 equity index was up + 1.16%, with US megacap technology stocks leading the market. But the gains were muted. For context, the S&P500 index last week had endured its worst week since March last year, and its worst start to a September since data going back to 1953.

Earnings season – what did we learn?

The latest US quarterly (calendar Q2) earnings season is now effectively done, with over 99% of US S&P500 companies having already reported as of last Friday. What did we learn? The picture is mixed, but overall constructive. According to Factset, for Q2 the annual earnings growth rate for the S&P500 is running at +11.3%, putting it at the highest rate since Q4 2021. In terms of reported earnings, 79% of companies beat consensus, running above the 10-year average (of 74%). However, the scale of the ‘beat’ at 3.6% is below the 10-year average (of 6.8%). Finally, and more encouragingly, as regards the outlook the aggregate estimate for S&P500 earnings-per-share for calendar year 2025 has gone up (by +0.3%) as measured between 30 June and 31 August.

US politics on TV

Later today we see the first televised debate between US presidential hopefuls, Democrat’s Kamala Harris, and Republican Donald Trump. The debate kicks off at 9pm US Eastern Time but given that makes it 2am UK time tomorrow morning, I for one am not planning on watching it live! Keep in mind that the race to the White House is very close, and this TV debate is the only confirmed debate between the two candidates until election day which is now exactly 8 weeks today, on Tuesday 5th November. Even sooner, early voting in some states kicks off this month, including Pennsylvania next week on Monday 16th September, so this TV debate could prove very decisive for some voters. It may also carry some impact for markets potentially should one of the candidates in tonight’s debate come out decisively on top.

What does Brooks Macdonald think

Markets are still split on whether to expect a 25 basis points (bps) cut in US interest rates next week, or a larger 50bps cut instead. The latter case would only seem likely if the US Federal Reserve thought recession risks were rising. But some perspective is important. While there is some slowdown in jobs growth appearing in the latest labour market data, the signals are not consistent with an economy tipping into recession currently – as a case in point, last week’s non-farm payrolls showed average hourly earnings increasing month-on-month and beating expectations, while average weekly hours worked also ticked higher as well. All in all, then, a soft-landing remains more likely than either a hard- or no-landing at this stage. 

Bloomberg as at 10/09/2024. TR denotes Net Total Return.

Please check in again with us soon for further relevant content and market news.

Chloe

10/09/2024

Please see below article received from EPIC Investment Partners this afternoon, which provides an economic update for the US.

As we anticipated, the August U.S. payrolls report brought unwelcome news, indicating a more pronounced slowdown in the labour market than expected. The latest figures show job gains reached only 142,000, considerably lower than the market forecast of 165,000. Additionally, previous reports were revised downwards, with last month’s already weak figure of 114,000 adjusted even further to a mere 89,000. On the other hand, the unemployment rate fell to 4.2%, in line with market expectations. 

The weaker jobs report follows the Bureau of Labour Statistics’ annual benchmark revision of total non-farm employment, which recently reduced job figures by 818,000. 

In response to the report, the bond market reacted favourably, with the yield on the 10-year Treasury note dipping a few basis points from yesterday’s 3.73% to 3.68%. This decline highlights a shift in market sentiment regarding the Federal Reserve’s interest rate strategy, as investors anticipate potential adjustments to monetary policy in September in light of the weaker labour market. 

With U.S. interest rate expectations diminishing, the Japanese yen appreciated in the foreign exchange market, rising from 143.5 to 142.5 against the U.S. dollar. This movement reflects both a flight to safety as investors seek refuge in traditionally stable assets amidst growing economic uncertainty, and longer-term expectations of a U.S. dollar decline as interest rates fall. 

The implications of this payroll report are significant. While the disappointing job growth in isolation might suggest a 50 basis point cut, the steady unemployment rate could prompt the Federal Reserve to opt for a more modest 25 basis point reduction. It presents a challenging balancing act for the Fed, weighing the weakening jobs data over recent months against the fact that U.S. inflation has not yet reached its 2% target. 

As the markets digest this information, all eyes will be on the Federal Reserve’s upcoming September meeting, where officials will need to consider these labour market developments carefully.  

Please check in again with us soon for further relevant content and market news.

Chloe

06/09/2024