September Market Commentary


Category: Market commentary & Uncategorized

Towards the end of the month, an Amnesty International report highlighted the ‘return of the killing fields’ and reported widespread ethnic cleansing.

Meanwhile, Vladimir Putin was openly discussing the ‘statehood’ of the Eastern Ukraine as the fighting there intensified and Ukrainian President Petro Poroshenko spoke of being one step away from an all-out war. At the end of August, the European Union were talking loudly of increased sanctions against Russia: whether they will be talking of sanctions at all come the winter when Russia threatens to turn off the gas is anyone’s guess.

For now though, these events don’t seem to have impacted world stock markets, the majority of which were up in August – but investors would be well advised to keep an eye on the news bulletins, and any clients with questions shouldn’t hesitate to contact us.

UK

For the first time in three years the Bank of England monetary policy was split over whether or not to increase interest rates, with two of the nine members voting to raise rates now. Although rates will stay unchanged for the time being it was a clear signal that they are likely to rise early in 2015.

Clearly, homebuyers were keen to take advantage of the low rates with June seeing £19.1bn advanced to homebuyers – the highest figure since 2008.

There was an interesting report on the BBC website, highlighting the fact that whilst the ‘new jobs’ figures in the UK ostensibly look good, most new jobs that are being created are actually amongst the self-employed. The Office for National Statistics particularly highlighted the increase in photographers and management consultants. Clearly the statisticians will be able to get their teeth into this one ahead of the leaders’ debates leading up to the next election.

There was good news from the Society of Motor Manufacturers and Traders, who revealed that new car production last month was up by 2.8% to 130,000 vehicles. At the current rate the UK will surpass the 1972 figure of 1.92m cars by 2017, largely due to more new models being manufactured in the UK for export, and the continuing increase in popularity of the premium brands manufactured by companies such as Jaguar Land Rover.

There was some political uncertainty towards the end of the month as Clacton’s MP, Douglas Carswell defected to UKIP. With opinion polls currently giving him a 30 point lead (at least) the next UK General Election looks ever more uncertain – the one thing stock markets supposedly dislike above all others.

Despite this – and the problems abroad – the FT-SE 100 index managed a small rise in August, finishing up 1% to end the month at 6,819.

Europe

August began with German Chancellor Angela Merkel in the Ukraine talking of the Russian aid convoy as a “dangerous escalation.” By the end of the month the Ukraine was deemed too dangerous for Frau Merkel to visit.

Neither was there good news for her to read at home, with confirmation that the German economy had contracted in the second quarter of the year. It shrank by 0.2% with both foreign trade and domestic demand slightly weaker than expected.

To counter that, inflation remained steady at 0.8% whilst unemployment fell to 4.9%. The German trade surplus fell to €16bn as the figures for June were unveiled, down from €18bn in the previous month.

There was also poor economic news in France with the economy stagnating in the second quarter. There are now real fears that the problems in the Ukraine, allied to low inflation in the Eurozone, will lead to difficult economic conditions in the months ahead. Clearly any escalation in the Ukraine would only exacerbate these problems, but the ECB President Mario Draghi still insisted that the Eurozone recovery was on track.

On the stock markets the German DAX index was up 1% to finish August at 9,470 whilst the French index was 3% higher, closing the month at 4,381.

US

In the US, August was a good month for Apple whose shares hit a new high on a combination of renewed faith in CEO Tim Cook and the iPhone 6 frenzy. It only seems a fortnight ago that the first iPhone came out…

Unemployment in the US is now down to 6%. However despite this, Federal Reserve Chair Janet Yellens said that “slack remains” in US jobs market. There was, she said, “under-utilisation of the labour market:” or in English, talented people without jobs.

Presumably there won’t be many new jobs at Bank of America, which has agreed a $16.7bn settlement with the authorities over mis-leading the public about the quality of the loans it sold. The ‘settlement’ will cut third quarter profits by $5.3bn so presumably the bonuses of senior executives are not under threat and we can all sleep easily tonight.

Ever optimistic, the Dow Jones index had a good month and was up 3% in August to close the month above the 17,000 barrier: 17,098 to be precise.

Far East

With the problems in Iran, Iraq and Ukraine it is easy to forget about the simmering tensions between China and Japan, and the pot was stirred a little more in August when 12 Japanese car firms were fined by the Chinese authorities for price-fixing. No talk of an American-style ‘settlement’ there: they broke the rules, they were fined. Simple.

Domestically, there was positive news for China with exports up 14% in July (compared to market expectations of only 7.5%) and the Purchasing Managers’ Index rose to an 18 month high.

There was much less good news in Japan, with the figures for the second quarter confirming that the economy had shrunk by 1.7%. Inflation was up to 3.4% as the new sales tax continued to make its presence felt and unemployment was also up. The Bank of Japan decided that no changes to its economic strategy were needed, pointing to a slight growth in exports as evidence that they were on track. However, they did cut growth forecasts for the economy.

There are the beginnings of discontent in Hong Kong with pro-democracy protesters starting to make their feelings known ahead of upcoming elections where candidates will be ‘approved’ by China. Meanwhile, South Korea cut its interest rate to 2.25% as the trade surplus narrowed in both July and August.

The Far Eastern stock markets were largely unchanged in August: China was up 1% at 2,217, whilst Japan was down 1% at 15,424. The Hong Kong and South Korean markets largely went nowhere, closing the month at 24,742 and 2,068 respectively.

Emerging Markets

Let’s finally have some good news. The Indian economy is bounding ahead. Figures for the second quarter revealed that the economy had grown by 5.7% in the three months to June and the stock market responded by rising another 3% in August to 26,638. It is now up 26% in 2014, way ahead of any other major market.

Despite the threat of sanctions the Russian market was 2% higher in August, closing at 1,405 and Brazil saw its market rise by 10% to 61,288 although the economy was officially in recession. Presumably the stock market is anticipating the inevitable raft of stimulus measures.

And finally…

With the exception of India this has been a rather gloomy Bulletin. Fortunately there is always one small part of the world economy where it’s always boom-time and the normal rules of economics don’t apply.

Welcome to the Premier League and another record for spending – £835m in the latest transfer window. Manchester United in particular seemed to have Willy Wonka’s golden ticket (or cheque book) in their hand as they splashed out £59.7m on Angel di Maria and paid £6m to borrow a Mr Falcao who apparently only needs to be paid £300,000 a week. Let’s hope that Mr Putin isn’t a City supporter and decides to turn off the gas supply to Old Trafford…

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