Introduction
As a fan of science fiction, a common theme is the tale of the time traveller who travels to the present day from the future to warn of impending doom. If such an individual had appeared in May 2016 to announce that in two years’ time we would be where we are now – he would have been dismissed as a demented individual worthy of a straitjacket. That being said, here we are. Not only is there the fact that we have a President Trump – something that would have been unthinkable 2 years ago, he has held a summit with “Little Rocket Man” (his words, not mine) with steps in the right direction to denuclearise the Korean peninsula. Something previous presidents have not come anywhere close to achieving. Donald then decided that, after cosying up to one of the worlds worst dictators, that he would slap trade tariffs on some imported goods from China, Europe and Canada. Although we were quick to announce retaliatory tariffs on some American goods (I feel for you if you were in the market for a Harley Davidson) it seems strange for a President to alienate some of his closest allies and neighbours in the name of “National Security”. Saying that, this is the same person who thinks separating immigrant children from their families at the border is a sensible and humane thing to do – go figure. We then have Brexit. In May 2016 David Cameron had thrown down the gauntlet and lost, and then walked away to write a book about how he lost. We now have major divisions not only between political parties but within them. The Tories seem to lurch from one crisis meeting to another arguing on which deal to put in front of the EU, with Brussels shouting from the side-lines that none of the options being discussed would be acceptable to them. It is probably therefore unsurprising that most markets struggled over June. The amount of political upheaval and risk pushed 8 of the 12 markets we monitor into negative territory, although most only marginally.
UK
At the possibility of sounding like a broken record, we start this section looking again at the demise of the British High Street. With two major newspapers starting a “Battle to save Britain’s High Street” campaign in June, something needs to be done if they are to be saved. One report this month suggested that 50,000 retail jobs had been lost so far in 2018 and is calling for an urgent review of “crippling” business rates. As someone who is on the lookout for new premises I have to say I am staggered when I look at a town centre building and the rates (on top of rent, utilities etc) that are being charged. This issue was part of the problems with House of Fraser, and an agreement with landlords on rents has now been reached and precedes the closure of more than half its stores. With M&S following suit and other large retailers and Banks closing outlets at an alarming rate, we could look back at the high street in 10 years’ time as an idea whose time has passed. Enough doom and gloom! The month was a good month for economic data in the UK. Employment was up, with another 440,000 new workers compared to 12 months ago. We are also the Tech “Unicorn” of Europe (apparently). For the uninitiated (I include myself in this before I started putting my note together) a “Unicorn” is a tech start up valued at more than $1bn, and we have nearly 40% of Europe’s Unicorns. I have no idea who comes up with these things!
The FTSE100 and All-share were pretty much flat over June and have been for 2018 so far. They were down 0.53% and 0.54% respectively over the month. The pound was also down slightly against the dollar, falling from $1.3299 to $1.3211. The Bank of England also voted to keep interest rates at 0.5%, although there is pressure to increase this to 0.75% over the next few months.
Europe
In last month’s note I spoke about the turmoil in Italian politics being a big part of the volatility in the European markets. The coalition which was agreed on as May came to an end has survived its first month, and it is a case of “so far so good”. They are displaying some convincing unity in their view on their membership of the EU as well as their views over immigration. Although it may sound like the dullest story of the month, an important decision was made by the European Central Bank (ECB) to end its version of “Quantative Easing”. This program of bond-buying which was introduced to stimulate the economy is now seen as less necessary in light of the economic improvement seen in the Eurozone since its introduction. Assuming the data remains positive it looks like they will be ending their monthly spend of €30bn. Employment in the Eurozone is progressively getting better as well, although there could be one person looking for a new job soon. After Angela Merkel narrowly secured her premiership in the last election, she now faces a new crisis as her key ally, Horst Seehofer the interior minister, threatened to resign over her immigration policy. President Erodgan won a new 5-year term as president of Turkey, with some commentators arguing that this election moves them closer to a dictatorship rather than a democracy. The main markets suffered a harsh month, with the German DAX down 3.29% and the French CAC down 2.20%.
US
Whether President Trump deserves credit or not, the US economy is still surging forward. 220,000 jobs were created in May against a forecast of 190,000. As expected, and in a large part a reaction to the strength of the US economy, the Federal Reserve increased interest rates from 1.75% to 2% with more rises possible this year. One company that is bucking the trend in growth and strength is Tesla (a Unicorn!). It announced this month I would be cutting its 37,000 workforce by 3,300 as it tries to become profitable. In the 15 years it has existed, it has not made $1 in profit. Mr Musk can tweet “Profit is not what motivates us” as much as he likes, but the stock market does like to see companies eventually make some money. The two US indexes we follow had mixed fortunes this month, with the S&P500 up 0.36% whilst the Dow Jones was down 1.41%.
Far East
Although China is well on the way to becoming the worlds largest economy, with its strategy of building infrastructure to and in their largest trading partners, the threat of a trade war knocked the Chinese stock market sideways. This may be a temporary set back and the economy is still growing at an impressive rate. The country is now the second largest consumer of oil, with 25% of imports coming from emerging oil fields in Africa and the Far East. The story of the month was devasting for investors in China, with the Shanghai Exchange down 6.32% – the worst performance of the month. This fall was mirrored across all the main indexes in the region although the Japanese Nikkei managed a small increase of 0.6%.
Emerging Markets & Pacific Basin
Imagine our time travelling friend coming back from 2030 to tell us that North Korea had become a major player in this market – would we believe him? Based on recent events I wouldn’t bet against it (on the other hand if he told us England won the 2018 world cup we could probably lock him up). It isn’t out of the question, and maybe Kim Jong-un views the China model – a “free” economy under rigid state control, as a possible road to prosperity. For now, though, we will look at only the usual suspects – India, Russia and Brazil. The first two saw their stock markets largely unchanged in June, with the Brazilian market down 5% For the first six months of the year Russia, with future tourism surely buoyed by a successful World Cup, has seen its market rise by 9%. The Indian stock market was up 4%. I never know which section to put stories about Bitcoin in, although Cryptocurrencies seem to be very popular in emerging markets and the Far East. June was another bad month for the virtual currency and the price has declined massively since the highs of December 2017. There were two main reasons for the fall as the South Korean cryptocurrency exchange Bithumb revealed that it had lost 35bn won (£24m) in a cyber-attack, and governments and regulators around the world, with the US Securities and Exchange Commission being the latest, made ominous noises about cutting down on Bitcoin fraud.
Production
