2018 started off well for investors, with 10 out of the 12 indexes we monitor making gains, some pretty spectacular. The one geographic area which really suffered was the UK, being dogged by new uncertainties over Brexit, alleged conspiracies against Theresa May as well as the collapse of Carillion – bringing with it fears that other “outsourcers” could follow. The FTSE100 and FTSE All-share both fell around 1.5%.
There were multiple reasons for rallies elsewhere; good news from China, the World Bank were in bullish mood for their outlook on 2018 – with stronger than expected growth in 2017 and a forecast of 3.1% for this year. Add to all this globally low interest rates and easy monetary policy – it’s no wonder the indexes ploughed forward.
The Swiss resort of Davos became the focus of the world’s atten ion for a few days in January, as the annual get together of the worlds political and business elite was held. This year, Donald decided to drop on by, the first time a sitting US president has attended since Bill Clinton in 2000. Apparently, “America First” doesn’t mean “America Alone” and went on to be interviewed by his friend, Piers Morgan.
Poor Theresa’s bad press continued with the Times and the Telegraph questioning her continued leadership. John McDonnell also attended and spoke against the evils of capitalism – whilst staying in a €800 per night hotel.
January’s big news story in the UK was the demise of Carillion, the 2nd biggest building firms in the country, and one of the biggest preferred bidders for government contracts. With debts of £1.5bn and a potential pension deficit of £1bn it is amazing how deeply embedded the company was in some of the country’s major infrastructure projects. With the company headquartered in Wolverhampton, it’s likely that there will be a fair umber of redundancies in the 30,000 connected companies in the local area.
Despite this, there was some good news around in January. The month started with all the retailers reporting on their Christmas trading figures: Next, Aldi and Lidl did well but Debenhams reported disappointing figures and – having fea ted on Carillion – the vultures are now circling the high street chain. Marks & Spencer also announced the closure of 14 stores. At the same time Sainsbury’s and Tesco were warning of job cuts, retail is changing dramatically, and it will probably result in more jobs losses for this sector.
Attention has now shifted to the transition phase of Brexit, after the agreement which was reached in December. This has triggered the political infighting within the Conservative Party, not helped by Chancellor Hammond declaring at Davos that he wanted “only very modest changes” to the current situation after Brexit – not what the more hard line members of the party wanted to hear. Where this will lead is anyone’s guess, but Jeremy Corbyn and his Labour pals don’t seem to have to oppose anything the government does, with t government doing a pretty good job of tearing themselves apart.
One surprising result in the month was the rise to the highest levels since 2011 of UK manufacturing with a revision upwards to 0.5% for the final quarter of 2017.
Inflation went into reverse into January, dropping to 3%. There were headlines that we had topped the hill, and that the worst of the expected fallout from the EU Referendum was behind us. Unfortunately, the price of oil hit a four year high, so we could see that inflation figure stay stubbornly at these levels.
The general sombre mood was reflected on the stock market, with the FTSE 100 index of leading shares falling from December’s high and drop ing 1.5% in January to 7,534. It was, however, a good month for the pound which strengthened against the dollar, rising by 5% to $1.4171.
Germany must have been on Santa’s naughty list, as he forgot to give them a new government for Christmas. Ms Merkel is supposedly drawing closer to a deal with the Social Democrats, which will see her seal her next term as German Chancellor. With or without a government, the economy trundled on – maybe we should try getting rid of ours and see if we can get our economy running at the same speed?
It appears that Europe could be set for more problems, with the re-election of the anti-mass immigration, Eurosceptic Milos Zeman, to the Czech presidency, raising the prospect of a referendum on the country’s continued member hip of the EU. Shall we have a Czech-xit or a Czech-out? There is a solid block of countries in Central Europe – the Czech Republic, Hungary, Poland and Slovakia – who all appear to feel the same way. It may be that 2018 will present Angela Merkel with far greater problems than simply forming a coalition.
None of these things derailed the major European markets, with the German, French and Italian markets rising 1.12%, 1.85% and 1.16% respectively. But it was our old friend Greece that stole the show: with the country having survived for another year, the Athens stock market celebrated by rising 13.5% in January.
The US investor received a late Christmas present with the Dow Jones breaking through the 25,000 points barrier in early January. This was despite figures indicating that job creation was slowing down – although unemployment is now at the lowest level since 2000.
Although President Trump got his way with his tax reforms in December, we witnessed something that we never see in the UK – a country running out of money. Congress couldn’t agree on the budget for the federal government for a few days. An agreement was reached eventually, but this is becoming more common – the last being in 2013 and lasting 16 days! Donald was his usually conciliatory self, tweeting “Even Crazy Jim Acosta of Fake News CNN agrees: “Trump World and WH sources dancing in end zone: Trump wins again…Schumer and Dems caved…gambled and lost.” Thank you for your honesty Jim!” – quite.
As mentioned above, Donald travelled to Switzerland and gave a rousing speech, and a few days later delivered his first State of the Union address. As he was very quick to point out on Twitter, during his first twelve months as president Unemployment is at 4.1% (the lowest since 2000) by adding another 200,000 jobs with average earnings up 2.9%.
The Dow Jones index eventually closed January at 26,149 – 5.3% up from where 2017 finished
It was relatively quiet in this region over January, and the only North Korea story was how many athletes they are going to send to the Winter Olympics.
However, an age-old question raised its head again. Can China continue their amazing growth and become the world’s number one economy? There is plenty of anecdotal evidence that the figures China issues are “inflated” and several provincial governors have already been tried and admitted to “cooking the books”. However we cannot escape the truth that they have only been recognised as a major world economic power for the last 15 years or so. It also has an ever-expanding middle class who demand the luxuries and goods the western world has enjoyed for so long.
One other Korean story this month that made the news was that the South Korean government has made trading in the crypto-currency Bitcoin illegal, amid fears it was increasingly being used by organised crime. Bitcoin’s fall from grace continued, witnessing a 39% loss over January.
Generally, the Far Eastern stock markets were up during the first month of the year, with the Hong Kong market powering on for a gain of 10% in the month. South Korea was up 4% to 2,566 and China up 5% to 3,481. Puffing along behind came the Japanese index, struggling up by just 1%.
January’s big stor was Canada’s decision to join the Trans-Pacific Partnership (TPP) which Do ald Trump pulled out of last year. Canada had initially been reluctant to sign up because of concerns about the environment and labour protection but will now join 10 other countries in Chile in March to sign the agreement. The TPP has been championed by Japan, which sees it as a way to counter China’s economic dominance in the region.
January was an excellent month for the three major stock markets we cover in this section. The Indian stock market rose 6%, Russia was up 9% and the Brazilian index shot up by 11%.
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