In around a months’ time, the US electorate go to the polls to vote in the mid-term elections. This could prove a real test of President Trump’s presidency, with controversy surrounding his pick for the supreme court and the continuing FBI investigation into past dealings. History however shows that, if the economy is doing well, an incumbent president generally gains ground. With the US economy storming ahead at the moment, there is a chance that Mr Trump could find some extra purchase in the months to come.
It is not too much of a bold statement to suggest that the US markets love Donald Trump. The Dow Jones has risen 30% since he came to power and is up 7% since the start of 2018. This is despite a trade war with China and although tech stocks have been hit by the recent round of tariffs, it does appear that the US is coming out on top.
Away from the excitement and entertainment provided by US politics we saw absolutely no progress on Brexit. The lack of progress created volatility in UK and European markets, although most managed to eek out a modest return.
On the world’s stock markets, it was generally a good month, with only 4 out of the 12 markets we follow showing negative returns, the worst performer being India.
A possible worrying development was the increase in the price of oil, with a four year high of around $81 a barrel, as both Saudi Arabia and Russia rejected President Trump’s calls to increase production.
In a break from the normal doom and gloom, there was news of a new entrant to the UK High Street. Tesco, in response to Aldi and Lidl gaining market share, launched “Jacks”, a homage to the company’s founder – Jack Cohen. Mr Cohen was one of the pioneers of the “Pile it high, sell it cheap” philosophy and Tesco hope to regain their dominance by competing directly with the low-cost supermarkets. Time will tell whether this will work or if Tesco simply ends up competing with itself.
In the wider economy, there was some good news, as the UK benefitted from the warm weather and the World Cup. Figures for July showed that the UK economy had grown at its fastest pace for a year, and the Office for National Statistics announced that the economy had grown by 0.5% in the last three months of 2017, compared to the previously announced 0.4%.
In addition to this good news, it was announced that unemployment came down by a further 3,000 to 1.44m: that means that the UK has an unemployment rate of 4.3% – the lowest for more than 40 years. However, the CPI and RPI rates of inflation did edge back up, mainly due to rising prices in recreational goods, transport and clothing. This rise was tempered by the fact that wages are still growing faster than inflation.
In an attempt to build suspense between now and next month, November’s note will be our “Budget Special”. The Chancellor will present his Budget to Parliament on Monday, 29th October and if his previous budgets are anything to go by, there will be excitement all the way. The budget is slightly earlier this year, to avoid a clash with vital talks with Brussels. This is a challenging time to be setting budgets. Coming after the October EU Summit, but ahead of potentially two more dates in the diary for further Brexit discussions with the EU, how much certainty will the Chancellor have to allow him to use this opportunity to reset the country’s fiscal policies? Will we see significant tax and fiscal measures? What will the Autumn Budget deliver for people and businesses? Will it be a budget that gets the country ready for Brexit? We will provide a summary of the main points once we have had time to digest any announcements.
The FTSE100 index of leading shares had a modest month in September but at least it moved in the right direction, rising by 1.2%.
As promised last month, Brexit will get its own section until next March when, in theory, we exit the EU. The fuse was lit in March 2017, and it continues to burn towards our exit from the EU. Usually, when a fuse reaches its destination there is a big boom, but right now any outcome still appears to be possible, in fact, a new option seems to crop up every day.
My 4-year-old is currently going through a phase of asking for something repeatably in the hope that I will get bored of his demands and give in. This seems to be the strategy of the UK government and they seemed shocked in September when Theresa May attended a meeting of European Leaders and was told that her Chequers deal was unacceptable and “unworkable”. As any good parent knows, you have to be consistent with your message and this is exactly what the EU say their stance has been since day one. You could also argue that they are not coming back with any alternative solutions, which isn’t helping the situation.
So, another month passes and once again we are no further forward.
Perhaps the big story in Europe came from Sweden, where both main parties saw a sharp decline in their votes as the nationalist, anti-immigration Swedish Democrats won nearly 20% of the vote. The country’s Prime Minister was ousted after losing a no-confidence motion and the country now faces a period of uncertainty as the politicians try to form a workable coalition. To put this in context, this is unheard of in Sweden. Its reputation of being a liberal, inclusive society is well deserved. This, however, represents a worrying trend in Europe where immigration has changed people’s perceptions and people, in increasing numbers, are voting for the more extreme ends of the political spectrum.
On Europe’s stock markets the two major indices went in opposite directions in September. The French index was up by 1.75% by the end the month but the German DAX index slipped back by close to 1%. Although Greece is in a much better place than it was 5 years ago, the main index was down by over 6.5% during September.
September was a good month for the US. President Trump signed off on a new US/South Korea trade deal as well as an updated trade deal with Canada to replace the pretty much defunct North American Free Trade Agreement (NAFTA).
Away from the Oval Office, it was generally a good month for the US economy, which added 201,000 jobs in August as unemployment remained low at 3.9% and wage growth rose by its fastest pace for nine years, reaching an annualised rate of 2.9%.
The consequence of this solid performance was that the Federal Reserve raised interested rates again. This is the 8th increase since 2015, with a pretty high chance of another one by the end of the year.
Amazon followed Apple in being valued at more than a trillion dollars as its share price reached a record high. I like to think I had a small hand in this with the number of Amazon deliveries to our office….
Not to be outdone Apple unveiled a raft of new products including yet another version of the iPhone: it’s called the XS if you want to upgrade, although there are reports of some technical issues so you might want to wait until these are resolved!
As mentioned in the introduction, the US markets have done well this year and risen by 7% despite the ongoing trade war with China. In comparison, the main Chinese market is down by 14% over the same period. The Dow Jones and the S&P were both up in September by 2% and a more modest 0.1% respectively.
The media were focused on the East Coast of the US in September with the impending landfall of Hurricane Florence. We also had a “Medicane”, a rare hurricane-like storm, which hit Southern Europe. However, it was Typhoon Mangkhut, which was the most destructive. It is estimated that dozens of people were killed in the Philippines, before it moved on to batter Hong Kong and Southern China. The bill for the clean-up is already estimated in the 100s of billion dollars and is likely to rise further.
The region also suffered a major earthquake and tsunami centred on the Minahasa Peninsula in Indonesia. The inaccessibility of the area has hampered aid efforts and it is estimated that 1,500 have lost their lives – with thousands injured and displaced.
Amid all this destruction, Donald Trump managed to shake hands and smile for the cameras after making a deal with South Korea. Also getting in on the act were Kim Jong-un and Moon Jae-in, the respective leaders of North and South Korea. President Moon made a historic trip to North Korea, and the meeting moved the de-nuclearisation of the Korean peninsula significantly closer, as Kim promised to close one of his country’s main missile testing and launch sites.
September was a good month for Far Eastern stock markets. The Chinese Shanghai Composite index shrugged off the worries about a trade war with the US, rising 5.3% (although it remains down for the year as a whole). Pride of place went to Japan where the Nikkei Dow was up 5.5%. The Hong Kong index was virtually unchanged, closing September up 0.05%.
Last month I commented on the situation in South America – namely Venezuela and Argentina. In a scene which could have formed part of a George Orwell novel, the Venezuelan President Nicolas Maduro was photographed eating steak cooked by a Turkish celebrity chef, while at home millions are starving and the country sees the biggest mass migration of people in South America’s history.
The story in Argentina is equally as bleak, which is fast becoming South America’s equivalent of Greece. The country’s GDP has fallen sharply, the government is implementing widespread austerity measures and the International Monetary Fund has had to increase its three-year bailout programme in an attempt to keep them afloat.
Good news for India, however, as HSBC predicts that they will overtake the UK, Germany, France and Japan to become the 3rd largest economy in the world by 2030.
Despite the optimistic forecasts, the Indian stock market had a disappointing month, falling by over 7% – the worst performer on our watch list.