As we do at the end of every month, CLNews looks back over the month that has just ended. September brought us an escalation in the US/China trade war and gloom for the UK high street and Argentina. However, an ice cream maker in Derby did his very best to lift our spirits…
By Mark Richards.
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
The big story
On Tuesday, November 3rd 2020 the United States will go to the polls to elect its next President. All the indications are that Donald Trump will stand for a second term and if the words of Bill Clinton – “it’s the economy, stupid” – are to be believed, he will win.
I hope he does. That is not a political comment or an approval of his policies: he simply makes the job of a financial writer so much easier. He is always making news and September was no exception, as he ramped up the trade war with China, ordering tariffs on a further $200bn (£154bn) of Chinese imports, which will include electronic products and consumer goods such as handbags.
These tariffs will see the cost of the Chinese imports rise by as much as 25% and – not surprisingly – Beijing was quick to respond, slapping tariffs of between 5% and 10% on a range of US products. Especially targeted were agricultural products, which largely come from states which have strong Republican majorities – a point which the President duly made on Twitter.
It is interesting to look at the relative stock market performance in the two countries. Despite the trade war, the US stock market is up by 7% this year. Although tech stocks were hit by the latest round of tariffs, the US stock market loves Donald Trump. The Dow was below 20,000 on his Inauguration Day and has now closed September at 26,458.
China’s main index – the Shanghai Composite Index – has, in contrast, had a bad year, and is down by more than 14% since the start of the year. Despite this, Chinese leader Xi Jinping will not back down: neither will Donald Trump. Quite what state world trade will be in when they have finished their very high stakes game of poker is anyone’s guess…
What happened in the UK?
As with every month this year, September brought more gloom for the beleaguered UK high street, as Debenhams called in advisers from KPMG amid suggestions that it may close up to 80 stores. There were no suggestions from RBS, who announced that it would be closing a further 54 branches and John Lewis – long held out as the one bright spot among department stores – saw its profits crash by 99% when the latest results were announced.
Tesco, though, was in buoyant mood as it launched Jack’s, the ‘pile it high, sell it cheap’ arm of the company we wrote about recently. The aim is to wrest market share back from Aldi and Lidl: we shall see whether it succeeds or whether Tesco simply manage to compete with themselves.
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.
Unemployment came down by a further 3,000 to 1.44m: that is an unemployment rate of 4.3% – the lowest for more than 40 years. However, inflation did edge back up to 2.7%, the highest level for six months.
…But no doubt Chancellor Philip Hammond will soon have that under control. Having given every indication that he would deliver his Budget speech in November, he has brought it forward to four weeks today, apparently to fit in with the Brexit negotiations. So the clocks go back on October 28th and on Monday, October 29th Spreadsheet Phil delivers his Budget: life could not get much better…
At least the FT-SE 100 index of leading shares had a reasonable month in September, rising by 1% to 7,510. The pound was more or less unchanged against the dollar and ended the month at $1.3031.
Countdown to Brexit
I may need to find a new title for this section. ‘Countdown’ implies that something definite is going to happen. With less than six months to go until the UK is due to leave the EU, any option still appears to be possible: in fact, a new option seems to crop up every day.
We left this section last month with Prime Minister Theresa May having presented her ‘Chequers’ plan for Brexit. September started with Tory MPs from all sides of the party rubbishing the plan and the EU’s chief negotiator Michel Barnier dismissing it as unworkable. ‘Barnier Rubble’ was the neat summary in one newspaper’s headline.
Throughout the month there were increasingly dire warnings of the consequences of a ‘no deal’ Brexit. Both BMW and Nissan warned of factory closures and Bank of England Governor Mark Carney said that house prices could fall by 35% over 3 years in the event of ‘no deal.’
Theresa May then trooped off to Salzburg to meet the other European leaders and was – according to your viewpoint – either ‘ambushed’ or got exactly what she deserved. ‘EU Dirty Rats’ proclaimed the pro-Brexit Sun.
So another month passes and once again we are no further forward. The real action will take place at this week’s Conservative party conference, and it will be interesting to see if May is the first Tory leader in living memory not to receive a standing ovation, especially as she refused to rule out further concessions to Europe in an interview yesterday.
What happened in the rest of the world?
See what I mean about Donald Trump? In September he tied up a US/South Korea trade deal and has just negotiated a ‘modernised’ trade deal with Canada to replace the North America Free Trade Agreement.
Also shaking hands and smiling for the camera 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.
Closer to home Sweden held a general election which saw the two main parties finish neck and neck but, more significantly, the nationalist, anti-immigration Swedish Democrats winning 18% of the votes, up from 12.9% in the previous election. The country will now face a long struggle to form a coalition government.
Also facing a long struggle is Argentina 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 to $57bn (£43bn) from the $50bn previously announced.
In company news Amazon followed Apple in being valued at more than a trillion dollars: with Christmas coming and office receptionists already fearing the onslaught of deliveries, the shares will not be falling any time soon…
September was not a good month for the virtual currency Bitcoin. The month started with banking giant Goldman Sachs ditching plans to trade the currency, apparently because of fears of future regulations. The move sent the price of Bitcoin – and several other virtual currencies – sharply down.
There was almost worse news at the end of the month when it was revealed that a ‘huge flaw’ had existed in the Bitcoin network’s underlying software, which could have destroyed the currency had it been exploited.
In the circumstances, Bitcoin probably did well to only fall by 7% in the month, down from £5,373 to £4,985. Interestingly if you look at the third quarter of the year, Bitcoin is up by 3%. Banks may be reluctant to trade the currency and hopefully, the underlying flaws in the network have been fixed – because there is clearly a continuing demand for a working cryptocurrency.
At the beginning of this month, we reported that the Coca-Cola Company was buying Costa, the coffee chain which dominates the UK high street. Well, ladies and gentlemen, your trips to town may be about to get more interesting – with ‘trips’ possibly being the keyword.
According to Canada’s BNN Bloomberg, Coke is in talks with a local producer – Aurora Cannabis – about developing marijuana-infused drinks. Before you dig out your flares and queue outside Costa I should stress that the aim of the drinks is to relieve pain: Coke describes them as ‘functional wellness beverages.’ But who knows? A mix up in the bottling plant and suddenly your local high street might be a rather different place…
Already apparently under the influence are the customers of Derby ice cream maker Gavin Murray, who faces a bill of £1,000 from his local council after not quite getting the balance right in his rum n’ raisin flavour. Mr Murray started his business four months ago, but the killjoys at the council have decreed his rum n’ raisin to be ‘too alcoholic.’ He now faces paying the council the money for the correct paperwork – or modifying his ice cream making to burn off the alcohol. And presumably, disappoint a large queue…
Finally this month there will be people – especially with the Christmas party season on the horizon – who find that their clothes have mysteriously shrunk. The traditional answer was to nip down to Weight Watchers, but not any more and the company jumps on the re-branding wagon by shedding the ‘weight’ and being known simply as ‘WW.’ The company says the new name reflects its focus on ‘overall health and wellness.’
More ‘wellness:’ perhaps WW could link up with Coke. And if that doesn’t work there’s always Mr Murray’s rum n’ raisin…