April 2015

The focus in March inevitably turned towards the UK Budget – delivered by Chancellor George Osborne on March 18th – and the forthcoming General Election, with the two main parties currently running neck and neck in the opinion polls.

It was therefore easy to overlook significant events that happened at the beginning of March. The European Central Bank was poised to launch a €1.1tn programme of bond buying in a bid to boost the Eurozone economy – and the Chinese Government set a modest growth target (modest by Chinese standards that is) of 7% for the year.

UK

March opened with the UK Government selling its 40% stake in Eurostar for £757m and Governor of the Bank of England Mark Carney warning that it would be foolish to cut interest rates further simply to combat low inflation. In the event figures released later in the month showed that UK inflation in February had fallen to zero, as food prices in particular continued to fall. Figures for January also showed that house prices had fallen by 0.2% in the month.

There was plenty of good news around – sales of new cars were up again in February, and figures released for 2014 showed sales at a 10 year high. The Society of Motor Manufacturers and Traders confirmed that 2.47m new cars were registered in 2014, the best performance since 2004.

Perhaps the best news of all was the FTSE finally breaking through the 7,000 barrier, surpassing its previous high set in December 1999. On March 23rd it closed at 7,037.67 – although as is shown below, it had fallen back by the end of the month.

Sadly – and as usual – any good news sailed straight past the high street and the UK retail sector. The supermarket price war continued and it was now Morrisons’ turn to announce a huge loss – just £800m – and a programme of store closures. Tesco now faces potential lawsuits over its accounting scandals and the rate of closures in the national high street continued to accelerate, with clothes and shoe shops the worst affected.

It was against this background that the Chancellor leapt to his feet just after 12:30 on March 18th and opened his speech with an impressive barrage of statistics, rhetoric and jokes at Ed Miliband’s expense. No-one could doubt that a General Election was just around the corner.

The UK would continue to see growth above 2% and the deficit would continue to fall – so much so that there’d be a current account surplus by 2018-19, a year earlier than the Chancellor had predicted in the Autumn Statement.

Measures were announced on pensions, annuities, savings – including the introduction of a ‘Help to Buy’ ISA – and it was generally felt that the Chancellor had gone as far as he could in delivering pre-election ‘incentives’ whilst at the same time protecting his reputation as the man who had steered Britain through the worst recession in living memory.

However, the Budget did little to shift the opinion polls and the stage is now set for all the economic news over the next month to be delivered with a pre-election slant. UK business leaders were quick to make their feelings known regarding the possibility of an agreement between Labour and the Scottish National Party (SNP) – something that would send “fear and shockwaves” through the UK economy, according to one FTSE 100 chief executive.

Clearly this possibility weighed on the FTSE towards the end of the month: it closed March at 6,773 – down 3% on the month as a whole, but up by 3% since the start of the year.

Europe

As mentioned above, the month opened with the European Central Bank (ECB) launching a massive programme of quantitative easing, designed to stimulate the Eurozone economy and head off the risk of deflation. Mario Draghi – President of the ECB – simply stated that “our policies have worked.”

This was greeted with some scepticism in Germany, with economists there pointing out that the policies of the ECB had effectively devalued the euro by 20% against the dollar and the Chinese yuan. You have to have some sympathy with Germany’s view – after all, theirs is the economy remorselessly producing a trade surplus, with the figures for January confirming a surplus of €15.9bn for the month. Unemployment in Germany remains steady at 4.8% and inflation is down to 0.1%.

The stock markets also seemed in agreement, with the German DAX index up by another 5% in March to close at 11,966 – now up more than 20% since the start of the year. The French index also had a good month, rising by 2% to 5,034.

Bizarrely, it was a relatively quiet month for Greece. An uneasy standoff has been reached (for the time being) with Germany. The usual war of words is being exchanged, but for now the focus is on Greece’s next major repayment of debt, scheduled for June. Having enjoyed a buoyant February, the Greek stock market fell back by 12% in March to end the month at 775.

US

March saw mixed economic indicators for the United States. Figures released for February showed that the economy had added a further 295,000 jobs, but veiled hints at interest rate rises from the Federal Reserve Bank helped to depress market sentiment.

Apple – still happily sitting on a cash pile now approaching £180bn and enough to buy every homeless person in the US a three bedroom house in New Jersey – unveiled its new watch, and a new, even thinner, MacBook. Meanwhile chief executive Tim Cook announced that he would ultimately give away his $800m fortune to charity.

US consumer prices rose in the month as petrol prices in the States rose for the first time since June last year and it was revealed that the slowdown towards the end of 2014 was more pronounced than had been thought: the US economy only grew at 2.2% in the last three months of the year compared to the 2.6% which had previously been anticipated.

This news was enough to see the Dow Jones index fall by 2% in March, ending the month at 17,776 – down very fractionally on the 17,823 at which it started the year.

Far East

‘Is your glass half-full or half-empty?’ I’m sure there’s a Chinese equivalent of that saying and it was very much the case in point in March. On March 4th the Chinese Government announced a growth target of 7% for the year, with growth having slowed to 7.4% in 2014. This is, of course, a level of growth that is the stuff of fantasy in the West, but there are experienced Beijing watchers who worry that even the apparently modest target of 7% won’t be achieved.

…But there was no such pessimism from Premier Li Keqiang who announced later in the month that the Government will prop up the economy if there is a danger of the growth target being missed. This was enough to send shares to a 5 year high, with the Shanghai Composite index rising by 13% in the month (and 16% on a year to date basis) to 3,748.

Growth in the other Far Eastern markets was much more modest in March. The Japanese index was up by 2% to 19,207 and is now up by 10% since the start of the year. Hong Kong was virtually unchanged in March at 24,901 but is up by 5% this year. The South Korean index broke through the 2,000 barrier to close the month at 2,041: that was a 3% rise in March, and it is up by 7% since the start of the year.

Emerging Markets

Sadly, March saw the death of Lee Kwan Yew, the man who ‘built’ the modern Singapore. He governed for three decades before stepping down in 1990 and is generally credited with raising Singapore from the third world to the first world in a generation. It is certainly first world for prices, with a recent survey by the Economist Intelligence Unit confirming Singapore as the world’s most expensive city, ahead of Paris, Oslo, Zurich and Sydney.

There was good news in India as the bank rate was cut to 7.5%. Clearly this rate is ridiculously high by UK standards but spare a thought for the Ukraine, where the bank rate increased from 17.5% to 30% in an effort to stave off inflation and prop up a currency (the Hryvnia, if you’re in a pub quiz) obviously beleaguered by the continued fighting.

There were wild rumours in Russia when President Putin was not seen in public for ten days: these ranged from being assassinated in a coup to attending the birth of a love-child in Zurich. In the event it seemed that he’d joined the ranks of normal men and had the flu.

On the stock markets the Russian market fell in sympathy with its poorly President, down 8% in March to 1,626. Both the other two major emerging markets which we monitor also fell: Brazil was down by 1% to close the month at 51,150 – whilst the Indian market dropped back by 5% to finish at 27,957.

And finally…

To the great sadness of ‘Trekkies’ around the world, late February saw the death of Leonard Nimoy at the age of 83. Devoted fans – especially in Canada – were determined that Spock would be remembered, and so March saw the gradual emergence of ‘Spocking’.

This practice – naturally condemned by the Canadian Central Bank as “inappropriate” but apparently not illegal – is the craze of drawing on the country’s $5 banknotes to make the former Prime Minister, Wilfrid Laurier, appear to be giving the Vulcan salute.

In the circumstances there’s only one thing we can say to end this month’s bulletin: live long and prosper…

April 2015 Market Commentary Sources