By Mark Richards.
As we do at the end of every month, CL News looks back over the month just ended. At the end of November, we were expecting some progress on Brexit. That did not happen but what did happen was Donald Trump, as he started to make up with Chinese leader Xi Jinping, fell out with the Chairman of the US Federal Reserve and threatened to close down the US government for a very long time. Meanwhile, Theresa May survived a vote of confidence and kicked a can down the road…
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
The vast majority of us – whether it is through our pensions, our savings or our investments – have an interest in the stock market. The big story in December was the falls around the world, leading to the worst year for global stock markets since 2008.
As regular readers will know, the trade dispute between the US and China has rumbled on for most of this year. The beginning of December found both Donald Trump and Xi Jinping in China for the G20 summit of the world’s leaders. They agreed to a temporary truce in their mutual tariffs but by the middle of the month the bickering had started again and the world was becoming uneasy.
Then – worried about inflation – the US Federal Reserve (their equivalent of the Bank of England) put interest rates up to their highest level for ten years, a move roundly condemned by the President as he fell out with Fed chairman Jerome Powell, someone he had only appointed in November 2017.
This sent shock waves around the world and the mood worsened as Trump reached an impasse with the US Senate over his demands for $5.7bn (£4.5bn) to fund a border wall with Mexico. This, in turn, led to a threatened shutdown of the US government, and further worries for global stock markets. As we ate our Christmas dinner, the market in Japan fell 5% in one day.
All in all, this contributed to a miserable December and a miserable year for world stock markets. China led the way, falling by 25% in the year and Germany was down 18%. The US market was down by 9% in December, but only 6% for the year as a whole and remains comfortably above the level it was when Donald Trump became President. As we shall see below, the UK was not immune to the global malaise among leading markets.
What this does emphasise is that saving and investing is not for the short term. As we stressed above, nothing in this Round-Up should be taken as financial planning advice, but when you read that ‘markets can fall as well as rise’ it means just that with, sadly, the events of 2018 illustrating it all too well.
So what happened in the UK?
We had better start off with what did not happen, and that was people shopping on the high street. The November figures were better than expected – helped by Black Friday promotions – but footfall in December appears to have been down, especially for the Boxing Day sales. Mike Ashley, boss of Sports Direct, told a House of Commons Select Committee that the high street “will be gone by 203o.” But with a report for the government saying the UK high street has ‘twice as many shops as it needs’ 2030 may arrive rather sooner than expected. HMV’s decision to call in the administrators is hardly a good omen for the year ahead.
There was some good news as figures from the Office for National Statistics showed that the economy had grown by 0.4% in the three months to October – the period immediately after the World Cup boost. Wages were also up by 3.3% in the same period, their fastest rate of growth for ten years.
…And for the second year in a row, the UK was voted the best place in the world to do business. Forbes’ ‘Best Country to do Business’ poll put it ahead of Sweden and Hong Kong.
But December ended with more gloomy news as growth in the service sector slid to its lowest level since July 2016, house price growth was at its lowest for six years and Gatwick Airport was brought to a standstill by a drone – although this did not stop French airport group Vinci from buying the airport for £5.8bn.
Like all major world stock markets, the FT-SE 100 index of leading shares was down in December, falling by 4% to 6,728. The FTSE started the year at 7,688, meaning that it fell by more than 12% in 2018. The pound ended the year at $1.2746, virtually unchanged in December but down 6% for the year as a whole.
Countdown to Brexit
I am sorry. I have written this ‘countdown to Brexit’ section for a year and every month I have safely written ‘nothing has happened’ or words to that effect.
Last month I allowed myself to be led astray and foolishly wrote that there might be some progress. ‘A week tomorrow,’ I wrote, ‘MPs will vote on Theresa May’s deal.’
Oh no, they didn’t. If kicking the can down the road ever becomes an Olympic sport then we have a guaranteed gold medallist in our current Prime Minister. Fearing a heavy defeat Theresa May delayed the vote, which will now – in theory – be in the week commencing January 14th.
Will I have some progress to report on this time next month? Possibly – but come the end of January there will still be 57 days to go until the UK leaves the EU. Why rush? After all, it will only be 972 days since the Referendum…
So the machinations in Parliament will continue. We will still be told that ‘crashing out’ of the EU without a deal will be a disaster – but the Government will continue to plan for ‘no deal.’ Actually ‘plan’ might be a slightly optimistic term, given that Chris Grayling – the Government Minister who brought us Carillion and the Gatwick fiasco – has now awarded a ferry contract to a company that has never previously run a ferry and that does not own any ships. What could possibly go wrong?
What happened in the rest of the world?
As we have already seen, the 49th President of the United States happened. For people like me – who need to produce content on a regular basis – Donald Trump is a Godsend: there is never a dull moment. But I appreciate that not everyone shares my view and currently Trump is only 2/1 with the bookmakers to be re-elected in 2020. Remember that Hillary Clinton won nearly 3m more votes than Trump in 2016 so 2019 will see a steady parade of Democratic hopefuls lining up to take on the President.
Another less-than-popular President was Emmanuel Macron as the gilets jaunes protests spilled over into a second month. In Germany Annegret Kramp-Karrenbauer (commonly known as AKK or ‘mini-Merkel’) took over as leader of the Christian Democrats and will presumably succeed Merkel as Chancellor. Meanwhile, the dispute between the coalition government in Italy and the European Union was settled at the 11th hour with a compromise, which allowed both sides to claim victory. No surprise there and no surprise if exactly the same thing happens on March 28th…
In the Far East worries persisted about Chinese telecoms company Huawei’s involvement in so many of the world’s 5G networks. Huawei simply shrugged and announced that operating revenues for the year would be up 20% at $108.5bn (£85.7bn).
…And China was also on the expansion trail. It is now describing itself as a ‘near-Arctic’ power and seems set to go after the vast mineral resources in Greenland, the 12th largest country in the world. But Greenland is also home to a very large and very strategic US air base at Thule in the far north of the country. See above: what could possibly go wrong?
Bitcoin opened November at £4,945 and closed it at £3,107 – a fall of 37% and, as we wrote at the time, one of the worst months in Bitcoin’s history.
We did, though, point out that November has historically been a bad month for Bitcoin and that plenty of people were predicting a rally. Well, let us hope that they did not back that opinion with their Christmas spending money, as the virtual currency was down a further 7% in December to end the year at £2,891. That means bitcoin fell by 42% in the final quarter of the year and – having started the year just under £10,000 – that it was down by 70% for 2018 as a whole.
Where next? There seems to be an equal number of people telling you that it will bounce back up to the dizzy heights as there are telling you that it will become worthless. If nothing else, Bitcoin’s ride in 2019 will be entertaining to watch.
Looking back over the year there has been a bumper crop for the ‘And finally’ section of the Round-Up.
Apple spent $3.6bn on a new headquarters building, designed so that their genius engineers did not “have to adjust their gait when entering the new building” so they were not distracted from their thinking. The solution was doors with completely flat thresholds and massive glass windows with ‘extra transparency and whiteness.’ So transparent and white that several Apple engineers were left concussed and bleeding from walking into doors they could not see.
Back home in September, Scrooge-like trading standards officers in Derby threatened to fine local ice-cream maker Gavin Murray £1,000. The clue was in the queue: it turned out that Mr Murray’s rum n’ raisin flavour ice-cream contained rather too much of the former and not enough of the latter…
December was mildly disappointing in comparison. It was revealed that inflation is not running at close to 2% as we all thought – at least, not inflation for the super-rich, as measured by the inflation ‘basket’ of Coutts, the Queen’s bankers. This inflation basket contains not washing-up liquid and toilet rolls but Charbonnel et Walker chocolates, native oysters and whisky (among other delicacies). Sadly continued increasing demand from China’s emerging middle class has pushed up the price of oysters by 21% this year, and the overall rate of inflation for the super-rich is up by 5.9%.
Astonishingly the deep-fried Christmas dinner served up by a Scottish fish and chip shop was not included in Coutts’ inflation basket despite it costing £10.
Dunkeld Fish Bar in Perthshire did its bit to tackle the national obesity crisis by deep-frying an entire Christmas dinner. The shop reported brisk business, with owner Scott Davie saying its turkey goujons, battered Brussel sprouts and carrot and parsnip fritters were “already a big hit with customers.” The meal is completed by a giant pig-in-a-blanket (a battered, foot-long sausage) and a deep fried mince pie.
The thought of a foot long, deep-fried sausage is too much for me at this time in the morning – and my sincere apologies if you still have a New Year hangover…