MoneyGap looks back over May, a month that – finally – brought us a government in Italy and – worryingly – brought us a raft of tariffs from the White House. There was good and bad news in the UK, including more disturbing signs for the national high street. A small town in Wales became famous, and there was widespread gloom among ice-cream lovers….
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
Time to look back over the month that has just ended. To be honest it was a peaceful month and for a while, I worried there wouldn’t be enough to report on. But all the news happened in the last two days of the month: Italy finally got a government – although how long it will last is anyone’s guess – and Donald Trump imposed trade tariffs on just about every country you can name.
The big story
Patriotic as it would be to stay in the UK, the big story in May was Donald Trump’s announcement of tariffs on imports of steel and aluminium. Among the countries and trading blocs affected were the EU, Canada and Mexico, all of whom announced retaliatory measures. The President said that the move was to secure “fair trade” adding, “they are our allies but they take advantage of us economically.”
The retaliation from the EU saw tariffs imposed on a list of US imports from Harley Davidson motorbikes to bourbon. There were no tariffs on Chinese goods as trade talks continued (with China having promised to import more US goods) but it now appears that the US will impose 25% tariffs on $50bn worth of Chinese imports shortly after mid-June, with Treasury Secretary Steve Mnuchin saying that a final list of goods would be published by June 15th.
A long-running trade war would be bad news for everyone. So far – irrespective of what you might personally think – Donald Trump has largely been good news for the US economy. Impressive numbers of jobs are created each month: in April the figure was 164,000 which saw US unemployment fall to 3.9% – the first time it has dipped below 4% since 2000.
But a prolonged trade war would change all that, and it certainly would not do any favours to beleaguered economies in Europe like Spain and Italy both of whom – as we will see below – have plenty of problems to contend with.
What happened in the UK?
May was another month with the usual mix of good and bad news in the UK. RBS kicked off the month by announcing the closure of 162 bank branches. As online banking and mobile apps continue to bite into retail banking you do wonder just how many high street branches there will be in ten years’ time.
The gloom of high streets up and down the country continued as April proved to be another bad month for the retail sector, with footfall down by 3.3% following the 6% fall in March. Add in the store closures announced by M&S and warnings of thousands of betting shop closures as the Government reduced the maximum stake on fixed odds betting terminals and you do wonder if town centres as we know them will survive.
…But there was plenty to report on the ‘good news’ page. Consumer confidence rose in April, reaching its highest level since January 2017 as wages rose by 2.9% in the first quarter of the year, finally starting to pull ahead of inflation. Unemployment was also down, falling by another 46,000 in the first three months of the year and still at its lowest level since 1975.
Figures for 2017 showed that UK corporate profits were at their best ever level – beating the record set in 2011 – but it looks like business, and the rest of us, may soon be paying more for any money we borrow. In the short term, we may escape rate rises (especially as inflation in April fell to 2.4%) but the Bank of England hinted at a series of possibly six interest rate rises over the next three years.
If you have money or savings invested then May was a good month for you, as the FTSE 100 index rose 2% to 7,678 but the pound went in the opposite direction, falling 3% in the month to $1.3299.
Countdown to Brexit
Looking back over my Brexit notes for May they seem to cancel each other out. ‘Tory backbenchers deliver ultimatum over customs partnership’ ran one headline. ‘Jobs at risk without a customs partnership’ ran another’. The month ended with suggestions of a ten-mile-wide trade buffer zone in a bid to break the deadlock over the soft/hard Irish border question.
We are now ten months away from the date when the UK is supposed to leave the EU and still virtually nothing has been agreed. That agreement may be even harder to find after the Republic voted to legalise abortion, leaving Northern Ireland as the only place in the British Isles where abortion is illegal. The DUP remains fiercely opposed to any legalisation – and Theresa May remains fiercely dependent on DUP support, presumably meaning that the DUP now hold a much larger bargaining chip in any discussions on the border.
What a mess. It almost makes Italy look like a model of stable, sensible government.
What happened in the rest of the world?
For now, Italy does have a government. Giuseppe Conte, an academic and relative political novice, is the Prime Minister, heading a coalition of the anti-establishment Five Star Movement (M5S) and the far-right League party. It has been dismissed as ‘populist’ – which to this writer at least simply means it won the most votes in the election. It is, though, undeniably sceptical of the EU and how long a coalition between a party that believes in a universal basic income and another that believes in cuts to government expenditure can last must be open to doubt.
Meanwhile, Spain was losing its Prime Minister after Mariano Rajoy lost a vote of no confidence following allegations of corruption. Plenty of drivers also expressed ‘no confidence’ in their BMW cars which stalled while they were being driven, forcing the company to recall 300,000 vehicles. And there was not much confidence behind Air France either, as another wave of strikes had the country’s economy minister warning that the airline could go out of business.
Over in America the beginning of the month was ‘business as normal.’ Apple showered its investors with cash as it announced plans for a $100bn (£75bn) share buyback – and said that it had sold 52.2m iPhones in the three months to March.
Over at Facebook, Mark Zuckerberg, fresh from surviving the Congressional hearings, said that Facebook would be launching a dating service. Fellow billionaire Elon Musk remained optimistic about Tesla’s future – despite the company posting a record loss of $710m (£523m) for the three months to March. The company’s target is to produce 5,000 electric cars a week – so far it is producing just 2,270 as it continues to burn cash at an alarming rate.
And then the President made an announcement…
Each month we report on the virtual currency Bitcoin. Last month it was trading at $9,236 but the price declined steadily through May and, as I write, Bitcoin is trading at $7,603 (£5,688). That is still more than three times the price it was a year ago, but there are increasing concerns about the amount of energy that ‘mining’ Bitcoin is using. One report published in May suggested that mining Bitcoin would use 0.5% of the world’s energy by the of 2018.
What I really like for this section is an AI security robot drowning itself in a swimming pool – or a repairman who traps himself inside an ATM and only escapes by passing out notes instead of cash.
But TSB boss Paul Pester would have had an easier month if he had locked himself inside one of the bank’s ATMs. ‘Computer chaos at TSB’ screamed the headlines, in a month which almost certainly saw the bank set a record for the number of times its customers heard, “Your call is important to us, but we are experiencing heavy call volumes at the moment.”
The chaos saw TSB customers given access to pretty much anyone’s account but their own, and one couple were actually able to see their life savings removed from their account while they were kept on hold.
Speaking to a committee of MPs Mr Pester said that the migration to a new computer system had been “a terrible decision.” He would, he said charitably, be foregoing his £2m ‘integration bonus.’
There was bad news for all of us as the Great British Summer approaches. The cost of vanilla has sky-rocketed over the last two years, meaning that the cost of your ice-cream will be going up. At $600 (£450) per kilo vanilla now costs more than silver: it may be time to invest in mint chocolate chip shares…
In the ‘good news’ column a small town in Carmarthenshire has been named as one of the best places for coffee in the world. Coaltown Coffee in Ammanford (population 5,293) was named on Lonely Planet’s list of best roasteries. So wherever you are in the world, you’ll be able to enjoy Welsh coffee – at least until you-know-who imposes a tariff on it…
Finally, I must close with an apology. Last Monday I published my preview of the World Cup. Having discussed what colours England would play in I then wrote this:
What of the other kits? Switzerland will be playing in red shirts with a white Ordnance Survey map on them, while Nigeria appears to have re-cycled the curtains your Grandmother threw out thirty years ago…
Well, er… I may have been slightly wide of the mark. At the end of last week about a gazillion, Nigeria shirts sold out in less than three hours. From this week I will therefore no longer be reporting on news, but will be taking up a new job as fashion editor…