December market commentary.
It is always difficult writing a report like this, as you are always trying to ‘hit a moving target.’ While you can record the stock market levels at the close of business on, say, 30th November, there is always the risk that the commentary is overtaken by events.
That has never been more true than this month: we wrote these notes on Monday 3rd December and, of course, you have to press ‘publish’ at some stage. However, the situation regarding Brexit is constantly changing.
That said, on to business, and the majority of the stock markets on which we report in this commentary enjoyed a good, if unspectacular, November. There were also some signs at the end of the month that the trade war between the US and China might at least be thawing. Following a meeting at the G20 summit in Argentina, the two countries agreed not to impose any further tariffs for 90 days, to allow talks to take place.
Away from stock markets the oil price fell below $70 a barrel for the first time since April – leading to calls for a reduction in the price of petrol – and those of you who keep an eye on the performance of cryptocurrencies will have seen that Bitcoin had a disastrous month. The price of the virtual currency fell by 37% in the month, and – when we checked the price over the weekend – stood at £3,107.
Despite the political chaos in the UK there was plenty of good news for the economy in November with figures for the third quarter (July to September) confirming that it had grown at 0.6%, three times faster than the equivalent rate in Europe.
There was more good news as figures showed that wages rose by 3.2% in the same three month period, the fastest rate of wage growth for almost a decade. However, people did not appear to be spending the money on the high street, which once again lost out to online shopping in the Black Friday/Cyber Monday bonanza. And there was more gloom for town centres as Thomas Cook issued its second profit warning in two months, blaming the record-breaking summer.
The retail picture did not improve when Marks and Spencer reported falling sales for food and clothing, and a report from management consultants PwC said that retailers were facing their ‘toughest trading conditions for five years’ with 14 shops closing every day.
New car sales were also down and 850 jobs were lost as Michelin closed its factory in Dundee.
But against that, profits at the UK’s publicly listed companies jumped nearly 14% in the third quarter of the year, pushing total profits over the last 12 months to a record £217.9bn.
Sadly, the FT-SE 100 index of leading shares sided with shop closures not record profits and closed November down 2% at 6,980. The pound had a relatively quiet month – despite the continuing uncertainty over Brexit – and ended the month trading at $1.2748.
In 1942, as the tide of World War II finally began to turn in the Allies’ favour, Winston Churchill said, “It is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Is that where we are now with Brexit? Theresa May has done a deal with the European Union. According to the campaign group Leave Means Leave, it is ‘the worst deal in history’ seeing the UK paying £39bn and getting nothing in return.
According to Downing Street, it is the best possible deal and a triumph for the Prime Minister’s dogged diplomacy. It is vastly superior to a Canada or Norway-style deal, the dreaded ‘no deal,’ or staying in the EU. It is a deal that ‘delivers on the result of the referendum’ and the full Government publicity machine has been wheeled out to support it.
However, Theresa May realising she faced almost certain defeat in the Commons has now postponed the vote while she meets with European leaders again. She will attempt to rescue her deal by getting further assurances about the Northern Ireland border plan.
So no, it does not look like we have reached the beginning of the end, or even the end of the beginning.
At the moment, we are still due to leave the European Union on 29th March next year: as we have written previously that date could well be be pushed back to allow ‘more time for constructive talks with our European partners.’
The big story in Europe came at the end of the month as the worst civil unrest since 1968 broke out in France.
The headlines had French President Emmanuel Macron threatening to impose a state of emergency and demanding new police powers as he struggled to contain the unrest, with 75,000 people estimated to have taken part in the action over the weekend.
The Gilet Jaunes (Yellow Jackets/Vests) movement began three weeks ago as a protest against Macron’s climate change inspired fuel tax rises. But in reality it goes deeper than that as protesters claim that Macron is a ‘president of the rich’ who does not care about the concerns of ordinary French people and the higher living costs they are facing.
A recent poll showed that Macron had broken new ground by becoming the most unpopular French President ever at this stage of a Presidency – he is roughly 1½ years into a five-year term – with populist leader Marine le Pen (whom he beat in the Presidential election) now more popular.
Quite where Macron goes from here is anyone’s guess. It is not just the fuel protests: growth in the Eurozone has slowed to a four year low, and France still has a high level of unemployment – 9.3% in August, which is far closer to the 9.7% of Italy than it is to the 3.4% in Germany.
In other news, the government in Italy continued to defy the EU over its proposed Budget – although there were no such budgetary worries for France and Germany as they agreed a new budget for the whole Eurozone.
In company news, Volkswagen became the latest company to plough huge sums of money into electric cars as it committed to spending $50bn (£39bn) and announced plans to become the world’s most profitable manufacturer of electric vehicles. Given that the emissions scandal is reported to have cost the company $30bn (£23.6bn), it probably has some catching up to do…
Neither of Europe’s major stock markets enjoyed a good month. The German DAX index was down by 2% to 11,257 and the French index fell by a similar amount, ending November at 5,004.
Barely two months ago Apple won the race to be the first company valued at a trillion dollars (£780bn), but throughout November the shares slid as investors worried about declining iPhone sales and the company’s vulnerability to a protracted dispute between the US and China.
As we have written elsewhere, those fears may now be receding but Apple has now been overtaken by Huawei as the world’s second largest manufacturer of smart phones (and by Microsoft as the world’s most valuable company). There are mutterings that the innovation and attention to detail of former CEO Steve Jobs is being missed.
There was better news for the wider US economy, which added 250,000 new jobs in October, saw wages rise by 3.1% and unemployment down to 3.7%. “Wow! Incredible numbers. Keep it going,” tweeted the Commander-in-Chief.
But there was less good news for Donald Trump as the US mid-term elections saw the Democrats gain 40 seats in Congress and regain a measure of control. Previously, the President had benefited from Republican control of both the Senate and Congress, and this may make it more difficult to get some of his more contentious proposals approved.
In other company news, Amazon finally announced the location of its second HQ – and went for both New York and Virginia. Uber may be struggling to afford even one HQ: it lost a cool $1.07bn (£821m) in the three months to September, as it prepares for a public share offering next year.
Fortunately, the Dow Jones index does contain some companies that cling to the hopelessly outdated notion that the profit and loss account should be in the black, and rose 2% in November to end the month at 25,538.
The month began with Chinese leader Xi Jinping promising to cut import tariffs and open up the Chinese economy, amid continuing criticism that its trade practices are ‘unfair.’ Xi was speaking at a Shanghai trade expo and also made a robust defence of the global free trade system, widely seen as an attack on the US as the tariff war continued.
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