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17th November 2017


Norway’s sovereign wealth fund has announced it will sell out of oil and gas investments, subject to approval by the government and parliament. They justify this on diversification grounds, pointing out quite rightly that the country is already highly exposed to oil as a producer. However, that was true last year, so observers are asking what has changed. Obviously, what has changed is the long-term outlook for the oil price. Cheap shale and increasingly cost-efficient renewables means that the world economy’s dependence on oil is weakening. The Norwegian Central Bank says they must prepare for the possibility of a “permanent drop in oil prices”, and they are not the only ones to be doing so. We have seen some signs of the dramatic changes this will lead to with the ongoing political turmoil in Saudi Arabia, a country which is desperately attempting to reform in order to cope when oil won’t pay the bills anymore. This is going to be one of the major themes in global politics and economics for the next few decades.


The year-on-year rate of CPI inflation in October fell just short of expectations at 3 percent, the same rate as in September. On a month-on-month basis consumer prices rose by 0.1 percent. Economists had been forecasting a rate of 3.1 percent but the rise in food prices was offset by lower-than-expected fuel prices. The return to high inflation in recent months has been driven by a weak pound following the Brexit result, with higher import prices being passed onto the consumer. This news means additional downward pressure on living standards and real interest rates. Despite the apparent peaking of inflation the Bank of England has not changed its plans to raise rates twice within the next two years. Investors seem somewhat unconvinced however. Two-year gilt yields remain below base rate, suggesting investor scepticism about the Bank of England’s announcements especially given the uncertainty about the UK’s future outside of the EU. Shortly after the inflation data were released the pound fell sharply by 0.22 percent against the US dollar.


There have been some developments this week with regards to Republicans’ effort to renew the country’s tax code. On Wednesday, the party began trying to get a revised bill through the Senate finance committee but two senators would not support it. The main revision to the bill was the repeal of the requirement for US citizens to have health insurance. The Congressional Budget Office have estimated that this would save around $338bn over ten years. The bill would also make permanent a cut in the rate of corporate tax from 35 to 20-25 percent, potentially raising the deficit by $1.5tn over ten years. On Wednesday, it was announced that core consumer price inflation rose by 1.8 percent on a year-on-year basis, up from 1.7 percent in September. This rate was higher than economists had forecasted, reinforcing investors’ expectations that the Fed will raise rates in December. Markets are forecasting a 92.3 percent chance. Additional evidence comes from one of the Federal Reserve’s leading doves, Robert Kaplan, who this week said that he is “actively considering backing a rate rise”.


On Wednesday, the Zimbabwean army seized control of the capital to target individuals close to President Robert Mugabe “causing social and economic suffering in the country”. The finance minister and the head of the ruling party’s youth league have reportedly been arrested by soldiers. This comes a week after Mugabe fired his vice-president and likely successor Emmerson Mnangagwa, an ally of the army commander. This move may have been made to enable the succession of the president’s influential but unpopular wife. The incumbent has, for now, refused to resign, drawing out the military’s intervention. Meanwhile S&P have formally declared the first Venezuelan sovereign debt default. On Monday, Caracas missed its deadline to pay $200m in interest payments on two bonds, and the nation is overdue on a further $420m of other interest payments. However, on Wednesday the Russian government agreed to restructure $3.15bn of Venezuela’s debt and allow the country to repay it over ten years. Bond prices fell following the announcement. A $2.5bn bond due in October next year lost almost a fifth of its value to trade at 25.7 cents on the dollar.

Data sourced from FE Analytics. All content is intended as general information only and does not constitute investment advice, a recommendation or investment research as defined in the FCA Handbook. This information is not guaranteed to be correct, complete or accurate. FE research is a division of Financial Express Ltd, an appointed representative of Trustnet Ltd (FRN 209967) which is authorised by the Financial Conduct Authority.

11th November 2017


UK house prices are rising at their fastest since January, according to Halifax, but the Royal Institute of Chartered Surveyors suggests they are flat, with sales falling. Who to believe? This is the problem for watchers of the UK economy: different data sets point in different directions, and that is before you even attempt to deal with the politicising of that data. We were not surprised at all to see 10-year Gilt yields fall after the rate rise last Thursday: long term yields are driven more by growth and inflation expectations than short term rates, and the medium consensus on the UK economy is gloomy given the uncertainty surrounding Brexit and fears of Corbyn government. However, we are just a couple of weeks away from the Autumn budget. Bold policy moves from the Government could conceivably change the narrative economically and politically, and a popularity bounce for the Government could be good for equities. Don’t forget that the FTSE has been flatlining since the Conservatives lost their majority; poll leads for the Tories could conceivably see a rally. 


13.4 million documents detailing the offshore interests of hundreds of companies and high-profile individuals have been leaked this week. Apple, US Secretary of Commerce Wilbur Ross and Silicon Valley have been implicated. The papers reveal that Apple is using the island of Jersey as a substitute tax haven following the 2013 tightening of tax rules in Ireland where several of its subsidiaries used to be resident. In addition, details of Wilbur Ross’ investments in a shipping company linked to Putin’s family have added fuel to the fire surrounding the Trump administration’s Russian ties. Meanwhile, every country except the US has now either signed the Paris Climate Accord or plans to. Syria was the last to do so, announcing that it will sign up following Nicaragua’s move last month. Over half of Nicaragua’s energy comes from renewables and they plan to raise this to 90 percent. Trump has claimed his avoidance of the deal is purely to protect America from the loss of 6.5m jobs and $3tn in GDP.


Trump has been on a five-country tour of Asia this week during which he seemed to open the door to negotiations with North Korea. He claimed that “it makes sense for North Korea to come to the table and make a deal”. However, in a speech to South Korea’s parliament later in the week he warned the North against underestimating or trying “us” and made clear that he had not ruled out military force. Nevertheless, the tour has seen a general softening of Trump’s “fire and fury” rhetoric which has been directed at Kim Jong-un in the past. Once in China, Trump announced he blames his predecessors for America’s large trade deficit with the country, having pinned the blame on China’s greed last year. He commented, “After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens?” Although Xi didn’t comment directly, he highlighted the success of US car companies in China and the positive effect of Chinese investment on US jobs.


Saudi Arabia’s reformist crown prince Mohammed bin Salman has launched a corruption crackdown among the Saudi elite which has resulted in the detention of at least 60 princes and officials (albeit in 5-star hotels). Brent crude hit $64.27 a barrel on Monday, its highest level in two years. The inflationary implications are no doubt being followed by central banks around the world. There has been a predictable sell-off of Saudi government debt with the price of ten-year bonds dropping nearly one percent since the start of the week. Meanwhile, the UK is preparing to sign off a $2bn loan guarantee for Saudi Aramco as London plans to host the initial public offering of the company. Both London and New York are in a highly-publicised battle to win the possible largest ever offering. The likelihood that the company will choose to list domestically remains high as they are reluctant to release ‘secret’ details of the business. The FCA have proposed loosening governance standards to persuade Saudi Aramco to list in London.

Data sourced from FE Analytics. All content is intended as general information only and does not constitute investment advice, a recommendation or investment research as defined in the FCA Handbook. This information is not guaranteed to be correct, complete or accurate. FE research is a division of Financial Express Ltd, an appointed representative of Trustnet Ltd (FRN 209967) which is authorised by the Financial Conduct Authority.

3rd November 2017


This week we finally saw a rate rise, putting an end to what feels like years of scepticism on our part that it would ever happen. We remain sceptical overall on the path of future rates and think a lower for longer mindset still persists at the Bank of England. Markets drew many of the same conclusions, and much of the pre-hike excitement evaporated after the details of the decision were made public. Elsewhere another central bank decision made headlines, when Donald Trump broke with 40 years of tradition and decided not to reappoint Janet Yellen as Chairwoman of the US Federal Reserve. In her place he appointed Jerome Powell who, as is fitting for this US government is both the richest man ever appointed to the post and also the least qualified, being the first ever head of the Fed without an economics degree. Still compared to some of the out-there choices on the President’s shortlist, Powell is considered to be the best choice after Yellen and should mostly continue on the same path.


The Bank of England raised the benchmark interest rate on Thursday, for the first time in ten years following several months of above target inflation. The rate was increased to 0.5 percent from 0.25 percent. The committee commented that future increases will take place only “at a gradual pace and to a limited extent”. Markets had been pricing in an 85 percent chance of a hike and yet despite ample warning from the Monetary Policy Committee, the pound dropped. The likely explanation for the drop in the pound is that analysts were hoping for a different tone regarding any future hikes. Investors bought government debt, pushing up prices, and the benchmark ten-year yield dropped to 1.289 per cent. The FTSE 100 also received a boost as a large proportion of the index’s constituent’s earnings are in overseas currencies. Elsewhere in the UK, a Brexit update. David Davis admitted this week that Britain’s exit deal with the EU “will probably favour the union on things like money”. Britain had offered €20bn for the divorce bill however, it is likely the figure will be closer to the €60bn the EU are demanding.


Robert Mueller filed the first charges following his investigation into Russian links to Trump. The President’s former campaign manager Paul Manafort was taken into custody on charges of laundering over $18m from a pro-Russia party in Ukraine. He was charged alongside business partner Richard Gates. Meanwhile, several tech giants are being pressured to explain why they didn’t recognise Russia-linked social-media accounts earlier. 150 million Facebook users saw content posted by Russia that attempted to politically divide the US by spreading misinformation and hateful messages. Meanwhile US equity indices are getting a boost, the tech-heavy Nasdaq Composite index closed at a historical high last week boosted by gains from Amazon, Facebook and Alphabet, which posted strong earnings. Over the last year the S&P 500 tech sector has climbed 35 percent, outpacing all other sectors. The S&P 500 climbed this week following a rebound in oil prices, Brent crude reached above $60 as OPEC suggested a continuation of their production cuts through to the end of 2018.


Last Friday the Spanish government dissolved the Catalan parliament and announced fresh elections, ousting the separatist leader Carlos Puigdemont. This follows their declaration of independence from Spain after a controversial referendum. Puigdemont travelled to Brussels “to put Spain’s territorial conflict in the institutional heart of Europe”. A European arrest warrant was subsequently requested by Spain’s state prosecutor for Puigdemont and four ex-ministers who failed to show up for questioning on Thursday. The Bank of Spain commented that if the situation continues to intensify or if it drags on it could reduce Spanish economic growth by 2.5 percent. Spain’s manufacturing sector showed signs of continued strength in October. The Purchasing Managers Index, PMI, climbed to 55.8, the highest level since mid-2015. Any number above 50 indicates expansion, while any number below indicates contraction. Analysts had been expecting 54.9, however the recorded level was a significant jump from the 54.3 recorded for September. This boost to the manufacturing PMI has helped drive a sharp rise in hiring, as factories try to meet the increase in demand.

Data sourced from FE Analytics. All content is intended as general information only and does not constitute investment advice, a recommendation or investment research as defined in the FCA Handbook. This information is not guaranteed to be correct, complete or accurate. FE research is a division of Financial Express Ltd, an appointed representative of Trustnet Ltd (FRN 209967) which is authorised by the Financial Conduct Authority.

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