December Market Commentary

The beginning of November saw the World Trade Organisation authorise China to put $3.6bn (£2.8bn) of tariffs on US goods. The following week it was reported that a potential trade deal between the two countries could see tariffs ‘rolled back’.

However by the middle of November Donald Trump was threatening to increase tariffs further still if no agreement was reached, which briefly sent stock markets around the world tumbling.

Add to that the President’s open declaration of support for the Hong Kong protesters, and we roll into the season of goodwill with no sign of the US/China dispute being settled. With the US Presidential election next year, Trump is likely to continue with his hard-line, America first rhetoric – by early December, he had threatened tariffs on French imports in retaliation for France’s tax on the US tech companies.

What did world stock markets make of all this? Perhaps surprisingly, the majority of them were up in November, with the US market leading the way. Let’s look at all the details…

UK

We expect January to bring us a Budget speech from the Chancellor of the Exchequer. Whoever is in 11 Downing Street, you can be fairly certain that the words ‘business rates’ and ‘national high street’ will feature at some point.

Whether reforming business rates – or even imposing an online sales tax – will be enough to save many of the chains currently in trouble is another matter.

Mothercare appointed administrators to 79 UK stores, putting 2,500 jobs at risk. Marks and Spencer’s profits were down on poor clothing & home sales and Clinton Cards is in survival talks with its landlords. On top of all this, Sainsbury’s half year profits fell by 92% as the cost of store closures took its toll on the balance sheet and P&L account.

At the time of writing we have just had ‘Black Friday’ – but it is too early to tell whether the benefit of that was felt online or in the shops. One would suspect the former, and many high street retailers must be praying for a Christmas miracle.

The one bright spot was at the previously-beleaguered Thomas Cook where new owners Hays announced plans to create 1,500 jobs, including an apprentice at each of the 737 branches.

Away from the high street and back in the wider UK economy, November was the usual mixture of good and bad news – as every month this year has been.

The UK economy grew by 0.3% in the 3rd quarter of the year, according to figures released by the Office for National Statistics. The ONS highlighted construction and services as sectors which had contributed to the growth, but City AM was soon reporting that construction had contracted in October, with the Purchasing Managers’ Index for the month registering a score of just 44.2 (with any score below 50 showing a contraction).

Later in the month it was also reported that confidence in the service sector had fallen, and that overall business confidence had fallen to a seven year low thanks to the ongoing political uncertainty. If there is one thing that business does not need, it is another hung parliament when the election results come in on Friday 13 December.

Let us turn to the good news. British Steel is to be rescued by the Chinese firm Jingye, which will invest £1bn into the company and safeguard 4,000 jobs. Unemployment fell to 1.31m in the three months to September. And inflation was down to 1.5% – although wages growth has also slowed, down to 3.6% compared to 3.8% in the previous month.

If you are against fracking then November was a great month for you as the government ended its support with immediate effect. Business Secretary Andrea Leadsom said, “whilst acknowledging the potential of UK shale gas, I’ve always been clear that exploration in the UK must be carried out safely.”

House price growth also hit a seven month high, but November ended on a gloomy note as restructuring at Npower threatened 4,500 jobs and Crossrail was once again delayed – this time to 2021 as the cost of the project increased yet further.

Ahead of the General Election, the FTSE100 index of leading shares was in a cautious mood. It ended November up just 1% at 7,347 while the pound was virtually unchanged against the dollar. Having started the month trading at $1.2944 it closed the month at $1.2934.

The UK General Election

On 1 December, Prime Minister Boris Johnson made his way through a testy interview with Andrew Marr, only a fortnight away from Britain going to the polls on Thursday 12 December, the first December General Election since 1923 – when the Liberals held the balance of power and the subsequent Labour government lasted just ten months.

Using an average of all the polls, the website Electoral Calculus predicted in early December a Conservative majority of 34 seats, with Boris Johnson winning 342 seats – and holding on to his own Uxbridge seat – and Labour winning 225 seats. While tactical voting would undoubtedly play a part in this election, a Conservative majority government always seemed the most likely outcome.

With all 635 Conservative candidates pledged to support Boris Johnson’s deal with the EU, that would see the UK leave the European Union on or before 31 January 2020. Do not think, though, that it will signal the end of the long-running ‘Brexit’ section of this our Commentary. There is still the small matter of a trade deal with the EU to sort out…

Europe

November started with bad news for manufacturing in the Eurozone with the sector continuing to struggle at a seven year low. The Purchasing Managers’ Index for October showed little real sign of picking up although the month’s figure – 45.9 – was fractionally ahead of September’s 45.7. But these are worrying times, especially if the US/China trade dispute continues for much of next year.

Germany managed to avoid going into a technical recession when it posted growth of 0.1% for the third quarter, but the second quarter growth figure was revised downwards to minus 0.2% – meaning that Europe’s largest economy has not grown for six months.

Unsurprisingly, a survey by accountancy firm Deloittes found that 36% of Europe’s chief financial officers were more gloomy about their companies’ prospects than they had been three months ago.

But there was some good news for Europe in general and Germany in particular when US car maker Tesla chose Berlin for its first European factory. “Berlin rocks,” said Tesla boss Elon Musk, declaring that production would start in 2021.

There was also good news for European aircraft manufacturer Airbus (the wings are made in the UK) which won a $30bn (£23bn) order for 170 aircraft at the Dubai airshow.

Meanwhile Spain went to the polls, with Prime Minister Pedro Sanchez’s Socialist Party winning the most seats but falling short of an absolute majority. The big winners, though, were the right wing Vox party who went from 24 seats to 52 in the Congress of Deputies.

Bad news was back in charge by the end of the month as Mercedes owner Daimler announced plans to shed 10,000 jobs worldwide, but Europe’s major stock markets chose to side with Tesla and Airbus rather than Daimler and gloomy CFOs. Both the German and French stock markets rose by 3% in November, to end the month at 13,236 and 5,905 respectively.

US

The ridiculous valuation of companies – especially tech start-ups – that have never (and very often never will) make a profit has been a recurring theme in the US section of our Commentary. In November, two of those chickens came home to roost as Uber’s shares hit a record low when its early investors got their first chance to sell the shares following the stock market flotation – and it was revealed that losses at co-working space WeWork had hit $1.3bn (£1bn) in the quarter before its failed flotation.

Unsurprisingly, this last piece of news was followed a week later by an announcement that the company plans to shed 2,400 jobs around the world.

There was, though, good news for the overall US jobs market. Figures released at the beginning of the month showed that – despite a strike at General Motors – 128,000 new jobs had been added in October against forecasts of 85,000. However, the unemployment rate edged up slightly to 3.6%, from September’s 50 year low of 3.5%.

In company news the ubiquitous fitness tracker Fitbit was bought by Google, as the search engine giant became the latest tech company to move into banking. It has partnered with banks and credit unions to offer ‘smart checking accounts’. So the good news is that you’ve done your 10,000 steps for the day: the bad news is that you’re overdrawn…

As we mentioned above, Tesla has opted to build its first European factory in Berlin – and it may be that the German factory produces more than just cars. Despite Cybertruck’s windows shattering onstage – in a demo intended to showcase their durability – Tesla’s distinctly angular pickup truck has racked up 146,000 orders, despite no advertising or endorsements.

The Dow Jones index rose by 5% to end November at 28,051 – up an impressive 20% for the year as a whole.

Far East

November saw no let-up in the pro-democracy protests in Hong Kong – which are clearly supported by the majority of Hong Kong residents if the election results at the end of the month are any guide. Seventeen out of 18 local councils are now controlled by pro-democracy councillors, with Hong Kong chief executive Carrie Lam saying she will ‘reflect’ on the results.

The results were downplayed by the main Chinese media, as the government saw several pro-Beijing candidates lose their seats.

To no-one’s surprise the protests meant that Hong Kong entered its first recession for a decade, with the economy shrinking by 3.2% in the July to September period, compared to the previous quarter.

This did not, though, stop Alibaba going ahead with its listing on the Hong Kong stock market, with new chief executive Daniel Zhang declaring that Hong Kong had a ‘bright future’. The company – already traded in the US – saw its shares surge ahead and raised $11.3bn (£8.8bn) in this ‘secondary listing’.

There was more good news for the company with preliminary results suggesting that trading on Singles’ Day (11 November) will smash all previous records. The latest estimates are that the company took $38bn (£29.5bn) in the 24 hours of trading.

At the beginning of the month China had rolled out one of the world’s largest superfast 5G phone networks – but it also remains firmly committed to more traditional industries. In news that will alarm environmentalists, China confirmed that it had added enough coal-based electricity over the past 18 months to power 31m homes. The country is now in the process of building or reviving coal production equivalent to the EU’s entire generating capacity.

Away from China there was little to report in November. The ongoing trade dispute between Japan and South Korea meant that Japanese beer exports to South Korea totalled not one bottle in the month. And Dyson, having relocated to Singapore, chose the iconic former St James Power Station as its new headquarters. Needing somewhere closer to the office, Sir James Dyson paid £43m for Singapore’s ‘biggest penthouse flat’.

It was a relatively quiet month on the region’s stock markets. Both the Chinese Shanghai Composite index and the Hong Kong market were down 2% at 2,872 and 26,346 respectively, while the South Korean market was up just five points at 2,088. Japan’s Nikkei Dow index was up 2% to 23,294.

Emerging Markets

This section of our Commentary usually covers the world’s three major emerging markets – Russia, India and Brazil – but it was a story from Saudi Arabia that made the headlines in November, with the news that the world’s most profitable company, Saudi Aramco, is to go public.

Saudi Aramco is the state owned oil producer, and is thought to be worth around $1.2tn (£927bn). Between 1% and 2% of the company’s shares will be made available on the Riyadh stock market, with the company saying it currently has no plans for an international listing.

So how much does Saudi Aramco make? In 2018 it made a profit of $111bn (£86bn) which puts it comfortably ahead of that little upstart Apple, which made a paltry $60bn (£46.5bn).

While the Riyadh stock market geared up for the excitement of the launch, the Indian, Russian and Brazilian markets all moved fractionally upwards in November. India led the way with a rise of 2% to 40,794 while the Russian and Brazilian markets were both up by 1% to 2,935 and 108,233 respectively.

And finally

December is, of course, a month when the question of what to eat moves to the top of a lot of people’s agendas, but in November the debate was about bread: specifically, is it sourdough or ‘sourfaux’?  

Sourdough bread has been a staple of small cafés and ‘artisan’ bakeries for years, with the loaves selling at premium prices. But now some wily supermarkets are getting in on the act, looking to cash in on the trend.

The Campaign for Real Bread has been quick to respond, accusing the supermarkets of not using the right techniques and selling not real sourdough but ‘sourfaux’ as they undercut the more traditional bakers.

November also brought us the news that rock n’ roll icon Rod Stewart’s great passion is model railways, as he unveiled to Railway Modeller magazine a massive model of an American city that he’s been working on for 23 years. At last, after all these years, we learn what Rod said to Maggie May when she finally woke up: ‘You couldn’t fix the points for me could you, Mags…’

And that’s it from us until January. We would like to take this opportunity to thank you for reading our Commentary throughout the year and wish you a very happy Christmas, and a healthy and prosperous New Year.

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