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February Market Commentary

Posted on: 14th Feb 2019 by: CamOuse Financial Management Limited


The story of the US/China trade dispute was a thread running through much of last year. Some progress was made in resolving the dispute at December’s G20 summit and that appeared to continue in January with China saying it is ‘ready to work’ with the US. Donald Trump confirmed this, describing a telephone conversation with Xi Jinping as leading to ‘big progress’. 

Despite a rocky start over fears of a slowdown in China, this helped world stock markets to enjoy a good month, and we started the year with a clean sweep: all the markets on which we report were up in January, although many of them have a way to go to make up the ground they lost last year, with 2018 the worst year in a decade for global markets. 

The month ended with the World Economic Forum in Davos, which many commentators described as looking slightly out of date and irrelevant this year. The editor of City AM described it as a ‘festival of irrelevance and hypocrisy’. 


The big story in the UK was, of course, Brexit, which we have dealt with in the section below. And if the lack of progress on that tangled web depressed you, then the news coming out of the UK high street would have depressed you even more. 

Marks and Spencer’s and Debenhams both reported disappointing Christmas trading figures. WH Smith reported trading down 2% in the high street but up in its travel division, covering airports and train stations. 

Christmas winners were, once again, Aldi and Lidl, with two-thirds of British shoppers visiting one of the discounters over the holiday period. You might add Sports Direct boss Mike Ashley to that list, with HMV looking set to become the latest piece of the national high street that he rescues from administration. 

Overall, retail administrations rose for the second consecutive year, and in Scotland a shopping centre was sold for just £1. 

With the UK construction sector slowing to a three-month low, house price growth at a six-year low, car sales seeing their biggest fall for eight years and Jaguar Land Rover threatening to cut 5,000 jobs, you might think that the numbers for the UK would be unremittingly gloomy. 

In fact, the numbers look reasonably good. Figures for the last nine months (from the Office for National Statistics) show that our Government overspent by £35.9bn for the period, £13.1bn less than in the previous year. The latest figures for wages showed them growing at an annual rate of 3.4% – well ahead of the 2.1% rate of inflation – and there are 328,000 more people in work compared to a year ago. So there is some good news: it is just not on the high street. 

Perhaps, though, we should finish with an ominous straw-in-the-wind. January 2018 brought us the collapse of Carillion, the Government’s ‘go to’ contractor. A report in City AM detailed how several more Government contractors have seen their debt increase over the last three years. Interserve, for example, which builds schools and hospitals, has seen its debt more than double from £274m to £650m. 

For now though, the FT-SE 100 index of leading shares was in an optimistic mood, and closed January up 4% at 6,969. The pound was also up, rising 3% against the dollar to close the month at $1.3105. 


As so often seems to have happened with the Brexit section of this commentary, all the main news was reserved for the last few days of the month. 

Having postponed the Parliamentary vote on her Withdrawal Agreement in December – fearing a heavy defeat – the Prime Minister finally brought it before the Commons on 15th January. She duly suffered the heaviest ever defeat inflicted on a governing party, losing the vote by 432 votes to 202. 

Theresa May returned to the Commons with ‘Plan B’ – which looked remarkably like ‘Plan A’ – on 29th January. The difference this time was that the Commons was now voting on two crucial amendments. The first – tabled by Labour MP Yvette Cooper – would have effectively taken the option of leaving the EU with ‘no deal’ off the table. The second, from Conservative Sir Graham Brady, sought to give the Prime Minister a mandate to go back to Brussels and re-open the Withdrawal Agreement, specifically with regard to the Irish Backstop. Effectively, it would allow Theresa May to say, “If you agree to these concessions, I can get a deal through Parliament.” 

To the surprise of many commentators – given that the Commons contains a clear majority of members who supported ‘Remain’ in the Referendum – MPs defeated the Cooper amendment by 321 votes to 298, but passed Brady’s amendment by 317 votes to 301. 

So where does that leave us? It leaves Theresa May having to go back to Brussels to try and re-negotiate a deal which, only a few weeks ago, she was hailing as not just the best deal but the ‘only possible deal’.

She is – initially at first – likely to get a frosty reception. All the leading European players were quick to line up and say that no negotiation of the Agreement was possible. In addition, arch-federalist Martin Selmayr, the controversial Secretary-General of the European Commission, now appears to be in charge of the EU negotiations. 

Has all of this made a ‘no deal’ Brexit more likely? The odds against it have certainly shortened. But let us remember that the EU has plenty of previous form for negotiating deals at the 11th hour – witness the EU/Canada free trade deal – and that a ‘no deal’ Brexit would be bad news for many European economies. 

Irish Minister for Finance Paschal Donohoe, for example, openly acknowledges that the Irish economy would get a ‘sharp shock’ from a no-deal Brexit, with the economy slowing down, unemployment rising and agriculture being particularly badly hit. 

Another month has therefore been and gone and we are no nearer a resolution – with now less than two months to go until the UK is due to leave the European Union. Let’s see what February brings. But don’t hold your breath…


Away from Brexit, it wasn’t a terribly good month for Europe.

Merrill Lynch said that Germany was heading towards a recession, as their GDP tracker showed a 0.1% quarter on quarter decline. Extremely weak factory orders and the gilets jaunes disruption in France were apparently to blame – although the French economy did beat expectations (and the protests) to grow by 0.3% in the fourth quarter of 2018. 

There was, though, no dispute in Italy, where the country is definitely in a recession, with economic ‘growth’ of -0.1% and then -0.2% in the final two quarters of last year. Overall growth for the Eurozone was just 0.2% in the final quarter of last year. Figures for November did show that inflation in the bloc had fallen to 1.6% (the lowest for eight months) helped by lower energy prices. 

So much for economic data: on to spying. Germany became the latest country to start considering ways to ban Chinese telecoms company Huawei from playing any part in its 5G network, joining a growing list of companies worrying about security implications. 

Ryanair were worrying about more than security as they slashed their profit guidance for the year by €100m (£88m). France’s cash flow went in the opposite direction as it took advantage of the new GDPR regulations to fine Google £44m over some of it adverts. 

Meanwhile, the gilets jaunes (yellow vests) protests against President Macron continued, but are now being countered by the foulards rouge (red scarves) – seemingly a middle class movement supporting the Republic and its institutions. 

What of European stock markets? Despite Merrill Lynch’s pessimism, the German DAX index was up 6% in the month to 11,173. The French stock market rose by a similar amount, closing January at 4,993. 


January may not have brought us a smiling Donald Trump and Xi Jinping on the White House lawn but, as we mentioned above, there does seem to be a gradual recognition that the two leading economies in the world will need to reach a rapprochement sooner rather than later. 

We can therefore concentrate on domestic issues, with the month getting off to a bad start for Apple as it cut its sales forecast, blaming economic weakness in China. Those same fears sent the Dow Jones index sharply lower in the first week of the year, with the Dow falling 2.8% in one day and other markets across the world also seeing significant falls. 

US jobs growth for December was well ahead of expectations, with the economy adding 312,000 jobs, compared to estimates of around 180,000. Normally this would lead to inflationary pressures, but December saw the first fall in US inflation since March 2018, as it dropped to 1.9% thanks to cheaper fuel prices. 

There was yet another illustration of the shift from bricks to clicks as Amazon became the world’s most valuable company, and Sears – so long the mainstay of the American shopping mall – teetered on the edge of liquidation. 

What of activity in the US Government? For most of January there wasn’t any, as the deadlock between the President and the Democrats led to the longest Government shutdown on record. It was finally resolved at the end of the month, just as a polar vortex brought some of the worst weather and lowest temperatures ‘in a generation’ to the US. That will, inevitably, impact on economic activity. 

But despite the shutdown and record low temperatures, January ended as a good month for Wall Street, with the Dow Jones index rising 7% to close the month at 24,999.67 – we think we can be charitable and round that up to 25,000…

Far East 

As we have seen above, there were widespread worries about a coming Chinese slowdown, and there are plenty of signs of falling demand in China, with December bringing the sharpest fall in Chinese exports for two years. Robin Li, chief executive of Chinese search engine Baidu, echoed the quote from Game of Thrones as he warned employees that ‘winter is coming’. 

It may certainly be coming for Taiwan, with Chinese leader Xi Jinping again stressing his determination that Taiwan “can and will” be re-united with China. It may be through ‘one country, two systems’ but Xi appears set on making it ‘one country’. 

By the end of the month, Chinese growth for 2018 had been confirmed at 6.6%. Looking ahead to 2019, Chinese Premier (technically he is Premier of the State Council) Li Keqiang spoke of growth being in an ‘appropriate range’ with most commentators taking this to mean a figure of around 6.3%. While this would give China its lowest annual growth for 25 years it was always inevitable that the rate of growth would slow – and what would the Eurozone give for growth that was even a tenth of China’s? 

As we have already mentioned, all the major stock markets we cover in this report were up in January. The markets in China and Japan both rose by 4%, while the Hong Kong and South Korean stock markets were up by 8%. China’s Shanghai Composite index ended the month at 2,585 and Japan’s Nikkei Dow was at 20,773, while Hong Kong closed at 27,942 and South Korea at 2,205. 

Emerging Markets 

In Brazil, new President Jair Bolsonaro was sworn in on New Year’s Day and immediately declared the country’s ‘liberation from socialism’. There is no doubt that the man dubbed the ‘Trump of the Tropics’ is going to pursue policies that are favourable to business. Environmental campaigners worry how this might impact the rainforest and several rich eco-systems in Brazil but, in January at least, it was business that held sway as the Brazilian stock market rose 11% to end the month at 97,394. 

In keeping with every other major market both the Russian and Indian stock markets also rose in the month, respectively finishing up 6% and 1% at 2,521 and 36,257. 

And finally…

The UK Transport Minister Chris Grayling – who basked in triumphs such as Carillion and the revised railway timetable last year – has been doing his planning for the possibility of a ‘no deal’ Brexit. He has awarded the £13.8m contract for ferry services between Ramsgate and Ostend to a company that has never run a ferry before and owns no ships. What could possibly go wrong? 

‘Nothing’ is the answer to that question, at least as far as Gregg’s, Britain’s biggest chain of bakers, is concerned. January saw them report bumper Christmas trading and lift their profit forecast for the third time in a year, helped by the launch of the vegan sausage roll. 

Last but not least, some good news in the war for jobs. We have written previously about the threat to jobs caused by AI and robotics. But good news from Japan, where January saw a hotel sack 243 robots because they created too much work. The Siri-like virtual assistants couldn’t answer any questions, the automated luggage carriers kept getting stuck and the robo-receptionists couldn’t photocopy passports. 

There’s hope for us humans yet..

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Pension arrangements must be available for all employees. There are three categories of employee:


Aged between 22 and State Pension Age (SPA) with qualifying earnings over the Auto Enrolment earnings trigger


Aged between 16 – 74 with qualifying earnings between lower threshold and the Auto Enrolment earnings trigger
Aged between 16 -21 or SPA – 74 with qualifying earnings over Auto Enrolment earnings threshold


Aged between 16 -74 with earnings below the qualifying earnings lower threshold

Important Notes

  1. Eligible jobholders must be auto-enrolled
  2. Non-eligible jobholders are allowed to be auto-enrolled if they want to
  3. Entitled workers are entitled to join a pension scheme, but the employer doesn't have to contribute

Qualifying Earnings lower threshold


Qualifying Earnings upper threshold


Automatic Enrolment earnings trigger


Minimum contribution level options:

8% of Qualifying Earnings of which

3% is employer's (starting at 1%)

9% of Basic Salary of which

4% is employer's (starting at 2%)

8% of Basic Salary of which

3% is employer's (starting at 1%)

(Where basic salary is at least 85% of total earnings)

7% of gross earnings of which

3% is employer's (starting at 1%)

Pay reference period

Essentially the frequency that the jobholder is paid e.g. monthly, weekly etc. but with reference to the tax month, week etc. therefore it may not be the same as the payroll period.

Deduction and payment of contributions

It is the employer who is responsible to calculate, deduct and pay all contributions to the AE scheme. NOTE – the first and last contributions are likely to be for less than a full pay reference period and should be adjusted accordingly.

Payroll services

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Compliance and communication


Auto-Enrolment can be postponed for up to 3 months:

  • For current eligible employees
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Salary sacrifice

Contributions can be paid by effectively reducing salary, which saves on NI contributions, but employee must choose to do this – they cannot be forced, so a contractual variation will need to be implemented.

Default investment fund

Investment Options

All eligible employees will be automatically invested into a default investment fund, which is a balanced risk fund that is “life styled” to account for the employees approach to retirement. They also have the option to invest in a wide range of funds of their choosing.