Stock Market Bulletin

March 6th 2017 – Reading time 6 minutes

A very warm welcome to what will be a regular series of month end stock market bulletins from Equity SMART.

In these bulletins we’ll look at political and economic news from around the world, and report on the movement of the major stock markets. We’ll try and make them easy to read, informative and entertaining – and occasionally, even moderately amusing.

Please note that neither this bulletin nor any of the following Equity SMART Bulletins is intended to give specific financial planning advice. They are simply meant as a helpful guide for our clients and potential clients – a five minute summary of the important events from the previous month and an indication of how world markets are performing.

The figures quoted for the various stock market indices are accurate as at the last trading day of the relevant month. Inevitably (especially when there are dramatic events in the early part of a month) the indices may be at different levels by the time you read the Bulletins.

And, of course, should you have any questions on any of the points made in the bulletin – or on any aspect of financial planning – then please don’t hesitate to contact us.

Right, let’s get started…

Introduction

And sadly we have to start in the Ukraine.

There’s an old saying (which a lot of journalists who really should know better are now claiming as their own):

“Russia without Ukraine is a country. Russia with Ukraine is an empire.”

With Russia having de-facto annexed the Crimean Peninsula and the commander of the Black Sea Fleet busy issuing ultimatums, you could currently be forgiven for thinking that Vladimir Putin has decided to re-create the Russian empire.

At the time of writing (Tuesday March 4^th) William Hague, John Kerry and various European foreign secretaries are shuttling backwards and forwards desperately trying to find a diplomatic solution to the problem: hopefully by the time you read this they will have succeeded.

Somehow a compromise will have to be found. Putin is unlikely to give up his claims on the Crimea and the Black Sea ports – but the Ukraine has its troops on full alert, with acting President Oleksandr Turchynov declaring,

“The Ukraine will protect all its citizens no matter which region they live in and which language they speak or which church they attend.”

Whatever the outcome, the dispute – and the threatened sanctions against Russia and Russian citizens – are likely to impact on the economies and stock markets of the region for months to come. This was evidenced on the morning of March 3^rd, when the potential sanctions saw the Russian stock market fall by 9%.

Away from the Ukraine most of the major stock markets enjoyed a good month, more than making up for the falls in January. The UK, German and US Dow Jones index were all well ahead in the month, as were Hong Kong and India.

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United Kingdom

The FTSE-100 index of the UK’s leading shares closed February at 6,810. That was a rise of 5% in the month and it sees the index slightly ahead of the 6,749 level at which it ended 2017. It also means that the FTSE is now within sight of its all time high of 6,930 – which was achieved in the dim and distant days of December 1999.

You don’t need to follow the financial news every day to know that the UK high street has taken a battering over recent years, assailed by out of town shopping and the ruthless efficiency of Amazon.

But there was at least one success story in February when Poundland – apparently the new favourite shop of the hard-pressed middle classes – announced plans to float on the stock market with a valuation of £800m. (I should declare an interest here: I don’t believe my children can tell the difference between sweets at £1 a packet and £3 a packet…)

There was also good news (of a sort) in the banking sector, as Lloyds confirmed that it may soon start paying dividends again for the first time since its near-collapse in 2008. Expect the Treasury to start gearing up for a share sale to the general public any time now.

Sadly the price of this was Lloyds setting aside another large slice of cash to compensate victims of PPI mis-selling, taking the total bill for this ‘best advice’ close to £10bn.

RBS also turned in some impressive figures, posting a loss of £8bn. Bankers being bankers they deemed this a perfectly acceptable reason to pay out £580m in staff bonuses.

The UK construction sector had a good month, growing at its fastest rate since the financial crisis began. The Purchase Managers Index was up to 64.6 in January, from 62.1 in December, with confidence at the highest level since September 2009.

Data firm Markit reported that “greater access to finance” had led to more new business and constantly increasing levels of employment in the sector. Perhaps not surprisingly, the average price of a house in the UK rose in December – up 0.9% to £250,000.

A Word on Scottish Independence

Meanwhile, the debate regarding Scottish independence rumbled on, with David Cameron and Alex Salmond holding cabinet meetings a few miles apart in Aberdeen. No, they did not meet for drinks and a sandwich…

George Osborne made a very strong speech in Edinburgh pointing out that an independent Scotland would not be allowed to keep the pound, and European Commission Chief Juan Manuel Baroso also stated that it would be “very difficult” for Scotland to join the EU in the event of a ‘yes’ vote.

‘No’ remains the firm favourite with the bookmakers, but the gap in polling intentions has narrowed appreciably over the past few months.

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Europe

 

The two major stock indices in Europe are the German DAX index and the French CAC-40 index. These two indices did particularly well in 2017, rising by 25% and 18% respectively. Both slipped back in January of this year, but the DAX closed February at 9,692 – up 4% in the month – and the French index was up 6% to end February at 4,408. 

Whatever the rhetoric coming out of Washington, events in the Ukraine are clearly going to impact Europe far more than the US. As someone pointed out, ‘refugees are going to arrive in Berlin, not in New York.’

Economic news released in Germany through February was almost all good, with the inflation rate down to 1.2% (largely due to lower energy prices), and figures for January also confirming a fall in unemployment – down to 5%, with youth unemployment also falling slightly to 7.6%.

It was confirmed that German GDP had expanded by 0.4% in the last quarter by 2017, largely on the back of foreign trade as domestic demand remained week. This was up from the 0.3% in the previous quarter and slightly ahead of expectations.

There was also good news in France, where household demand pushed the French GDP up by 0.3% in the final quarter. The French trade deficit fell by €6bn to €61.2bn in 2017, the lowest level since 2010 as imports fell faster than exports.

There was even good news for the beleaguered Spanish economy, as it recorded a second consecutive quarter of growth – 0.2% in the final quarter of 2017, to follow 0.1% in the third quarter. The figures may not look hugely impressive, but they are at least dos pasos en la direccion correcta…

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USA

 As most people know the main stock market index in the US is the Dow Jones Index, which did well in 2017 finishing the year at 16,577 for a rise of 27%. It closed February at 16,322 rising 4% in the month, having fallen by approximately 5% in January.

The month in America started with the return of an old friend – yes, the country was once again on the verge of running out of cash. Treasury Secretary Jack Tew issued an urgent call for Congress to raise the borrowing limit, a move seen as putting pressure on the Republicans.

 Meanwhile Janet Yelland replaced Ben Bernanke, becoming the first woman to chair the Federal Reserve – she is very much expected to continue with the policies of her predecessor.

 Away from the nation’s policymakers the news was generally good, with the US manufacturing sector accelerating in February and figures for January confirming a rise in personal spending.

The Consumer Sentiment Index improved in February, showing that most Americans are feeling confident about the future. This was reflected in the sales of new homes, which jumped to a 5½ year high.

 Early figures had given the US a stellar rise of 3.2% in GDP for the last quarter of 2017. This was subsequently revised down to 2.4% but as noted above, the Dow Jones index took the news in its stride.

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Far East

 

We’ll be reporting on four of the major Far Eastern stock markets in the bulletin – China, Japan, Hong Kong and South Korea. Hong Kong was the star performer of the four in February, with a gain of 4% to finish at 22,837. South Korea was up 2% at 1,980 and China inched ahead to 2,056. The Japanese market fell by 74 points to end the month at 14,841 – that said, the Japanese market did rise by over 50% in 2017.

The Chinese economic juggernaut rumbled on, with GDP growing by a further 1.8% in the final quarter of 2017. Figures released for January showed a trade surplus of $31.9bn with exports up 10.6% on the previous year and imports up 10%. (As a comparison, the latest figures from the US showed a $38.7bn trade deficit.)

Inflation remained steady at 2.5%, although Chinese bank lending jumped more than expected in January and as a result the People’s Bank ‘drained’ $8bn out of the system in February to curb any danger of excessive lending.

There was a much less rosy picture in Japan, with a trade deficit of 2.79tn Yen in January, well up on the same month in the previous year. In contrast to China the Bank of Japan extended its loan support programme as it sought to stimulate bank borrowing.

Both Hong Kong and South Korea confirmed increases in GDP for the final quarter, with South Korea in particular continuing to benefit from rising exports.

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Emerging Markets

 

The bulletin will focus on three of the major emerging markets – India, Russia and Brazil – as well as looking at other notable performances from the smaller emerging markets.

 The best performance amongst the major emerging markets came from India, with the stock market rising 3% to end February at 21,120, although GDP growth was below expectations and the Reserve Bank also raised interest rates to 8% to try and curb persistently high inflation.

The markets in Brazil and Russia were both slightly down in February – Brazil finishing the month at 47,094 and Russia at 1,445. The Russian market obviously fell further in early March following the incursion into the Crimea.

Anyone reading the news will be aware of the problems Brazil faces ahead of the World Cup this year and the Olympics in 2016. These problems seem to be reflected in the stock market at the moment, as it is well down from the peaks of 65,000 which it scaled in 2017.

And as noted above, the situation in the Ukraine and the continuing threat of sanctions is going to impact on the Russian economy and stock market for the immediate future.

Then again, by the time you read this the diplomats may have succeeded. As the Chinese saying goes, ‘May you live in interesting times…’

And finally…

We mentioned the doom and gloom on the high street earlier in the bulletin. However, exactly the opposite is apparently true in the Ferrari showrooms of our nation, with the luxury car maker confirming that more Ferraris are sold in the UK than anywhere else in Europe.

Despite the cars costing a minimum of £151,000 Ferrari said 677 cars were delivered to the UK in 2017 as the country overtook Germany as the leading European market.

I hope you’ve enjoyed this first edition of the Equity SMART Bulletin. I’ll be back in early April with all the news for March – sadly in a rather more down-market vehicle…