February 2013 Market Commentary
January opened with the USA economy – if not the whole world – having been saved from tumbling over the Fiscal Cliff thanks to a last minute deal between Barack Obama and the US Congress.
Financial markets around the globe let out a brief sigh of relief and enjoyed a couple of days’ rally. Unfortunately the news by the end of the month was not so good, as figures from the (for now) world’s biggest economy showed a fall in GDP in the last three months of 2012. Admittedly the fall was only 0.1% and was counterbalanced by some good news on jobs but it was still a fall – and the first one for 3½ years.
The news was worse in the UK, with January’s blast of snow and freezing weather raising the prospect of a ‘triple-dip’ recession. As shops and UK high streets closed up, Messrs Cameron, Osborne and Johnson ventured off to the World Economic Forum in Davos to make coded and not-so-coded attacks on each other.
The crisis in Europe rumbled on, the month ending with the news that Spanish Prime Minister Mariano Rajoy had denied receiving €250,000 in ‘secret payments.’ Never mind, Amazon made so much money over the Christmas period that they’ll soon be able to buy Europe and solve all our problems. World stock markets are clearly anticipating this, as all the major markets ignored the short term worries to make positive starts to the year.
January in the UK was dominated by bad news from the national High Street – and by the sound of tills not ringing – with both HMV and Jessops closing their doors. A few days later they were joined on the casualty list by Blockbuster, as a simple rule started to emerge: if you’re on the High Street and Amazon sell what you sell, you’re in trouble.
There was news that some of the big hedge funds were starting to bet against UK retailers, including Debenhams, M&S and Tesco (whose month hadn’t got off to the best of starts when horsemeat was discovered in their beef burgers).
A slump in retail is always worrying, but it’s even more so when it comes just after Christmas. Significantly, figures from the British Retail Consortium showed the number of shoppers down by 1.2% across the UK when December 2012 was compared to December 2011 as yet more money was spent online.
GDP in the UK shrank by 0.3% and yes, more snow and ice could apparently lead to an unheralded triple-dip recession. Amid the snow and ice of Davos, Boris Johnson took the chance to criticise George Osborne, saying that the Government’s austerity programme had gone far enough.
Good news was hard to find in January: Jaguar Land Rover created 800 jobs at Solihull and unemployment fell to 2.49m (although that was before the carnage in the retail sector was factored in). Having fallen by 1% in December house prices rose by 0.5% in January. Whether that slight improvement can be maintained with a reported 8m people struggling with their mortgage payments is very much open to doubt.
Proving once again that stock markets look at what they think will happen in the future and not what’s happening now, the FTSE had its best January since 1989. Buoyed by some encouraging economic data from China, the market rose by 6.4% to finish the month at 6,277.
Bad news to start the year in Europe as the unemployment crisis deepened, reaching 11.8% across Europe as a whole. Not surprisingly, the picture for youth unemployment continues to worsen dramatically. In Germany truck maker MAN was forced to cut shifts, although there was some good news with Volkswagen reporting record sales.
Eurozone finance chiefs voted in a new leader, with Jean Claude Juncker giving way to the unpronounceable Dutchman Jeroen Dijsselbloem, whose first job was probably to read that Commerzbank was planning to slash 10% of its workforce, equivalent to 6,000 jobs.
You have to wonder if Europe’s problems will ever be solved while there is disagreement not just on how to tackle them, but on whether they even exist at all. Angela Merkel’s New Year message to the German people was bleak but realistic. Yet European Commission President Jean Manuel Baroso felt able to declare that the “Euro crisis is over” and that the “existential threat against the Euro has essentially been overcome.” You get the feeling that unemployed young people in Spain and Greece might take a slightly different view…
As in the UK, the major European markets chose to look at the long term as opposed to the short term problems, with the German index up 2% to 7,776 and the French CAC index rising 3% to finish at 3,733. Among the ‘more volatile’ European markets, Italy and Greece were both up, whilst the Spanish market fell back by 1%.
Barack Obama was duly sworn in for a second term as US President, but he must know that he will face four years of grappling with grim economic news. As already reported, US GDP fell in the last quarter of 2012 and the country continues to rack up $50bn of debt every month.
As ever though, there were isolated pockets of good news, with Amazon reporting revenues of $21bn over the Christmas period and sales up in December by 22% compared to a year ago. Small wonder that shopping malls in the US are being hit as badly as the UK High Street. Amazon’s cash pile is now $12.4bn and not surprisingly the shares hit a new high.
Apple on the other hand, missed its revenue targets and looks set to face a tough year. Sales of Samsung phones continue to grow and Blackberry is now fighting back with a new operating system.
It was reported at the beginning of the month that Twitter was planning to follow Facebook with an IPO planned for 2014. Depending on the reports you read, those 140 characters that so many people have become addicted to are now valued at anywhere between $11bn and $15bn.
Following the pattern seen in Europe, the Dow Jones index shrugged off short term concerns to record a healthy rise of 6% in the month, closing at 13,861 – within site of the seductive 14,000 barrier.
There was mixed news from the Far East in January. South Korea reported that growth in 2012 was only 2% – a three year low – and Japan confessed to a record trade deficit for the year, at $78bn. As we’ve already seen though, the US deficit is $50bn per month, which puts the Japanese figures in perspective.
There was generally good news from China and, as we’ve already seen, this boosted European markets. HSBC reported that Chinese factory output was at a two year high and business confidence was significantly up in the month. Foreign exchange reserves increased by $12.3bn in January, with Chinese inflation remaining unchanged at 2.5%.
The same day that HSBC reported on Chinese factory output there was a story in the Guardian highlighting the extent of child labour in some of the Chinese factories used in Apple’s supply chain. Whatever your feeling on China’s ‘industrial revolution’ you have to think that in the long run this is going to be more of a problem for Apple than it is for China.
All the major Far Eastern stock markets enjoyed a good start to the year, with Hong Kong, Japan and China all rising by at least 5%.
A report from the Boston Consulting Group highlighted the rise of what it termed ‘global challenger companies.’ The report detailed a hundred of these companies, which together have a far higher growth rate than the vast majority of companies in the US Fortune 500. Not surprisingly 30 of the firms were based in China and 20 in India, but there were also companies on the list from Colombia, Chile, Egypt and Qatar. In the past 5 years these companies have added 1.4m jobs – whereas employment among America’s top 500 have remained flat.
As always the dramatic movements in world stock markets came in the emerging economies. The New Zealand market rose by a scarcely believable 83% in January: Argentina and Ecuador also turned in highly respectable performances, with the markets there gaining 17% and 13% respectively. Russia and India also rose – although far less dramatically – but the stock markets in Brazil fell back by 2%. The wooden spoon went to Chile, with a fall of nearly 12%.
As if the economic news from the UK wasn’t bad enough, it got worse for parents when figures from the Centre for Economics and Business Research showed that the cost of having a child and raising him or her to age 21 had risen to an average of £222,458. This was £4,000 up on the previous year and an increase of £82,000 (or 58%) compared to ten years previously. Anyone needing family planning advice in the coming year need look no further…
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