June Market Commentary

May was the month when you could be forgiven for thinking that there was only one event in the world that mattered: the continuing debate on the UK’s membership of the EU. But while the claims and counter-claims of Messrs Cameron, Osborne, Johnson and Gove filled the airwaves and dominated the headlines, for the rest of the world it was ‘business as normal.’

German unemployment fell to a record low, Greece unlocked another tranche of bail-out cash, there was the usual mixed news on the US economy and China churned out another huge trade surplus.

May was also the month when oil hit $50 a barrel for the first time this year as supply disruptions – largely due to fires in Canada – saw the price of Brent crude climb to $50.22 a barrel, its highest level since November and up 80% since its low of $28 at the start of the year.

It was another mixed month on the world’s stock markets: of the 12 markets we cover, five were up, five were down – and the UK and the US fought a closely contested battle to see which major market could move least during the month.


As we noted above, the debate on the EU Referendum continued – with apparently increasing bitterness on both sides, but without any more light being shed on the consequences of ‘remaining’ or ‘leaving.’ But let’s say no more about the debate for this month: by the time we write the next Stock Market Bulletin the result will be known. We’ll finally be able to reports on facts, not arguments.

There wasn’t a lot of good news around during May, with the month getting off to a bad start as UK manufacturing contracted for the first time since March 2013. The Purchasing Managers’ Index fell to 49.2 from March’s figure of 50.7: any figure below 50 represents falling output. Manufacturers blamed weak domestic demand, and a fall in orders from overseas.

Efforts continued to save the UK steel industry with confirmation at the very end of the month that Greybull Capital are the new owners of Tata Steel’s Long products business. The world’s biggest steel maker, ArcelorMittal, is currently forecasting that global demand for steel will stabilise this year, which hopefully means there may be more positive times ahead. In the meantime, workers at the Scunthorpe plant, which now bears the resurrected British Steel brand, have reportedly had to accept pay cuts and pension reductions.

Figures from the Office for National Statistics released in the middle of the month showed that UK house price inflation rose to 9% in March as landlords rushed to beat stamp duty changes. The Council of Mortgage Lenders reported that £13.8bn was lent during the month – 59% more than in February.

As house prices continued to rise, Nationwide responded by raising the home loan age limit to 85 – but it was a different story by the end of the month, with the BBC reporting that house price growth was now starting to slow, as ‘new buyers desert the UK housing market.’ According to the Royal Institute of Chartered Surveyors the number of people interested in buying a house in April fell to its lowest level for nearly eight years.

Whatever was happening with house prices, inflation was definitely falling: the ONS reported that it fell to 0.3% in April, the first fall since September. The drop was largely due to falls in the prices of clothing, cars and air fares: if we can’t afford a house, we can at least afford a holiday.

Unemployment was also down, dropping by 2,000 between January and March to 1.69m. The number in work rose 44,000 to 31.58m, taking the employment rate to a record high of 74.2%.

As for the FT-SE100 index of leading shares…nothing much happened in May. The market started the month at 6,242 (the same level at which it ended 2015) and fell just nine points in the month to close at 6,231.


It was just like old times in Greece: a three day general strike was called as a protest against further austerity measures. Shipping, public transport and civil service departments were among the sectors hit in a bid to stop the introduction of tax and pensions changes. Nevertheless, the government (still a left-leaning coalition led by Syriza) went ahead and passed the cuts as it sought to unlock the next tranche of the €86bn bailout agreed last year.

Two days later, an 11 hour meeting with the IMF and Greece’s creditors saw European officials agree to unlock €10.3bn in bailout money. That’s all very well: the problem is that total Greek debt amounts to €321bn – equivalent to 180% of the country’s economic output.

What a contrast in Germany, with figures for March confirming a record trade surplus of €26bn and the Federal Labour Office reporting unemployment down to 6% in May, a record low since re-unification in 1990. In comparison, the jobless rate across the Eurozone fell to 10.2% in April.

There was, of course, the regular dose of bad news for Volkswagen, as Norway’s sovereign wealth fund announced plans to sue the company. They say there are no ‘jobs for life’ any more: defence lawyer for VW must come close…

On the stock markets the German DAX index was up slightly, rising 2% to 10,263 while the French index was up by the same amount to 4,506. Star performer though was the Greek stock market – presumably on the grounds that the country lives to fight another day – which was up 12% in May to finish the month at 651.


With the US Presidential race now heading officially towards the long-discussed Donald Trump versus Hillary Clinton battle, there remains some disquiet in Democrat ranks about Clinton’s ‘electability.’

Trump had started the month in belligerent mood, accusing the Chinese of trade ‘rape’ and maintaining his assertion that China manipulates its currency to make its products more competitive. Apple may have had some sympathy with this view, as it lost a trademark fight in China.The Chinese court ruled that the name ‘iPhone’ was not well enough known, and that a local handbag manufacturer should be allowed to continue using it.

Apple might have taken some comfort – despite their shares falling to a 2 year low – as Warren Buffet revealed a $1bn stake in the company, making a rare bet on the technology sector.

The German investment firm JAB Holdings also made a bet, this time on the American sweet tooth, as it shelled out $1.35bn to buy doughnut company Krispy Kreme, to go with the Kenco, Douwe Egberts and Jimmy Choo brands it already owns.

There was mixed news in the wider US economy: retail sales enjoyed their biggest rise for more than a year in April, largely due to a surge in car sales. Overall retail sales were up 1.3% on March – the strongest gain since March 2015. This improvement appeared to be continuing in April, despite overall confidence in the US economy dropping back, with Americans worrying about the long term outlook for the jobs market.

Chairman of the Federal Reserve Janet Yellen perhaps added to these worries as she indicated that a rate rise in the coming months was likely.

On Wall Street the Dow Jones index narrowly lost out to the FTSE for the ‘stock market which moved the least’ title. It was up just 13 points in May, ending the month at 17,787.

Far East

We’ve written previously about Chinese companies buying large swathes of corporate America – and now ICBC Standard Bank, the world’s largest bank by assets, has agreed to buy a massive vault in London. The vault, which is being sold by Barclays and which – amazingly – is at a secret location, can hold up to 2,000 metric tons of gold, silver, platinum and palladium. The move will give ICBC more influence over the trading of precious metals.

Perhaps, though, there’ll be less gold et al to deposit as concerns continue over the health of the Chinese economy. Figures for April revealed that both exports and imports fell more than expected with exports down by 1.8%, reversing the recovery seen in March. Imports were down for the 18th consecutive month, as domestic demand continued to decline. To most commentators’ surprise, China’s trade surplus increased despite the drop in exports, with April showing a $45bn surplus compared to the $34bn recorded in March.

There was a bleaker picture in Japan, as exports fell for the seventh consecutive month. Exports in April were down 10% on the same month in the previous year. Imports were also down sharply – again indicating a slowing economy but at least contributing to a trade surplus of $7.5bn.

On the Far Eastern stock markets the Japanese Nikkei Dow index rose 3% in the month to finish May at 17,235. The Chinese Shanghai Composite, Hong Kong and South Korea were all down by 1% to close the month at 2,917, 20,815 and 1,983 respectively.

Emerging Markets

Brazil has a new President as the Senate voted to impeach Dilma Rousseff, accusing her of borrowing from state banks to conceal a looming deficit and secure her re-election two years ago. New President Michel Temer may herald a shift to the right as he battles with an economy that could kindly be described as a mess, a complete lack of any social policy and deep-rooted corruption. This new realism was reflected on the Brazilian stock market, which reversed previous optimism and fell 10% in May to 48,472.

There was a much happier picture in India, which retained its place as the world’s fastest growing major economy. Growth in 2015/16 was 7.6%, up from 7.2% in the previous year, with quarterly growth in the three months to April up to 7.9%. Finance Minister Arun Jaitley said that with China slowing, ‘the world was seeking other shoulders to rest growth on.’ The stock market duly got the message, and rose 4% in May to 26,668.

The other major emerging market which we cover, Russia, went in the opposite direction, falling by 3% to 1,899.

And finally

As we’ve seen above, Greece needs a bail-out. It can only be a matter of time before the Brazilian government has its cap in its hand. Perhaps they should forget the IMF and try the Bank of Mum and Dad.

According to data from L&G, this bank – which is apparently not listed on any the major stock markets – lent £5bn in the UK alone in 2015, mostly to get children out of the family home and onto the property ladder. The average loan – from a bank which astonishingly asks for no security – was £17,500, with the total lending making it comfortably one of the UK’s top ten lenders.

With such a track record of lending – and it’s clearly the bank that likes to say  ‘yes’ – it seems only a matter of time before Alexis Tsipras and the other members of the Greek government are popping home for the weekend…

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