Looking back to the first few days of May, the Royal Bank of Scotland was announcing plans to close 162 high street branches in the UK, Facebook said it was going to launch a dating service and, in Europe, there were rumours of a final, final (and this time they really meant it) deal on Greek debt.
The real news came right at the end of May with political crises in Spain and Italy – with the Italian one threatening to become an economic bomb at any moment – and Donald (bless him) suddenly announced steel tariffs on virtually any country you care to name. May ended with Europe swiftly announcing retaliatory measures and the world once again looking at a damaging trade war.
Unsurprisingly, this had a negative effect on world stock markets, although with the news coming at the very end of the month much of the uncertainty may be reflected this month. Only two of the major stock markets we cover managed a gain during May, with the UK leading the way – albeit only rising by 2%. Most of the other markets were slightly down although, as you will see below, there were two markets which fell significantly.
May was another month with the usual mix of good and bad news in the UK.
There was gloom for high streets up and down the country as April proved to be another bad month for the retail sector, with footfall down by 3.3% following the 6% fall in March. Add in the store closures announced by M&S and warnings of thousands of betting shop closures as the Government reduced the maximum stake on fixed odds betting terminals and you question whether town centres as we know them will survive.
There was more bad news for RBS as it agreed to a £3.65bn fine from the US authorities for mis-selling and BT announced plans to cut 13,000 jobs – in an attempt to cut costs.
…But there was plenty to report on the ‘good news’. Consumer confidence rose in April, reaching its highest level since January 2017 as wages rose in the first quarter of the year, finally starting to pull ahead of inflation. Unemployment was also down, falling by another 46,000 in the first three months of the year.
There was also positive news in the corporate sector as the Share Centre released data showing that UK corporate profits rose to a record high in 2017 as a buoyant world economy boosted UK multinationals.
Will those successful companies be paying more for any borrowing in the future? Almost certainly, as the Bank of England hinted at a series of interest rate rises over the next three years. However, inflation fell to 2.4% in April – meaning that threats of a rate rise have receded in the short term.
The UK stock market decided this was all good news, and the FTSE 100 index of leading shares was up 2% in May. However, the pound went in the opposite direction, falling 3% in the month.
Looking back over Brexit notes for May they seem to cancel each other out. ‘Tory backbenchers deliver ultimatum over customs partnership’ ran one headline. ‘Jobs at risk without a customs partnership’ ran another. The month ended with suggestions of a ten mile wide trade buffer zone in a bid to break the deadlock over the soft/hard Irish border question.
We are now ten months away from the date when the UK is supposed to leave the EU and still virtually nothing has been agreed.
What a mess! It almost makes Italy look like a model of considered government…
…Except of course, that Italy is anything but considered. Or stable…
Wishing for a stable government in Italy is probably akin to wishing for an end to the Greek debt crisis, but that is what might happen in June. Later this month a team of EU debt inspectors will arrive in Athens and begin poring over the Greek government’s books. If they like what they see, then apparently Europe’s leaders will settle on a long term plan for Greece to repay the billions of euros it owes.
Were it not for Italy that sort of news might make the headline writers turn to drink, but Italy seems to be a more than adequate stand-in.
For now, the country has a government. Giuseppe Conte, an academic and relative political novice, is the Prime Minister, heading a coalition of the anti-establishment Five Star Movement and the far-right League party. How long a coalition between a party that believes in a universal basic income and another that believes in cuts to government expenditure can last is anyone’s guess.
Meanwhile, Spain was losing its Prime Minister after Mariano Rajoy lost a vote of no confidence following allegations of corruption. Plenty of drivers also expressed ‘no confidence’ in their BMW cars, which stalled while they were being driven, forcing the company to recall 300,000 vehicles. And there wasn’t much confidence behind Air France either, as another wave of strikes forced the country’s economy minister to warn that the airline could go out of business.
What of the main European stock markets? Like many markets in this month’s Bulletin, the German DAX index was virtually unchanged, falling just seven points in May. The French market was down 2% but the Greek market tumbled dramatically, down 11%. Does that suggest those debt inspectors may not like what they find?
The beginning of the month was ‘business as normal’ in the US. Apple showered its investors with cash as it announced plans for a $100bn (£75bn) share buyback – and said that it had sold 52.2m iPhones in the three months to March.
Legendary investor, Warren Buffet, liked what he saw and bought 75m shares in the company, sending the shares to a record high.
Over at Facebook, Mark Zuckerberg, fresh from surviving the Congressional hearings, said that Facebook would be launching a dating service, and fellow billionaire Elon Musk remained optimistic about Tesla’s future – despite the company posting a record loss of $710m (£523m) for the three months to March. The company’s target is to produce 5,000 electric cars a week – so far, it is producing just 2,270 as it continues to burn cash at an alarming rate.
The wider US economy added 164,000 jobs in April. That was slightly below expectations, but it still saw US unemployment fall to 3.9% – the first time it has dipped below 4% since 2000.
…And then, right at the end of the month, President Trump announced tariffs on imports of steel and aluminium. Among the countries and trading blocs affected were the EU, Canada and Mexico, all of whom announced retaliatory measures. The President said that the move was to secure “‘fair trade” adding, “they are our allies but they take advantage of us economically.”
The retaliation from the EU saw tariffs imposed on a raft of US imports from Harley Davidson motorbikes to bourbon.
The Dow Jones index took all the news in its stride and – along with the UK – was the only other market we cover to rise during May. It was up by just 1%.
There was bad news for the Japanese economy in May, with figures for the first quarter of 2018 showing that the economy had contracted by an annualised rate of 0.6%, worse than the expected contraction of 0.2%. This was the first time the Japanese economy had shrunk in two years, ending the longest stretch of economic growth since the 1980s.
‘Shrinking economy’ is a phrase which doesn’t appear to translate into Chinese, but the government there did finally agree to ‘significantly’ increase the number of goods it buys from the US. A joint statement between the US and China said the two countries had agreed to ‘a meaningful increase in US agriculture and energy exports.’
The White House added that the move would ‘substantially reduce’ the $335bn (£251bn) annual trade deficit the US has with China – although telling there was no mention of the $200bn (£150m) deficit reduction target that had previously been mentioned.
In company news, Chinese smartphone maker Xiaomi (it’s pronounced ‘show-me’ and it is a brand name you’ll become increasingly familiar with) announced plans for a $10bn listing on the Hong Kong stock market, while TenCent – China’s biggest social media company and now worth more than Facebook.
It was a quiet month on the region’s stock markets. China’s Shanghai Composite index was up just 13 points while the markets in Hong Kong and Japan both drifted down by 1%. There was less good news in South Korea, where the stock market fell by 4%.
It was a quiet month for Emerging Markets news with the Russian and Indian markets unchanged in percentage terms.
There was, though, no such calm in Brazil with the stock market falling 11% and undoing all the gains made so far in 2018.
‘Close but no cigar’ probably sums up the final section of our commentary… There were some interesting stories but sadly, no security engineers locking themselves in ATM machines or cutting-edge AI robots drowning themselves in swimming pools…
Still, TSB boss Paul Pester would have had an easier month if he had locked himself inside one of the bank’s ATMs. ‘Computer chaos at TSB’ screamed the headlines, in a month which almost certainly saw the bank set a record for the number of times its customers heard, “Your call is important to us, but we are experiencing heavy call volumes at the moment.”
The chaos saw TSB customers given access to pretty much anyone’s account but their own, and one couple were actually able to see their life savings removed from their account while they were kept on hold.
Speaking to a committee of MPs, Mr Pester said that the migration to a new computer system had been “a terrible decision.” He would, he said charitably, be foregoing his £2m ‘integration bonus.’
There was bad news for all of us as the Great British Summer approaches. The cost of vanilla has sky-rocketed over the last two years, meaning that the cost of your ice-cream will be going up. At $600 (£450) per kilo vanilla now costs more than silver: it may be time to invest in mint chocolate chip shares…
A small town in Carmarthenshire has been named as one of the best places for coffee in the world. Coaltown Coffee in Ammanford was named on Lonely Planet’s list of best roasteries. So wherever you are in the world, you’ll be able to enjoy Welsh coffee – at least until Donald imposes a tariff on it…