WeekWatch – Falling Apple hits global markets

Monday 7th January 2019

Happy New Year and welcome to our new weekly bulletin: WeeklyWatch. This new-look bulletin aims to provide more varied content and make it easier to access the news that interests you. It includes a shorter market commentary, ‘Stock Take’, and a personal finance news section, ‘Wealth Watch’, as well other content we think will be of interest.

Stock Take

Crunch time for Apple

In recent years, New York City’s title as the Big Apple has been hotly contested by a certain famous US tech giant, with both boasting impressive figures. New York City’s current GDP is some $1.5 trillion, while at its 2018 peak, Apple Inc. stood at $1.12 trillion.

However, last week’s sell-off left the world’s first trillion-dollar company at $674 billion – a plunge of almost $450 billion in only three months. The bad news continued last week, with Apple’s first revenue forecast cut in 16 years leading investors to take 10% off the stock price. The tech giant, which has slipped off the top of the podium of the world’s largest companies (sinking to fourth place), blamed the cut on poor iPhone sales in China.

All of the signs point to a crunch moment, but it is unclear who this is for: Apple or, indeed, China. Apple certainly faces challenges, facing a decline in global economic and consumer confidence and dropping to third-largest global mobile manufacturer last year. Yet said decline in global confidence has been particularly apparent in China, the home of a third of all iPhone users. Last week, worrying figures showed plunges in Chinese manufacturing, car sales and consumption tax revenues, and this comes on top of an official growth rate of only 6.5% last year. The Shanghai Composite index fell 25% in 2018 and continued to fall further midweek.

Mixed investor signals in China

Despite these worrying numbers and the fact that major tax cuts are expected in the year ahead, figures also showed foreign investor money rushing into the Chinese market. Yet even if the policymakers make the right moves, investors should take care. Tom Beal, Deputy Chief Investment Officer at St. James’s Place, commented: “Rules around A-shares [renminbi-denominated shares listed in mainland China] have now been relaxed, making it more accessible to overseas investors, but the market remains dominated by private investors, not professional, institutional players. As a result, price volatility is almost double developed market levels and that’s a double-edged sword – the market is very risky but, conversely, high-quality managers can find some good opportunities.”

Flash-crash demonstrates market volatility

The capability of markets to experience sudden bouts of extreme volatility was highlighted by a seven-minute ‘flash crash’ on Wednesday, as the Japanese yen rose 9% against the Australian dollar and 10% against the Turkish lira. Traders are still struggling to explain why the yen rose that day against every currency Bloomberg tracks – demonstrating that short-term market shifts don’t always make sense – even to experts.
One explanation offered was that investors were influenced by fears over growth in both China and also the US. Last week, manufacturing survey figures for the US showed a sharp decline in December, although jobs numbers came in strong. The pace of growth in the US decoupled from much of the developed world last year, reflecting the impact of Donald Trump’s tax cuts on corporate earnings. Yet the boost has made investors highly sensitive to any signs of the boost petering out – and to the risk of interest rate rises killing it.

On Friday, the governor of the Federal Reserve acknowledged market fears about global growth and hinted that the Fed wouldn’t be raising rates imminently. Perhaps more importantly, he suggested that quantitative tightening – which the Fed embarked on last year – could yet be put on hold. The market rallied in response, taking the S&P 500 positive for the week.

Brexit continues to dominate European market news

The EU faces several looming challenges, from Italy’s budgetary plans to Eurosceptic forces amassing at European Parliament elections in May. Brexit may be the most immediate. Last week, Theresa May was back on the phone to Brussels, seeking those elusive “assurances” over the Northern Irish backstop. As yet, there are few signs she can sway recalcitrant MPs ahead of the looming vote. Meanwhile, preparations continued for a no-deal outcome with, on the one hand, a publicity campaign planned and, on the other, news that 16 UK drug companies and 10 trade associations were asked by the government to sign non-disclosure agreements to prevent them talking publicly about any stockpiling plans.

The ECB announced the end of its post-crisis quantitative easing programme in December, but the timing was arguably unfortunate, given the significant slowdown in eurozone growth over the course of 2018. After falling at the opening of the year, both the EURO STOXX 50 and FTSE 100 had more than made up their new year losses by the weekend; although this probably had more to do with global market trends than local specifics.

Wealth Check

According to asset management company Schroders, people seeking a comfortable retirement should listen to their elders. A global study conducted last year with more than 22,000 people worldwide explored how expectations of finances in retirement compared with the experiences of those already retired.

In the UK, those aged 55+ and not yet retired estimated they would need 66% of their current salary to live comfortably; however, those already retired reported receiving only 53% of their final salary on average. The survey also showed that non-retired people are at risk of significantly underestimating how much of their annual retirement income will be spent on living expenses. Their estimate of 38% was well short of the 53% spent by those already retired, as the cost of living consumed money the pre-retirees hope to spend on hobbies and buying a second property.

When looking at the results of the study, it is clear that nearly half of UK respondents do not have sufficient income in retirement or could do with more to live comfortably. Perhaps unsurprisingly, the expectations of those furthest from retirement are the least reflective of how retirement savings and investments were actually allocated; millennials expected to use just 23% of their savings and investments to fund their retirement income, some 16% short of the reality for those aged over 70.

Phil Woodcock, Head of Investment Communications at St. James’s Place, said: “The research reinforces the importance of regular reviews to check your retirement plans are on track. The end of the financial year is the ideal opportunity to make that review, giving you one last chance to use up available allowances and exemptions to help you reach your retirement goals.”

The study highlights the need for advice when it comes to moving in the right direction when it comes to planning for later life. Wellesley can help you out together a bespoke and manageable plan for saving for the future.

In The Picture

In the first 300 years of the Bank of England’s history, interest rates averaged nearly 5% and never fell below 2%. Financially speaking, these are historic times.

The Last Word

“May all your troubles last as long as your new year’s resolutions.” – Oscar Wilde

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley.

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