WeeklyWatch – The Tories feel the force of the UK public’s Brexit frustration

Tuesday 7th May 2019

Stock Take

Tories suffer in local UK elections

It may be accepted that current politics in the UK has become rather surreal of late; however, there are limits! Last week, the favourite to succeed Theresa May as Prime Minister shared a tweet saying: ‘I just voted Conservative in the local elections. Make sure you do too!’ However, Boris Johnson’s constituency is Uxbridge and South Ruislip, and there were no local elections in London this time around. Unsurprisingly, the offending tweet was quickly deleted.

At least Boris’ constituency wasn’t part of the Tories’ worst local election performance in over two decades, with the party feeling the force of the UK public’s frustration over Brexit. Labour are down by 84 seats (a very poor result considering there being an unpopular government in power) – perhaps showing the public’s exasperation with the party’s inconsistent messaging over Brexit. Conversely, the Lib Dems and the Greens both had good nights.

Sterling, which has struggled lately on disappointing economic figures, was hit again on Wednesday as the Bank of England warned of troubled times ahead due to Brexit, and forecast several rate rises to come – but was largely unmoved by the election results. However, it may be more sensitive to European elections later this month – as may stocks. Tom Beal, Deputy CIO of St. James’s Place commented: “The local elections offered a stark reminder that Brexit has set UK politics in flux. If the Conservatives and Labour suffer further losses in the European elections later this month, it could make it even harder to secure a revised Brexit deal. Investors may well have to endure more Brexit-related volatility in the weeks ahead.”

Plenty for investors to celebrate

Despite the S&P 500, FTSE 100 and Shanghai Composite all dipped to varying degrees (albeit after a strong April), there was still much for investors to celebrate last week. For one, eurozone growth surprised on the upside, coming in at 1.5% annualised – unemployment in the block is already at a ten-year low. The EURO STOXX 50 ended the five-day period only marginally higher.

In the US, while manufacturing indices disappointed, productivity jumped, beating forecasts. The Fed forecast improved economic activity, despite a recent slowing in inflation growth; and unemployment struck a 50-year low. Apple’s market value crested above $1 trillion again after the company predicted a quicker rebound than previously anticipated, following a tougher six months. Alphabet, Google’s parent, fell 8% on Wednesday when results showed first quarter revenues grew by 17% – hardly troubling, but lower than markets had hoped.

US-China relations stumble

Technology majors have been the tinder box for much of the White House’s anger over supposedly unfair Chinese trade practices. Last week, the dispute over Huawei brought down a senior UK Cabinet minister. The direction of US-China trade relations – a key theme for 2019 (see ‘In the picture’) – had looked positive during the trading week. That changed on Sunday, however, as the President threatened to ramp up tariff levels on Chinese imports.

On fighting climate change, likewise, the White House is not in the mood to offer olive branches abroad. Last week, the House of Representatives took matters into its own hands, moving to try to prevent the US from leaving the Paris Agreement. In the UK, meanwhile, the Committee on Climate Change reported back to the government that it must set a legally binding emissions reduction target of zero by 2050. If such ambitions are to be realised, investors will need to be part of the solution.

Emma Hunt, Head of Responsible Investment at St. James’s Place, said: “Over the next 15 years, approximately $93 trillion* will be needed for investment in low-carbon infrastructure and technology across the world. But with the right fund, investors can enjoy strong returns while also enabling low carbon and planet-friendly solutions.”

*Global Commission on the Economy and Climate (2014)

Wealth Check

Perhaps the most controversial topic in UK politics (aside from the obvious) is how to provide elderly care. Reform has been faltering, despite options being examined and recommendations made. A much-anticipated green paper still has no release date two years after it was first announced. But a new report by the Centre for Policy Studies may give an indication of the government’s thinking.

Under its proposals, the state would provide a Universal Care Entitlement. Similar to the State Pension model, this would guarantee a “decent standard of care” for everyone. Funding could possibly come from a 1% National Insurance surcharge on the over-50s. The think tank also suggests that individuals should be encouraged to purchase a Care Supplement to pay for higher levels of care – larger rooms, better food, additional entertainment and so on. This would be something similar to an annuity or insurance policy, purchased using money from savings or existing pension pots.

Whatever system is eventually adopted, the likelihood is that we will all be expected to pay something towards the cost of our own care. There is simply no avoiding the fact that longer life expectancy brings a requirement for all of us to plan financially for a day when living independently may be difficult.

In The Picture

The US-China trade dispute has long been casting a shadow over markets. In this video, Nigel Ridge of BlackRock, Manager of the St. James’s Place Absolute Return fund, reflects on whether the dispute matters for markets, and what other themes might be worth watching over the rest of the year.

The Last Word

We do not have government by the majority. We have government by the majority who participate.

Thomas Jefferson

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

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