WeeklyWatch – German growth reverses

Monday 19th August 2019

Stock Take

Home-grown sensitivity

As we’re all aware, this is a sensitive time for the UK, as talks of our future have been suspended with parliament is in recess. That being said, there certainly were some domestic politics that got us talking last week, as Jeremy Corbyn offered to head-up a temporary alternative government – by way of coalition, following a no-confidence vote in the current administration. From this, Corbyn said that the new administration would then block a no-deal Brexit and quickly call a general election. Although reluctance was still rife, some leaders of the anti-Brexit parties left the door ajar for the possibility, should it prove necessary.

German decline

During the second quarter, Germany, the world’s third largest exporter and leading car exporter, saw its GDP shrink by 0.1%. Although this may not seem like a lot, it is leading to growing fears that this reduction will not just be a one-off. If Germany is tipping into the realm of a recession, then the implications are evident for the rest of the eurozone and could also potentially be more severe. However, Allianz Group did argue that China currently face a greater economic risk from an EU recession than that of a US trade war.

When history rhymes

‘History doesn’t repeat itself but it often rhymes’ – a famous saying by Mark Twain that rings extremely true. Let’s take the Shelley’s The Masque of Anarchy, for example, where the closing lines: “Rise, like lions after slumber / In unvanquishable number! / Shake your chains to earth like dew / Which in sleep had fallen on you: / Ye are many—they are few!” helped to turn Manchester’s Peterloo Massacre into a rallying cry to give working class men a vote.

Peterloo may stand alone as an event, however the war over elections and the media is still alive and well. Last week in Moscow, police attacked and detained demonstrators whose candidates have been barred from standing in elections, Chinese state media showed unfavourable footage of military manoeuvres near the Hong Kong border, and India continued its media blackout in Kashmir.

These events were however were deemed events of passing relevance to corporate outlooks by investors, which resulted in India’s SENSEX index only slipping a little, while Russian stocks are flying and Hong Kong stocks, despite falling in price, have been enjoying a rush of inflows from mainland Chinese investors, which is the longest such streak since 2018.

Globally, investors were more interested in growth and trade troubles. The S&P 500, Nasdaq, FTSE 100, EURO STOXX 50 and Japan’s TOPIX on a whole finishes the five-day period flat if nor a little down, and several suffered their worst trading day of 209 so far and the three leading US indices fell by 3% on Wednesday.

In other news, South Korea removed Japan from its listed of trusted trading partners, which pushed South Korea’s won to an 8% dip versus the dollar this year, North Kores conducted further missile tests and the results of a indicative vote in Argentina’s presidential election delivered the highest percentage to the opposition – causing the peso to dip by a quarter against the dollar and Argentinian stocks fell a whopping 37%.

The ongoing US-China dispute

It was said by J.P Morgan that the next round of US tariffs – due in September and December – will test China’s capacity to keep growth from slipping when operating at a lower gear. In the US, the White House indicated that around half of September’s tariff packages could be deferred, as well as the US President warned that troubles in Hong Kong would impact the outcome of the ongoing trade talks. In retaliation, China said it would introduce tariffs when the next round of US sanctions are introduced on 1st September – this caused the markets to fluctuate in response.

These tensions over trade and security may just about have been manageable for investors, if it not for the fact that the global economy is showing signs that it needs all the help it can get. Which, as you may have seen from this article, is needed for some of the world’s leading exporters. Last week we saw the July industrial output data for the world’s largest exporter, China come in at just 4.8% (annualised), which is its slowest rate in 17 years! Fixed investment, housing starts, credit growth and retail sales all showed signed of losing momentum too.

While the majority of the outcomes of last week seemed negative, there were still a handful of earning results to celebrate, examples of these belonged to Walmart, Alibaba, Nvidia and Tencent. Above all, though, it’s bank stocks that are getting a rough ride, shredding value on global markets as growth stalls and interest rate cuts rapid growth. It could be said that US bank stocks are now in a bear market.

Wealth Check

It turns out that pension freedoms may not be exactly what they say on the tin, as figures from experts are showing that people might not fully understand the risk they are taking by using them.

Over 300,000 have no access their pension pots and withdrawn funds, which could have been used to cushion their transition into retirement or even to fund their lifestyle choices.1 By doing this, people are running the risk of burning a hole in their finances, which could potentially cause them to run out of money in retirement. What’s most staggering, though, is that over half of those withdrawing money said they could live comfortably without the extra cash.

New figures from HMRC show that £2.75 billion has been withdrawn between April and June 2019, a 21% rise on the same period during the previous year.2 Taking anything beyond the 25% tax-free cash entitlement from your pension can cause a plethora of unintended consequences, for example, emergency tax codes that have been imposed on lump sum withdrawals have caused a surge in tax claims since freedoms were introduced back in 2015. On its current course, withdrawals are expected to surpass the £500 million mark in the third quarter of this year.3

Early withdrawals can see your annual pensions savings allowance cut to £4,000 per year, compared with the standard allowance of £40,000 – this just shows how great the impact of what using the pensions can do.

1 Ibid

2 PensionsAge, 31 July 2019

3 Adviser Points of View, 14 August 2019

In The Picture

One of the trends that’s having the greatest impact on the global economy slowing is the pressure on trade. Germany’s automotive market is a prime example of this, with reducing demand for its signature import: the car. Below shows the units of cars sold per manufacturer.

The Last Word

“Denmark essentially owns it. We’re very good allies with Denmark, we protect Denmark like we protect large portions of the world. So the concept came up and I said, ‘Certainly I’d be [interested].’ Strategically it’s interesting and we’d be interested but we’ll talk to them a little bit. It’s not No1 on the burner, I can tell you that.”

Donald Trump, speaking to the press this week about his interest in buying Greenland.

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