Mindful Money Friday close – FTSE 100 makes a weekly gain but persistent QE fears and miners limit progress

28th June 2013

img

The FTSE 100 managed a gain over the week but continuing fears about the end of the US’s quantitative easing programme, China’s slowing growth rate and a slip in the gold price held progress back writes Philip Scott.

While the blue-chip index shed 27.93 points on Friday to finish at 6,215.47, over the week it managed to rise by 2 per cent. But the topflight has endured heavy volatility over the month, over which it is now down by 6 per cent.

Market reaction has been brutal to Ben Bernanke’s signalling of the end of his monthly bond buying programme. Keith Wade, chief economist at Schroders says: “Bond yields have risen around the world and equities have sold off, as have commodities. Emerging markets have been particularly badly hit with equities, debt and currencies falling.

“Bernanke’s warning that he is thinking about removing the punch bowl has had a damaging effect on global wealth. The broad nature of the sell-off will have meant that few investors will have been spared and is indicative of the liquidity driven nature of the recent rally in assets.”

China also stoked fears that it could suffer a credit crunch of its own having allowed interbank interest rates to reach 13 per cent earlier in the week as the authorities there tried to cool down enthusiasm for lending through what is being termed a shadow banking system.

The price of gold plummeted to its lowest level in three years in overnight trading in Asia on Thursday as concern over the US Federal Reserve tapering back QE deepened. The price of the precious metal fell to $1,180 before making a gentle rebound. At the time of the Footsie’s close on Friday, it was trading at circa $1,217.

Miners suffered most over the week, with Eurasian Natural Resources off 6 per cent at 204p, Vendanta 7 per cent looser at 1,020p and Antofagasta down 5 per cent at 795p.

Vodafone, enjoyed a far better week after announcing to the market it was buying Germany’s main cable firm Kabel Deutschland in a deal worth some £6.6bn. It shares soared by 7 per cent over the week, the highest riser on the leader-board, to close at 187.85p.

Anglo-Dutch firm Unilever which owns popular consumer goods such as Dove soap will post its half-year results next month. According to reports the firm will report six-month sales up 4.2 per cent to £23.1bn and post a £2.3bn net profit, say analysts’ consensus forecasts. Its stock has firmed by 4 per cent over the week to close at 2,662p.

It emerged on Friday that the government had started appointing advisers to help sell its stakes in tax-payer propped up Lloyds Banking Group and Royal Bank of Scotland. The latter suffered a 3 per cent loss over the week to close at 273.5p while Lloyds added 4 per cent to 63.16p showing how the market views the two banks’ relative positions.

Elsewhere Standard Chartered firmed 2 per cent to 1,427p, Barclays lost 1 per cent to 278.45p and HSBC jumped 3 per cent to 682p.

Next week sees Tullow Oil update the market with a trading statement while Mark Carney starts his job as the new Bank of England Governor and will have his first Monetary Policy Committee Meeting and Announcement on Thursday.

14 thoughts on “Mindful Money Friday close – FTSE 100 makes a weekly gain but persistent QE fears and miners limit progress”

  1. anteos says:

    Hi Shaun

    Great article as always.

    You could argue that the lack of upturn in taxation is because the increases in GDP are pure fiction. Imputed rent (which increases every year) doesn’t actually exist and yet forms roughly 9% of GDP. Also double counting of R&D and the black economy will not add to the tax base.

    imho the revisions to GDP are to allow the government to manipulate the deficit/GDP figures. In reality the reduction in deficit is glacial, but with the new improved GDP figures, it will look better.

    The public are right to question the lack of ‘recovery’ but they’re ire is still directed at the bankers, energy companies, frackers etc. And not the charlatans in government/boe.

    1. Anonymous says:

      Hi Anteos and thank you.

      The improved GDP figures are at least to some extent to make us feel better I agree. However the improvement in national debt to GDP ratio will be very temporary as later this month they will formally announce that Eurostat has forced them to raise their estimate of the national debt.which will be around £130 billion higher. Thus they are in fact trying hard not lose ground and losing…..

      As to imputed rent there has also been an update on that stating that its (inflation) deflator rate will be similar to that underlying CPIH. This should cap its increase for now but as ever revisions are possible!

      Oh and here is a number for you “Therefore HHFCE on imputed and actual rentals is approximately 12 per cent of nominal GDP.”

  2. forbin says:

    Hello Shaun

    emergency interest rates still at 0.5% , the ECB pushing on wet string with their drop

    and here we have deceitfulness of our HMG over GDP/GNP , CPI and other financial figures , who are they kidding?

    Many of these figures feed on each other , and so its garbage in = garbage out

    If your measures of the economy are wrong , how can you plan?

    Two sets of books?

    Forbin

    1. therrawbuzzin says:

      ECB rate dropped to 0.05%

      1. forbin says:

        indeed and the ineffectiveness of the cut will be written in the dust of collapsed European economies…

        Forbin

        1. Anonymous says:

          Hi Guys

          Just to add that the ECB deposit and current account rate went further into negative territory as it is now -0.2%. The march of negative interest-rates is still on!

  3. Anonymous says:

    Hi Shaun,
    I’ve been enjoying your excellent, informative articles daily for nearly three years now. I will keep my first “coming-out” comment short.

    I heard they’re raising the chocolate ration to 25g per week.

    Keep up the good work on your exceptional blog.

    1. Anonymous says:

      Hi XpatDE and both welcome and thank you

      Actually I feel that matters are coming to a head again although sadly not in a good way. In a way the ECB expressed this eloquently earlier today as 6/7 years in to the credit crunch it finds that it still has to ease policy…..

  4. Zummerzetman says:

    I have a theory about wage growth. The assault on the pay and benefits started decades ago. When I started working in financial services in the eighties my contract included a non-contributory final salary pension, mortgage subsidy, private healthcare, time and a half overtime, lunch allowance, bonuses and various expenses, in addition to a decent salary which was increased every quarter. In summary the list of delights nearly filled a sheet of A4.
    As the nineties rolled on the list of benefits were slowly eroded, overtime budgets were cut, bonus payments targets very hard to achieve, and the pension scheme was facing a black hole that could only be fixed by making us retire later and on reduced benefits. Finally when I left the industry 5 years ago new starters could enjoy a basic salary and entry to a defined contribution scheme with a small top-up from the employer, and that was it.
    Once the employers have removed nearly all the additional perks they then moved to recruiting more temps and putting in place rolling contracts to keep the wage bill in check.
    I think the next phase, which are in now, is to reduce actual wages; and what better catalyst for this than the financial crisis? Employers could freeze wages and use this as justification.
    Once this mind-set is in place it will be very hard to turn this round. It’s a depressing thought but I believe this a permanent re-adjustment, and wages will never recover to past levels for the majority.

    1. forbin says:

      yes it certainly rings a bell with me

      add in the collapse of the USSR and then the West could forgo the policy of showing the people that they were better off with capitalism ( I’d posit that actually the process started as soon as it was obvious the Soviets were falling behind) the Berlin wall was the final nail….

      Then later we had China , a Dictatorship of willing servant workers, join in with a low exchange rate.

      So the housing boom since 1999 seems obvious it was the only way to show the plebs they were better off . That could only last so long.

      Now look at what happened to the Banks when there was a problem caused by lax lending ….. yes the Western Governments bailed them out

      Just them though, everyone else got the cold hand of “capitalism”.

      Maybe I’m just nuts but it does really seem to be

      Governance of the people, by the Banks, for the Banks

      Cutting benefits and wages will not help revive the western world economy but it does keep the top 1% at the top !

      I suspect they dont want to “turn this around” , I think you cottoned onto the game plan

      Medieval or Dune ? your guess is a good as mine

      Forbin

      As I’ve said before pull up a chair , get some popcorn, the show must go on!

    2. Anonymous says:

      Hi Zummerzetman

      There is an irony in this. You describe the reduction in the number of final salary schemes which are fast disappearing in the private-sector and yet the latest revisions trumpet us as a nation of savers dues to this.

      “Changes to the treatment of employers’ pension contributions have raised the household saving ratio between 1997 and 2009 by between approximately 2 and 5 percentage points a year.”

      Perhaps they hope the new pension plans will fill at least some of the gap.

    3. Eric says:

      Yep, same here. Just add in profit sharing and the company wheels for a complete list.

      All of it gone today, including the company.

      The turning point was 1996. Nothing magical about the year but at some point we traded in wealth creation for debt creation.

  5. Anonymous says:

    Great column, Shaun. You understandably concentrate on the changes in the UK real GDP estimates and the Balance of Payments. There was also a paper published on September 3 on changes in the calculation of the deflator for imputed rents in Household Final Consumption Expenditure (HHFCE). It seems that the imputed rents component of real HHFCE did not change, so there was no impact on real GDP, but the revisions in the deflator are quite alarming: 13.3% inflation rate for 2010Q1 revised to 19.4%, 10.1% for 2010Q2 revised to 17.4% and so forth. The authors make a good case that the new series is an improvement on the old one. However, just how much confidence can one have in an approach where the estimates are data-sensitive to this extent? Also, it doesn’t seem that the revised estimates are free from weaknesses even if they are based on much larger rent samples. It is not clear, for example, how, if at all, rent quotes are adjusted for changes in quality (parking being included in rent one month and excluded the next for example).

    Where the imputed rents deflator in the HHFCE and the CPIH were quite different in their annual movements before, they will now be almost identical. This will make the CPIH series more useful in decomposing the difference in OOH treatment between the HHFCE deflator and the CPI than it was before. This is good, because it is the only serious use that the CPIH really has.

    On the other hand, one wonders if in doubling down on resources devoted to CPIH-related products, the ONS isn’t sending a message that it doesn’t want to consider other approaches to measuring OOH costs. I hope this isn’t the case, but fear that it might be. Andrew Baldwin

  6. forbin says:

    so are the personal services an export or an import ?

    seems HMG will count it twice anyways, going in then out (!)

    ooops sorry 😉

    Forbin

Leave a Reply

Your email address will not be published. Required fields are marked *