Nuclear news moves markets

Tangible signs of progress in the relationship between the US and North Korea were enough to ease market nerves after some worrying but predictable geopolitical news earlier in the week. It was announced that Donald Trump will meet Kim Jong-un on 12 June in Singapore, where the US president will likely try to convince the North Korea leader to scrap his entire nuclear weapons programme. Trump has shown that he is unlikely to settle for a multilateral solution by finally abandoning the deal with Iran, even though there is no real evidence to suggest Tehran has reneged on the terms.

Elsewhere, Malaysia has added fuel to the fire that is currently besieging emerging markets. An election victory for a 92-year old who proposes abolishing the country’s goods and services tax have caused sovereign credit default swaps to spike while forward contracts on the ringgit have fallen sharply. This helps to explain why emerging market equity funds this week experienced their biggest outflows in nearly a year, while fixed income funds have barely done any better.

Read what the team at FE consider to be significant over the current week.

Questions about cash holdings no longer cool

This week Elon Musk’s refusal to answer “boring” questions about Tesla’s finances cost the company $2bn in market value. Its first quarter revenue and earnings were better than expected; Wall Street analysts mainly wanted to know why he burnt through more cash than expected. However, “boring, bonehead questions are not cool”. Losses were not confined to Tesla. Investors have also been fretting about the outcome of the US-China trade talks in Beijing. Some good news for the Fed though; it has been able to hold off on raising rates until next month as inflation has almost risen in line with target.

Back in the UK, investors mainly had the local elections to worry about. With one of the last outspoken Remainers resigning from Theresa May’s cabinet on Sunday, there were concerns that heavy Conservative losses would add even more doubt as to what will actually happen when the UK leaves the EU. The results however turned out decidedly mixed. Elsewhere, oil was unsettled by “new and conclusive” proof from the Israeli Prime Minister that Iran has been stockpiling nuclear weapons, fuelling fears that the Iran nuclear deal will be abandoned.

Read what the team at FE consider to be significant over the current week.

Facebook brushes off Cambridge Analytica scandal

The busiest week of earnings season has been an up-and-down, or rather a down-then-up, one for global equity markets. After Caterpillar, the biggest manufacturer of construction equipment in the world, suggested that its better-than-expected first quarter earnings will be the “high-water mark” for 2018, stocks rebounded after a display of resilience from the recently troubled US tech sector. First quarter earnings for Facebook and Amazon exceeded expectations despite the Cambridge Analytica and threats of tougher regulation from the Trump administration.

Elsewhere there was the “historic” summit between the leaders of North and South Korea. It was historic only in the sense that they met at the de-militarised zone instead of 114 miles north in Pyongyang. There were similar summits in 2000 and 2007 that didn’t lead to any material improvement in Korean relations, let alone an end to the official state of war on the peninsula. Nevertheless, the news seemed to soothe investors with the KOSPI ticking up and the South Korean won strengthening slightly against the dollar. 

Read what the team at FE consider to be significant over the current week.

Markets reassess likelihood of May rate rise

This week the fickle nature of economic forecasting was at the fore, with just a handful words from Mark Carney enough to cloud crystal balls over the country. This pattern is well worn – the market gets too confident that it knows exactly when the Bank will raise rates and then freaks out when reminded that all it’s really doing is guesswork. The pound fell against the dollar after this latest reality check. Thankfully the next Monetary Policy Committee meeting isn’t that far away; rate forecasters will soon be put out of their misery, at least for a week or two.

Elsewhere, in Brexit news we got a glimpse of an overlooked problem with “taking back control”; that control will go the Home Office, which at this point more resembles The Office than a functioning government department. The current crisis of “Windrush Generation” immigrants having their rights removed, by a change in policy decades after they arrived, will hardly fill the EU with confidence that the rights of EU citizens in Britain will be protected post Brexit. This makes any agreement where the European courts aren’t appointed as a watchdog, much harder to reach.  

Read what the team at FE consider to be significant over the current week.

ISA soup - just how many ISAs does a family need?

There are not too many uncontroversial tax concessions, but there is no popularist clamour to abolish the Individual Savings Account or ISA. This provides a tax wrapper to remove any liability to income or capital gains tax for savings or investments held in designated accounts. According to the government web site, (https://www.gov.uk/individual-savings-accounts), there are 4 types of ISA, but then the website mentions the Junior ISA, which comes in cash and stocks & shares varieties, so I would suggest there are 6 ISAs to consider every year.

The initial 4 are:-

  • Cash ISAs

  • Stocks and Shares ISAs

  • Innovative Finance ISAs

  • Lifetime ISAs

The most you can put into any combination of the above is £20,000, (tax year 2018/19), with some specific rules around the Lifetime ISA which limit contributions in the year to £4,000. To qualify for an ISA, you need to be over 16 for a cash ISA and over 18 for all the others and under age 40 for a Lifetime ISA; you also need to be resident in the UK, or a Crown servant or their spouse or civil partner.

War fears overtake trade fears

This week volatility has remained, with fears of a trade war being replaced with fears of an actual war. President Trump was incredibly vocal on Twitter at the start of the week, making the as yet unrealised threat that missiles would be coming in Syria. Personal legal issues seem to have taken his focus off the issue lately, so the market is taking the view that perhaps he won’t follow through. It seems traders are musing on a philosophical question: if the US starts a war in the Middle East and it isn’t on social media for everyone to see it, did it really happen?

Elsewhere Mark Carney warned of a “massacre of the Dilberts”, repeating the claim that mass automation will replace thousands of office jobs. This has been backed up by consultancy firm EY, who estimated that 330,000 jobs in London alone could be lost to machines. The fear is that widespread disruption to the services sector could lead to financial instability if not handled properly by policymakers. Given the calibre of policymakers this is a chilling prediction indeed. 

Read what the team at FE consider to be significant over the current week.

Tit for tat on trade causes market tremors

There has been significant volatility this week, mainly caused by the on-again off-again relationship between China and the US. The White House publication of an extensive list of tariffs on a multitude of products sent markets down initially, before reassuring briefings from senior officials caused some recovery. Things got worse when China responded with its own hit list, before calming things down by announcing that they remain open to talks on trade. At the time of writing the headlines are reading “China vows to fight to the very end” - here we go again.
 
Markets hate uncertainty, and unfortunately this has been the defining feature of the Trump presidency. With no one able to convey policy without risking being undermined by a stray tweet, we won’t know what trade restrictions to expect until they’ve already been imposed. This means we’re at the mercy of market analysts for their insights. As these are often hopeless, expect these wild market fluctuations to continue.

Read what the team at FE consider to be significant over the current week.

Quarterly Market Outlook - Spring 2018

The year started strongly, with the rapid growth in equity markets that started in December continuing into January. This enthusiasm didn’t last and a sharp sell off at the start of February, blamed in part on computer trading and some dodgy derivatives, erased most of these gains. Following this the Bank of England kept interest rates on hold but signalled a faster rate of tightening in the coming months in response to stubbornly high inflation. While it has remained above target, the headline rate fell from 3 per cent in January to 2.7 per cent in February. To end the quarter, the UK and EU finally agreed a 21-month Brexit transition deal, which has provided some assurance that a cliff-edge Brexit will be avoided next year.

Tech woes and trade fears sustain volatility

This week we saw more of the market jitters that have been with us since the start of the year. While nothing fundamental has happened yet, fears that something will keep growing, as the list of potential downturn triggers keeps getting longer. Increased speculation over a possible trade war, regulators ending the dominance of the tech giants and Brexit uncertainties remain high on the list. This is fairly normal after such a long period of growth; after each additional good year, the odds on another one keep getting longer. Nevertheless, while any one of these things could happen, the fact remains that there is plenty to worry about but little to act on.
 
Elsewhere the pushback against Russia over the suspected poisoning of a defector in Salisbury has been surprisingly coordinated. Over a hundred Russian diplomats have been expelled by the UK, EU and US. How much of a blow this will be to Russia remains to be seen but it is a show of unity that few were expecting. Whether this will translate into any more meaningful cooperation remains to be seen.

Read what the team at FE consider to be significant over the current week.

What is an "In-Specie" transfer and why is it importent with SIPPs?

Until recently, you could use assets you already owned as a payment into a pension scheme. In fact, advisers would often recommend a Self-Invested Personal Pension scheme, (SIPP), as a pension structure to protect assets like shares, development land or commercial premises from income or capital gains tax, which pensions have always avoided.

Imagine you had listed shares that you purchased a while ago and you wanted to make a pension contribution. Shares are an allowable asset into a SIPP and it is relatively easy to obtain a monetary value that would be accepted by both the pension administrator and Her Majesty’s Revenue and Customs, (HMRC). This would be an In-specie payment; with the asset being accepted for value in place of cash.