January 2015

Traditionally, December is a ‘slow news’ month. Like August, the great and the good spend a large part of the month on holiday and world events supposedly move slowly, if at all.

Not so in 2014 – There was the Autumn Statement in the UK, the tumbling world oil price, the gloom over the Eurozone, the snap presidential election in Greece, rapid growth in the US economy, rapid growth in the Chinese stock market, much less than rapid growth in Japan as the economy contracted and there were the first signs of recession in Russia.

With all that going on the question is where to begin. Fortunately, the answer is simple – we’ll begin at McDonald’s. Yes, stock markets can wax and wane, politicians can make grand (and meaningless) pronouncements: but perhaps the best measure of global economic wellbeing is the sales figures for a Big Mac and fries. And when those figures for November were released, they painted a bleak picture of the world economy. Like for like sales (that is, excluding new store openings) were down 4.6% in North America, 2.0% in Europe and the Asia Pacific region and 4.0% in Africa and the Middle East.

Clearly consumers had not been ‘going large’ – so let’s look at how declining sales of Big Macs were reflected in the world’s stock markets…


The month started in the UK with Chancellor George Osborne delivering his Autumn Statement – the last one before May’s General Election. The Chancellor wasted no time in firing the opening shots in the Election campaign – and his own possible bid for the Tory party leadership – by unveiling an impressive raft of figures.

As usual though, there was plenty of room for interpretation: it is certainly true that the UK is doing much better than all of its European competitors as regards recovering from the global recession. It’s also true that if the Chancellor’s figures are to add up over the next five years there will need to be many more cuts in government expenditure – the Institute for Fiscal Studies predicted “colossal cuts.”

The initial reaction to the Statement appeared to be unfavourable, with polls just before Christmas giving Labour a five point lead over the Conservatives. The Office for National Statistics twisted the knife by revising its growth estimate for 2014 down to 2.6% (from the Chancellor’s figures of 3%). Throw in the widening current account deficit – up to £27bn in the third quarter – and the Chancellor can’t have been feeling very festive as he hung up his Christmas stocking.

There didn’t seem to be any festive cheer over at Tesco HQ either as the supermarket giant issued yet another profits warning and saw its shares slump by 16%. However there was brighter news as UK inflation fell to its lowest level for 12 years and earnings started to rise faster than inflation for the first time in six years.

The FTSE 100 index looked at all these goings on and decided that its glass was very much half-empty, closing December at 6,566 – down 2% in the month and 3% for the whole year, giving the FTSE its first annual loss since 2011.


It’s impossible to begin the section on Europe anywhere other than Greece. On December 9th the Athens stock market plunged nearly 13% following Prime Minister Antonis Samaras’ decision to call an early presidential election. When the results were announced on December 29th the Greek government had failed to get the votes necessary to confirm their preferred candidate, Stavros Dimas, as president – meaning that a general election had to be held within 28 days.

That election will take place on January 25th and could bring the radical left coalition, Syriza, to power. After five years of hugely unpopular austerity it is hardly a surprise that Syriza is leading in the polls: if they win on January 25th then at best they will seek to re-negotiate Greece’s debt and at worst they will look to write it off. There will once again be pressure for Greece to leave the Euro: with its own growth weakening, you wonder if this time Germany may simply say, ‘off you go, then.’

The problems of the Eurozone were summarised by the Austrian Central Bank Chief Edward Nowotny, who warned of a “massive weakening” with growth and inflation both slowing down. The OECD’s latest figures showed growth weakening in both Germany and France, and you wonder how long it will be before the European Central Bank resorts to a programme of quantitative easing to stimulate the region. Nowotny described it as a “valuable tool” and pressure to launch a big programme of bond buying (pumping money into the economy to you and me) is growing.

On the stock markets, the German DAX index closed December down 2% at 9,806 – but still recorded a small rise in the year, up 3% from its starting level of 9,552. The French market was down 3% in December at 4,273, meaning that it finished 2014 precisely 23 points lower than its starting level of 4,296.


The success of the US economy – where a programme of quantitative easing has recently ended – must put added pressure on the European Central Bank. On Christmas Eve it was announced that the US economy had grown at an annual rate of 5% in the third quarter, its fastest rate of growth since the third quarter of 2003. The previous estimate had been for 3.9% growth, but this was revised upwards after stronger-than-expected spending from both consumers and businesses.

There was also good news on the jobs front, with 321,000 jobs being added in November – way ahead of the 225,000 that had been expected.

All this good news obscured the fact that there was yet another unholy scramble to pass a federal budget after a revolt by the Democrats. This lead to the unlikely spectacle of the Republicans siding with the President in order to get the $1.1tn budget passed and to keep the world’s biggest economy solvent until the next time a deal needs to be cobbled together at the 11th hour.

Staying with politics it is looking increasingly likely that Jeb Bush will announce himself as a candidate for the Republican nomination, paving the way for another Bush-Clinton matchup in 2016.

On Wall Street the Dow Jones index ended the year at 17,823 – that is virtually unchanged in December, but up 8% on the 16,577 level at which it started 2014.

Far East

This time last year we were thinking about the sensational year the Japanese stock market had enjoyed in 2013. Powered by the ‘Abenomics’ of Prime Minister Shinzo Abe it had recorded a 57% rise in the year. Twelve months on and Abe has been re-elected for another four year term, but the news for the Japanese economy has steadily worsened. The economy contracted 1.9% in the July to September period and a recent survey also showed the mood amongst manufacturers worsening.

The Japanese stock market ended the year at 17,451 – virtually unchanged in December and up a far more modest 7% in the year.

1,750km across the East China Sea feelings could not have been more different, with the Shanghai Composite index enjoying a stellar end to 2014. Having been at 2,048 at the end of June, the index ended the year at 3,235 – up more than 20% in December and 53% in the full year.

Earlier in the month it had been announced that growth in China’s imports and exports had both slowed down, prompting calls for the stimulus measures which were so welcomed by the stock market. Sentiment was helped when China’s two largest train makers decided to merge, creating a company to rival Germany’s Siemens and Canada’s Bombardier. This positive news overshadowed the fact that factory output figures showed the economy contracting slightly in December.

The other two major Far Eastern markets had much more gloomy ends to the year. The Hong Kong market closed December at 23,605 – down 2% in the month and up only 1% in the whole year, while the South Korean market ended at 1,916. This was a fall of 3% in December and an overall fall of 5% for the year.

Emerging Markets

For virtually all of 2014 we expected reports that India had been the most successful of the world’s major stock markets in 2014. The spectacular rise of the Chinese market put paid to that idea, but the Indian market still had an excellent year, finishing 2014 at 27,499. Whilst that was a fall of 4% in December, the market was up 30% in the year, having opened 2014 at 21,170.

Buffeted by fears of recession, the Brazilian market fell by 9% in December to end the year at 50,007 – a fall of 3% overall in 2014.

December was also a bad month for the Russian stock market and the Russian economy generally, which was hit hard by the falling oil price. With OPEC and American shale driving down the price of oil there were real fears that Russia could go into a serious recession. The rouble has fallen significantly this year and is down 50% against the US dollar. As one anonymous trader put it over Christmas; “the rouble is fast approaching parity with the chocolate coin.”

President Putin swiftly introduced measures to stem the flow of money out of the country and the central bank stepped in to try and halt the fall in the currency. The stock market was not impressed and tumbled 9% in December to end the year at 1,397 – down 7% for the full year.

And finally…

We would usually end these bulletins with something to make you smile. However, it seems more appropriate (if it’s not too late) to wish you a very happy, peaceful and prosperous New Year. 2015 promises to be an interesting year with the Greek election later this month possibly impacting on the Eurozone and no-one (least of all the politicians) having the slightest idea what will happen in our General Election.

Rest assured, though, that whatever happens we will as always be only a phone call or an email away, and we look forward to working with you all in the coming year. May 2015 bring everything you would wish for.

January 2015 Market Commetary Sources

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