May 2015

In the UK April saw the clock ticking down towards the General Election. For the rest of the world, life went on pretty much as normal: that’s to say, China and Germany remorselessly cranked out another trade surplus, the American economy gave us more mixed signals, and Greece teetered on the edge of bankruptcy.

In the UK voters are taking to the polls in one of the most difficult-to-predict General Election for generations. The polls – and the bookmakers – currently predict that the Conservatives will be the largest party but that Ed Miliband will be the next Prime Minister.

Whether it’s Cameron or Miliband with the keys to No 10 the possibility of a minority government is very real, with support needing to come from a collection of smaller parties or – in Ed Miliband’s case – the tidal wave of Scottish Nationalist MPs. The Fixed Term Parliament Act is supposed to give us stable government for five years, but it may prove unworkable: don’t be surprised if there is another election later this year or early in 2016.


So the political system is in a state of flux and as we’ll see below, there were plenty of ups and downs in the economy as well. But one thing, it appears, is now set in stone: Tesco’s ability to lurch from crisis to crisis. April saw it announce a loss of £6.4bn for the previous year – “a difficult year” according to the new chief executive – which was comfortably a record for British retailing.

Away from the peace and quiet of the Tesco checkout the month had started with an upbeat message from the CBI, who announced that the economy was expanding: they estimated growth for the first quarter at 0.7%, up from 0.6% in the last quarter of 2014. Sadly this was confounded later in the month when the official figures showed growth at only 0.3%. Economists stated the figures were a ‘temporary slowdown’ and the IMF showered praise on the British economy, with boss Christine Lagarde stating, “It’s obvious what’s happening in the UK has worked.”

…And there was plenty of evidence for that. The first quarter saw 108,456 commercial vehicles registered – the highest figure since the Society of Motor Manufacturers and Traders began compiling figures. New car sales also rose to their highest level since August 1998. UK retail sales were up in February: up 0.7% on the previous month and 5.7% higher than a year ago. The jobless total also fell to its lowest level since 2008.

The Government cut its stake in Lloyds Banking Group to 21% as David Cameron announced plans to revive the ‘Tell Sid’ sell-offs to the public. Elsewhere, though, there was less happy news from the banking sector as Barclays set aside £800m to cover the inevitable fines and compensation for their manipulation of the foreign exchange markets, and HSBC made veiled mutterings about leaving the UK, complaining about over-zealous regulation of the sector.

Given the uncertainty over the result of the General Election the FTSE-100 index had a good month, rising by 3% to close at 6,961 having reached an all-time high of 7,104 on April 27th. The index is now 6% higher than at the start of the year.


Let’s start with the soap opera. April began with Greek Prime Minister Alexis Tsipras boarding a plane for Moscow, amid rumours that Greece might turn to Russia and China for help with its financial problems. But wait – apparently no help would be needed. A few days later a beaming Yannis Varoufakis announced that the April 9th debt repayment to the International Monetary Fund (IMF) would be made on schedule. “All obligations to all creditors. Ad infinitum,” he proudly declared.

Sadly it was all downhill from there. By the middle of the month the Times was reporting that the EU was now drawing up secret plans to expel Greece and that the country could be bankrupt by May. Bookmakers William Hill stopped taking bets on Greece leaving the euro in 2015.

By the end of the month the previously beaming Mr Varoufakis had been ‘sidelined’ as Greece desperately sought a way out of the mire. Jereon Dijsselbloem, the head of Europe’s finance ministers, said that there would be no repeat rescue package of the scale seen in 2010 and 2012, with Athens now facing a crucial summer of scheduled debt repayments.

Meanwhile Germany recorded another trade surplus, with figures released for February showing an increase to €19.5bn, up from €15.9bn in January. Some economists have complained that the continuing German trade surplus is a problem as it hampers growth elsewhere: I very much doubt that is the view from Angela Merkel’s office. Unemployment in Germany was down slightly at 4.7%. However the German stock market fell by 4% in April, closing at 11,454 as the euphoria generated by the ECB’s massive programme of quantitative easing started to wear off.

France recorded its third straight month of deflation as consumer prices dropped by 0.1% in March, and GDP growth for the final quarter of 2014 was confirmed at a miserable 0.1%. French unemployment rose to 10.4% – the highest level recorded since 1998. There are another 1.4m inactive people who wish to work but are not considered as officially unemployed – the so-called ‘unemployment halo.’ The stock market reacted to all this with a Gallic shrug, ending the month more or less unchanged at 5,046.


As we reported above, the economic signals coming out of the United States were distinctly mixed. Personal spending picked up in March and US jobless claims fell to their lowest level for 15 years. Against that the jobs figures for March were much weaker than expected, with only 126,000 new jobs created – around half the number anticipated.

Interest rates in the US continued to be held close to 0% – where they have been since 2008 – but there are suggestions that the Federal Reserve Board is now split over when they should rise, with some members favouring later this year whilst others are holding out for 2016.

In company news, Twitter turned in disappointing figures with lower than expected sales for the first three months of the year. “It is still early days,” said Chief Executive Dick Costolo as he casually reported a loss for the period of $162m – up from $132m for the corresponding period in 2014. The shares dropped 20% as news of the figures was leaked (on Twitter, where else?) but never mind: the number of people using the site was up 18% year-on-year to 302m.

In news that will send a chill through many a boardroom, Amazon CEO Jeff Bezos reported that Amazon’s web services were “growing fast:” currently it is ‘only’ a $5bn a year business, but there are signs that it will start to contribute significantly to Amazon’s revenues, which were $22.7bn for the first quarter.

On Wall Street the Dow Jones index closed April up just 64 points at 17,840 – almost exactly unchanged on the level at which it started the year.

Far East

China’s trade surplus – which had been an eye-watering $60.6bn in February – slipped back in March to $30.8bn as exports fell by 14.6% in yuan terms, compared to an expected rise of 8%. Imports also fell and the trade surplus was the smallest for 13 months. GDP growth in the first quarter was only 1.3%: down from 1.5% in the final quarter of 2014 and the lowest quarterly figure since records began in 2010. Finally in the bad news column, growth for 2014 was confirmed at 7.4% – the weakest for 25 years.

Is this something we should worry about? Clearly the stock market didn’t think so as it skipped cheerfully up 19% in the month to close at 4,442: so far this year it is up by 37%.

The Japanese stock market has been enjoying a good run as well and in mid-April the stock market went above 20,000 for the first time since April 2000. It couldn’t quite sustain this to the end of the month as – like many markets in the Far East – it worried about the disappointing figures from the US: the Nikkei Dow closed April at 19,520 – up 2% in the month and 12% for the year as a whole.

Taking its lead from China, the Hong Kong market had a stellar month, rising 13% to 28,133 where it is 19% up since the start of the year. South Korea was much more subdued, rising by just 4% to 2,127. Samsung reported profits of $5.44bn for the first quarter – ahead of expectations but 30% down on the same quarter last year as it continued to struggle against Apple and Chinese phone makers Xiaomi.

Emerging Markets

We’ll start in Russia, where the economy shrank by 2% in the first quarter of 2015: this was the first contraction since 2009 as EU sanctions continue to bite. But there’s an interesting question in Russia: how close is it (politically, not geographically!) to China?

Western leaders will be conspicuously absent from Russia’s May celebrations to mark the 70th anniversary of the Allied victory: guest of honour will be President Xi Jinping of China. With sanctions imposed by both the US and EU over the Ukraine invasion, China is now the only major economy not imposing sanctions on Russia. The BBC reports that the two countries are closer than at any time in the last 50 years. The two leaders met five times last year and are scheduled to meet at least as many times this year. The rest of the world should probably pay attention.

Away from that budding bromance and back on the stock markets, the Russian index shrugged off worries about the shrinking economy to rise 4% to 1,688 – up 21% so far in 2015. The other two major emerging economies on which we report had mixed fortunes. The Indian market slipped back 3% to end April at 27,011 but the Brazilian market powered ahead, rising by 10% in the month to 56,229. In marked contrast to its lacklustre performance in the last two years it is up by 12% in 2015.

And finally

Last month we reported on ‘Spocking’ – drawing on Canadian bank notes so that former Prime Minster Wilfrid Laurier bears a remarkable resemblance to Leonard Nimoy’s Star Trek character. This month we stay with banknotes and the efforts of many countries around the world to promote gender equality by having the portraits on their notes split equally between the sexes.

The USA, China and India feature no women at all on their banknotes. The UK has just Jane Austen, who will feature on the £10 note from 2017. Sweden and Australia lead the way in gender equality with men and women featuring equally. Norway had similar equality, but has now decided to scrap both men and women: their new banknotes will feature lighthouses, longboats and fish. Denmark has followed suit, symbolically relying on bridges – apparently they’re less contentious than people.

This time next month we’ll be commenting on the result of the UK General Election. Who knows? The more excitable elements of the press might be campaigning against the UK’s new £20 note. The one featuring Nicola Sturgeon…

May 2015 Market Commentary Compliance Notes

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