It’s time to worry about inflation

• SEE MORE Andy Haldane: bitcoin as money is a fanciful idea that should fill us with horror

Andy Haldane is something of a Bank of England lifer. He’s retiring this week from his position as chief economist, but he’s been working at the central bank for more than 30 years. Next he will take up a position as chief executive of the Royal Society for Arts, Manufactures and Commerce (RSA). Some of you will, I know, immediately think of his pension: imagine being about to receive 30 years’ built-up defined-benefit pension payouts. What joy. 

But there’s a lot more to Haldane than a happy semi-retirement. He’s not just been a Bank of England lifer. He’s also been something of a Bank of England maverick. He’s been hugely critical of the financial sector, outspoken on bankers’ pay, forward thinking (not always in a way MoneyWeek readers would approve of) on the death of cash and certainly not shy when it comes to his opinions on all matters economic. 

Last year, when much of the rest of his profession had gone, as he put it, “Chicken Licken” on the economy, he was telling them to stop “catastrophising” and start looking forward to a stunner of a recovery. We agreed with him on this (Haldane and I have some history of disagreeing, so this has been interesting). 

Now he’s telling them the recovery has been so stunning that they might want to worry a little about inflation: last week he was the only member of the Bank’s Monetary Policy Committee (MPC) to vote to tighten policy (oddly, we were with him on this too). So when we meet (on Zoom, sigh), this mix of optimism and mild anxiety is the first thing I ask him about.  

The economy has made up the lost ground

How is the recovery going and how much do we worry about inflation? The economy is going “great guns”, he says. No wonder. The collapse was caused by the lockdown restrictions, so their removal would naturally produce an “atypically sharp bounce-back in activity and demand. And that is exactly what is happening. If anything, [it] is running ahead of everyone’s expectations. We see it on the high street [and] in the pubs and restaurants. We even see it in the GDP data”. 

Thanks to this “really very punchy recovery” we have made up “all of the GDP ground lost from last year” – and that’s before we have even finished reopening. Will it carry on? Is he perhaps worried about the supply side of all this? The demand recovery makes sense. Most people have had their lost incomes replaced, so when they are allowed to spend they do. But the supply side is not so intact: there appear to be bottlenecks all over the place in the global supply chain. 

Ever the optimist, Haldane thinks we should see this more as a “sign of success” than anything else. Sure there are some problems with, say, chip shortages and hospitality staff, but this is all about businesses and workers finding their feet. The problem is not so much the short-term shortages, but the “potentially adverse implications for price pressures” they might cause – and the worry that these may not be short-term. 

This isn’t just about Covid-19 itself. The reaction to the pandemic has exacerbated some pre-existing trends. The first is globalisation. Even pre-Covid-19 we were seeing some “fraying, or in some cases retreat” in the ability of goods, services and people to move freely across borders. Brexit added to that and Covid-19 became an “additional amplifier”. Countries may now want to react to the fracturing of international supply chains during the pandemic by working to “build greater resilience into their domestic supply chains”.

Did EU migrants depress British wages?

The other trend to keep an eye on here is “changing patterns of flows of people”, in particular a slowing in the number of EU migrants coming to work in the UK. Add these up and the years of cheap labour and cheap goods may be over – as is their disinflationary effect. Will we see this in wages first, I ask? Pre-Brexit we were told (over and over again) that the millions of migrants did not affect wages on the downside (in other words, the rising supply of labour had no impact on the price of labour). But now, as fewer people come, we are told that this trend bolsters wages (the falling supply of labour does affect the price). So which is it? 

Both, says Haldane. You can argue that migrant labour did not produce a “whopper impact on aggregate pay rates across the UK” for the simple reason that “migrant labour adds to both the demand and the supply side of the economy and is therefore a bit of a wash in terms of net excess demand”. But it is the case that in “certain sectors and in certain parts of the wage distribution, particularly the lower end... there were some signs of effects of migrant labour”. 

I get the idea: it was the lower-paid who suffered from rising supply of labour. Good news then, perhaps, that it is also the lower-paid who are reaping the rewards of the lower labour supply: it is in hospitality and retail where wages are now rising the fastest. This could be transitory, says Haldane – perhaps as pay picks up and furlough ends, people will re-enter the workforce and we will be back to square one. But there is also a reasonable chance that we see a “mini-game of leapfrog between rates of inflation and rates of pay”. If so we will see, as we did in the 1970s and 1980s, “persistence in price pressures” beyond the immediate opening up of “bottleneck effects”. 

Persistence to how high a level? The Consumer Price Index (CPI) numbers for May suggest that annual inflation in the UK is running at 2.1%. Haldane would not be surprised to see “a big figure three during the course of this year”. That might reflect energy prices feeding through into petrol and the like (oil prices were extremely low last year). But it might also reflect the “start of a slightly more persistent trend upwards”. Speak to any business and you will find them saying that all inputs are rising in price. “Not just petrol and diesel and gas, but bricks and concrete and cement and plasterboard and chips. And that’s before you get... to things such as houses and equities and bonds.” 

Most of these price pressures have not yet popped up in consumer prices, so the “big question” is whether and when they will. Will businesses have to take the hit, or do they have the pricing pressure to pass them on to consumers? “Others of my central banking colleagues and brethren think those effects will be fleeting; I am of the view they could stick around for a bit longer... And therefore we could be looking at a breach of our 2% inflation target for a somewhat lengthier period than we are currently factoring [in].” 

On Haldane’s “balance of probability” price pressures will build rather than abate into next year. Interesting (and scary). But if he thinks that “there’s a risk and indeed a rising risk” that 3% won’t be the peak, what makes him so sure that this won’t turn into a 1970s wage-price spiral? “The Bank of England.” When Haldane joined the Bank in 1989 “the best single predictor of interest-rate changes... wasn’t the path of GDP or inflation. It was whether Mrs Thatcher had lost a by-election. So it was all about the politics then”. Now the Bank is independent and works towards a “clear target” for inflation (2%). 

An independent central bank is crucial

So while he worries that the target might be “persistently missed” over the next year as the rest of the MPC takes the view that the uptick in prices will be transitory, he has “huge amounts of faith” that it “will do the right thing” long before we get to anywhere near scary double-digit inflation. So should we worry about rising interest rates then? Right now the market is barely pricing in rate rises at all. But if Haldane is right on both inflation and the integrity of the inflation target, they will have to rise faster than most expect. 

Haldane agrees. We are “a world away” from anything that anyone who experienced the 1970s and 1980s would consider tightening. “Incredibly low” rates globally will be with us for some time. That said, anything sharper than expected is going to come as a surprise as “the majority of people with mortgages these days haven’t really experienced a rate rise”. And that could magnify their impact. What might that do to house prices I wonder? After all, it’s a matter of scale. A rise in rates from 0.1% to 1% might sound small , but it is still a tenfold rise in interest rates. Haldane is not worried. First, thanks to the rise in popularity of fixed-rate mortgages (you’d be mad not to have one at the moment), people are “immunised” from rising rates in a way they never have been in the past. Even those now rolling off old ones onto new ones will be seeing unchanged or even lower rates than five years ago, “such has been the compression in mortgage spreads over that period”. What’s more, he reckons there are “pretty potent... forces acting on housing demand”. Pandemic savings (the “savings lake”) are translating into deposits at the same time as “attitudes towards housing are changing in the light of working from home”. That has created a supply-demand imbalance, which is why house prices are rising so fast (13.4% annualised on Nationwide numbers) – and possibly why they won’t be affected by a small rise in interest rates. 

Would he buy a house now, at these prices, I ask? He dodges that one neatly: “Can’t afford to Merryn, I’m moving to the charity sector”. Instead I wonder if he’d buy bitcoin. You can listen to our discussion on this on the podcast, but I can summarise it for you in two words: probably not. 

What about equities? This isn’t his area, but he notes there have been three uncertainties affecting markets over the last 18 months: Covid-19, the resilience of the financial system and Brexit. The uncertainties around the latter haven’t fully disappeared but they have dissipated. Virus uncertainty is (finally) going the same way. And the resilience of the financial system is no longer really in doubt either: “through the Covid-19 crisis, our financial system has stood tall”. That all implies that risk premiums should be falling: “I think you can make a… good case on fundamental grounds for the valuations... across UK markets”. In this there is, as regular readers will know, something else MoneyWeek and Haldane can agree on. Strange times. 

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Markets eye a new phase of the post-pandemic recovery

“Judging by the slew of half-time investment outlooks being released at the moment, many investors and strategists are asking how far equity markets can run given their impressive gains over the past 16 months,” says Michael Mackenzie in the Financial Times. That’s no surprise, since there are plenty of uncertainties to ponder.

Policymakers are likely to scale back fiscal and monetary support, which could mean a slower economic recovery and weaker earnings growth. Taxes may start to rise to begin paying for the extraordinary level of government spending during the pandemic. Investors remain fixated on inflation and whether recent trends for higher prices are transitory: if they are not, interest rates may need to rise, which could mean a bumpy ride for markets. All this complicates any forecasts for which types of stocks – such as cheap value, expensive growth, cyclical recovery plays or high-quality defensives – are likely to do best in the months ahead.

However, there are clear signs that we’ve passed the part of the cycle “in which risk assets are embraced almost without discrimination”, says Buttonwood in The Economist. Key indicators such as the output and orders components of the US purchasing managers’ index (PMI) appear to have peaked in May, suggesting economic growth may have passed its high point for this cycle, at least in America.

That in turn implies that earnings growth may have peaked, which would be a headwind for a market that already trades on a relatively high valuation. “Markets are forward looking. They now have less to look forward to.”

Lessons from recent history

Of course, these are exceptional times, says Andrew Sheets of Morgan Stanley. “The global economy saw the largest collapse in recorded history… what followed was the largest global fiscal easing, the largest monetary easing and the lowest real interest rates in history.” So past cycles might not be a perfect guide to what to expect. Nonetheless, there are echoes in today’s markets of one relatively recent recovery: the sharp rally in 2003 that followed the dotcom bust. This was “classic, early-cycle stuff”, with strong returns for riskier assets. 

Coming into 2004, valuations were high and pricing in plenty of optimism, just like today. Over the next year, the economy remained healthy, growth stayed strong, unemployment fell and inflation rose. Yet US stocks went through a period of consolidation as earnings caught up with valuations. There was no clear trend in which sectors did better globally, but it was notable that non-US markets outperformed the US, despite a modestly stronger dollar.

The same pattern could well play out this time, suggests Sheets. So it may be noteworthy that European stocks have begun to outstrip the US in recent weeks, and cyclical markets such as the UK, Germany and Spain look comparatively attractive, Ray Farris of Credit Suisse tells CNBC. Europe could see earnings grow as fast as the US in 2021, yet valuations are at “multi-decade lows” relative to the S&P 500. “You are getting Europe on sale as it comes out of the pandemic, as it reopens and as growth accelerates.”

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“Zombie companies” may do little harm to the US economy

• SEE MORE Too embarrassed to ask what is a zombie company?

Fears that the US is being overrun by corporate zombies may be exaggerated, says Alexandra Scaggs in Barron’s. Many analysts have argued that the US Federal Reserve’s decision to buy junk bonds (debt with a higher risk of default) during the crisis last year helped prop up companies that should have been allowed to fail. “Heavily indebted, cash-strapped firms” have been able to stagger on, “only surviving because of low interest rates”, say critics. Yet the data doesn’t necessarily suggest this is true.

The value of outstanding bonds from firms that don’t currently earn enough to cover their interest costs and aren’t early-stage growth businesses where profits should rise was $30bn at the end of 2020, down from $70bn in 2019, reckons Michael Puempel of Goldman Sachs. Much of the drop was due to struggling firms going bust, implying the pandemic wiped out old zombies rather than creating new ones.

Of course, today’s low rates might still be making firms that could not have covered their interest in 2019 look better, says Tracy Alloway on Bloomberg. But again that’s not obvious: just 17 US junk-bond issuers are expected to be less profitable in 2022 than in 2019, reckons Martin Fridson of Lehmann Livian Fridson Advisors. “It’s true that companies that look viable right now might not necessarily survive the next downturn,” concludes Alloway. But that doesn’t mean there’s harm in them getting a chance to turn things around.

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Five ways to build Britain's post-pandemic economy

Sajid Javid was not the obvious choice as a replacement for disgraced health secretary Matt Hancock – he has no experience in healthcare, for one thing. But against that, he is both an experienced minister and, more importantly, he knows about the economy.

This is now as much, if not more, of an economic crisis than a health one. In office, he needs to team up with the chancellor and figure out a workable plan for a virus economy. What would that look like? Here are five places he could start. 

1. Forget about “zero Covid-19”

We won’t get rid of Covid-19 now. Even the Australians, with closed borders and quarantines, have not managed that, and it is very unlikely the UK will. The virus is likely to be circulating for many years to come and will carry on mutating. If we try to eliminate it all we will do is remain partially locked down forever.

Instead, the government has to be clear that brilliantly effective vaccines are available, encourage people to get jabbed, make booster shots available if they are needed, and then allow the world to get back to normal. A few people will still get seriously ill from Covid-19, but that is true of lots of diseases. 

2. Bring the NHS under control

At times during the pandemic it seemed as if we were dangerously close to protecting the health service when, of course, it is meant to be protecting us. After the first wave peaked, there has been very little evidence that hospitals were ever likely to be overwhelmed.

The health secretary needs to make sure the service is properly funded, but also that it is working effectively and efficiently. And he needs to make sure it is reformed and improved even if that is unpopular with its staff. We can’t keep closing society down because the health service can’t cope with its workload. 

3. Scrutinise the modellers

The epidemiologists should be subject to the same scrutiny as the economists. Over the last year, we have treated forecasts and models from the experts in infectious diseases with an overblown respect. In reality, forecasts from epidemiologists are not necessarily any better than those from economists.

In fact, they are probably worse. It is a less well-funded science and pandemics are so rare they are hardly ever tested in the real world (we can judge the accuracy of economic models all the time, but epidemiological ones only once in a generation).

If necessary, set up an equivalent of the Bank of England’s Monetary Policy Committee (a Medical Policy Committee perhaps) to come up with forecasts that can be scrutinised. The chancellor doesn’t panic at every forecast of doom; he would be very busy if he did. Neither should the health secretary. 

4. Get business to adapt

Between them, the Treasury and the Department of Health need to make sure companies can cope with an economy where the virus may flare up again at any moment. Hybrid home and office working may be here to stay, but that will require changes to employment legislation.

Companies need to know whether they are allowed to insist on vaccination or not. Business rates may need to be reformed for companies that are only open part of the time. Many companies may need to redesign the way they operate permanently, and the sooner that happens the better. 

5. Keep investing in vaccines

The UK did well researching and licensing vaccines and getting them delivered rapidly. We have started ramping up vaccine production, with new factories and a new Vaccine Manufacturing and Innovation Centre in Oxfordshire built. Keep going.

With challenge trials – now finally allowed in the UK, ahead of most countries – we could have had the vaccines six months earlier and with the production facilities in place we could have been inoculated by last Christmas.

Next time around, we should aim to have a vaccine in 100 days and have jabs in arms in 200. Lives would be saved and far less damage done to the economy. 

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The semiconductor shortage will drive an investment boom

“Microchips, long revered as the brains of modern society, have become its biggest headache,” says Andrew Blum in Time. Pandemic-induced shocks to the semiconductor supply chain are “wreaking havoc” in surprising places.

When car sales plummeted early in the Covid-19 outbreak, carmakers cut orders for parts, including computer chips (a typical car contains more than 1,000 chips). “Manufacturers saw the slack and shifted their output to serve the surging demand for consumer electronics, such as webcams and laptops”. Now car sales are snapping back, but car firms can’t get enough chips to meet demand and so vehicle output this year is expected to be 3.9 million units (4.6% of global production) lower than it would otherwise have been.

The shortage should peak in the second half of this year, says Pat Gelsinger, the chief executive of chipmaker Intel, on Bloomberg. However, the chip industry is unlikely to be “back to a healthy supply-demand situation until 2023”. He forecasts strong growth in demand over the next decade, unlike some industry peers, who expect this crunch to be followed by a slump.

But the outlook for this cycle may not be solely determined by market forces. “The strategic importance of the semiconductor industry is on the rise,” says Ma Tieying of Singaporean bank DBS. Policymakers have seen that “a country’s access to cutting-edge chips could have far-reaching implications for national security”. Hence America’s efforts to restrict China’s access to advanced technologies will push China to expand its domestic industry.

Meanwhile, the US – which relies on imports from South Korea and Taiwan – is keen to encourage firms to build new factories on its own soil. Expect “a massive, government-led investment cycle” – and a risk of supply gluts in the mid 2020s.

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Fans open their wallets for tennis memorabilia

Wimbledon got under way on Monday. But this year, more money looks set to be made in the auction room with tennis-related sales than on the court. Last week, an auction of 20 items of tennis memorabilia from the record-breaking career of Swiss great Roger Federer raised £1.3m for Federer’s charitable foundation with Christie’s in London. The signed outfit and racket Federer used during his triumph over Spain’s Rafael Nadal in the 2007 Wimbledon final smashed its £50,000 estimate to sell for £187,500, as did the outfit Federer wore for his French Open victory in 2009. “Every item [reminds] me of great moments of my career so far,” Federer said ahead of the sale. It turned out he wasn’t the only one, with buyers handing over four times the combined pre-sale low estimates.

The sale now moves online until 14 July with a further 300 items, including the 2014 Air Jordan Nike trainers that Federer designed with basketball legend Michael Jordan (see below). Federer wore the trainers, branded with Federer’s “RF” logo, at the US Open that year. “You really don’t want to lose when Michael’s sitting in the stands,” he joked afterwards, according to Christie’s magazine. “The pressure was on.” The shoes are expected to sell for upwards of £40,000. Not all of the lots have such high estimates, however. A signed “RF” tournament cap from Brisbane, Australia, in 2016 had a starting bid of just £100. 

NFTs: an auction of moments 

• SEE MORE What are NFTs and why are they so popular?

Another tennis-related charity auction will be taking place in November in aid of the foundation set up in 2014 in memory of Elena Baltacha, the late British number one, who died from cancer, aged 30, says BBC News. Proceeds from the Love All auction will go towards cancer research and screening as well as helping to bring disadvantaged children into the sport. The Murray Play Foundation, set up by Baltacha’s tennis coach, Judy Murray, will be one of the beneficiaries, setting up tennis programmes for disadvantaged communities from around Dunblane, in Scotland.

Murray’s son, two-time Wimbledon champion Andy, is behind the sale of what is perhaps the oddest piece of tennis memorabilia this week – “the moment” he won the tennis championship for the first time, in 2013, as a non-fungible token (NFT). The buyer won’t own the copyright of the video footage, “but a crypto asset that refers to a video of the moment”, says Elizabeth Howcroft for Reuters. The auction is being hosted today on Wenew, the online NFT marketplace set up by Mike Winkelmann, AKA Beeple, the artist, who in March sold his digital artwork, Everydays: The First 5000 Days, for $69.3m with Christie’s. But that’s not all the buyer is getting. Also included with the lot are a pair of VIP Centre Court tickets to next year’s Wimbledon men’s final, a chance to play tennis with Andy Murray and signed souvenirs. If that sounds like too much of a stretch, the auction also includes 20 NFTs of the moment Murray lifted his trophy at $4,999 each, 50 of his post-win interview for $499 each, 100 of his interview after his 2012 Wimbledon loss for $99 each, and 500 of a video of 2013 Murray highlights at $49 each. Buyers can even pay in cryptocurrency ether.

Sniffing out the best trainers

© Sotheby’s

In April, a pair of rapper Kanye West’s “Grammy Worn” Nike Air Yeezy 1 Prototypes sold for $1.8m in a private sale with Sotheby’s. That was almost three times the previous record for the most expensive pair of trainers, set last year when a pair of Michael Jordan’s first-ever Air Jordan 1s, from 1985, sold for $560,000 with Christie’s. Sherlina Nyame, the biggest “influencer for sneakers” on the internet, is paid up to £10,000 a post on social media by brands Nike, Puma and Adidas, according to The Times. She has already made £100,000 so far this year, and if she were to sell her collection of 500 pairs of trainers, the 31-year-old says she could raise the deposit on a four-bedroom house in London. 

The Air Jordan 1 High “Black/Red” trainers from 1984 were a Nike salesman’s sample used to sell the design, worn by Michael Jordan the following year, and were up for auction this week. Given how much those later pairs sell for, “it’s hard to imagine there was ever a time when a retailer would have had to be convinced to carry Nike’s Air Jordans”, says Christie’s. The trainers are in a “lightly worn condition”, suggesting they were tried on by employees and customers in the mid-1980s. Any who did slip them on but didn’t buy will be wishing they had. The pair were expected to sell for at least $22,000. Another early development sample pair in the sale was valued at up to $160,000. Meanwhile, eBay has hired a team of trainer-sniffers in London for shoes sold for over £150. They can establish whether a cheap glue has been used, a sure sign of a fake pair. As Grace Gausden notes on This Is Money, with the market in trainers worth $6bn globally forgeries “can be problematic for collectors who treat sneakers as an investment piece”.

Auctions

Going…

© Sotheby’s

In a further sign of cryptocurrencies’ entry into the mainstream, Sotheby’s has said it will accept bitcoin or ether, not for some abstract piece of digital art, but “for one of the earth’s rarest and greatest treasures”. The 101.38-carat pear-shaped D Flawless diamond (pictured) for sale is the second-largest pear-shaped diamond to appear on the public market. It is expected to fetch over HK$78m (£7.2m) at auction on 9 July in Hong Kong, as part of Sotheby’s inaugural “Luxury Edit” sale series in Asia. Sotheby’s, working with cryptocurrency exchange Coinbase Commerce, notes that it is the first physical object with a valuation of at least $10m to be offered at auction in exchange for cryptocurrency. Although, not surprisingly, Sotheby’s will also happily take boring, old cash. 

Gone…

A 54.03-carat brilliant-cut pear diamond, dubbed the Chrysler Diamond, fetched just over $5m at the Christie’s Magnificent Jewels sale in New York last month. The diamond had belonged to socialite Thelma Chrysler, the daughter of the railroad and car magnate Walter Chrysler. A year after her early death in 1957, jeweller Harry Winston purchased what was then known as The Louis XIV Diamond, and cut the diamond down from 62 carats. Although its exact provenance is unknown, it was thought to have been mined inIndia and may have been brought to France by famed gem merchant Jean-Baptiste Tavernier. Today, the gem sits as the centrepiece of a pendant of 43 brilliant-cut diamonds.

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Shake-up at GSK won’t placate investors

Emma Walmsley (pictured), CEO of GlaxoSmithKline (GSK), has launched “the most radical shake-up” of the group in 20 years, says Hannah Boland in The Daily Telegraph. The plan is to spin off GSK’s consumer-healthcare arm, “which makes toothpaste and... painkillers”, and use the cash raised to boost sales at the core business, dubbed “new GSK”. 

With several drugs about to lose patent protection, the dividend will be cut, with the money saved reinvested in “a hunt for new blockbuster drugs”. Walmsley is under increasing pressure, says Boland in The Sunday Times. Since 2017 she has “slashed” poorly performing drug programmes, revamped management and “pushed the drugmaker back into oncology”. But this has not satisfied investors irked by GSK’s “perennial underperformance”.

Some want new leadership, while the decision of activist fund Elliott Management to take a stake in GSK is another challenge to her authority. Those calling for “radical change” at GSK are likely to be disappointed by this latest “fudge”, says Lex in the Financial Times. Walmsley’s promise that GSK will “coalesce around core pharma” is undermined by the fact that even after the hived-off consumer unit is listed, GSK will retain up to 20% of the new company. 

This in turn “reduces the kitty earmarked for dealmaking and research and development”. While this “vacillating” is “understandable”, as blockbuster drugs “take a long time to come to market”, Walmsley’s plan won’t “quieten those calling for her resignation”.

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Share tips of the week, 2 July

Five to buy

Hipgnosis

Shares

Hipgnosis’s shares have gained just 6% in the year since we first recommended them. But in that time the firm’s market capitalisation has increased from £700m to £1.33bn, thanks to a series of capital-raises to fund song-catalogue acquisitions. The idea is to profit from the income from music royalties. The latest £150m raise of new shares at 121p has been set aside for a catalogue made up of “some of the most influential and successful songs of all time”, which presents “substantial revenue growth opportunities”. Since it listed the firm has built a portfolio of songs worth $2.2bn and has delivered a total net-asset-value return of 40.7%, despite “the most challenging social and economic backdrop of our lives”. The investment trust yields around 4% and “will appeal” to income seekers. 123p 

Lookers

The Daily Telegraph

Car dealership Lookers is facing disruption “on a number of fronts” as carmakers change the way they interact with customers and begin to focus on electric vehicles. “Digital disrupters” are also emerging. But Lookers’s boardroom is stabilising and trading is recovering, with brokers forecasting “big jumps” in profits over the next couple of years. Profits bounced from £4.2m in 2019 to around £10m in 2020 and are expected to increase to £40m in 2021 and £51.8m in 2022. These are big numbers against a market value of £273m. “A few years like that and you will get your money back whatever happens in the longer term.” 70p 

Unilever

The Motley Fool

Consumer goods giant Unilever “is a popular choice for investors wanting income and growth”. The firm’s dividend has increased every year for the last 50 years thanks to popular brands such as Marmite, with the annual increase in the payout averaging around 7% since 2015. The stock has fallen by 5% over the last year, but has outperformed the market over the last five years, and the current weakness presents an opportunity to buy into a dividend-growth stock. Unilever’s current yield of 3.4% “should be a decent entry point for a long-term holding”. 4,273p 

RBG Holdings 

The Mail on Sunday 

Shares in Aim-listed law firm RBG should keep rising. CEO Nicky Foulston is “a great believer in dividends, so payouts should become increasingly generous, even as the business grows”. The firm has become more efficient in recent years and fees are “collected more promptly”, which has increased profits “substantially”. The group took over corporate-finance boutique Convex Capital in 2019. Analysts expect RBG to deliver a 79% increase in turnover to £46m this year. A dividend of 4.75p “has been pencilled in for 2021”. It is expected to rise to 6.6p for 2022. 135p 

Liontrust 

Investors’ Chronicle 

Liontrust Asset Management saw a 69% jump in pre-tax profits to £64.3m after a 30% rise in net inflows in the 12 months to 31 March. Its assets under management nearly doubled to £30.9bn in that period too and are predicted to grow to £42bn by the end of its 2023 financial year. This suggests “a moderation compared with the recent rate of growth”, but “still translates to strong double-digit growth”. The firm is also launching the Liontrust ESG Trust on 5 July. It is a riskier version of the group’s Sustainable Future Global Growth Fund, but “ethically minded investors will happily swallow” it thanks to the team’s strong record. The stock’s valuation remains reasonable. 1,662p 

...and the rest

Investors’ Chronicle 

Despite spending more than its rivals on players, Manchester United “has struggled to bring home the silverware in recent years”. The “already debt-laden” group has borrowed another £60m as the transfer window has opened. Investors should “not put their faith in the team”. Sell (15p). Robotics process-automation software company Blue Prism describes itself as “still under construction”, but its historically low spending record on research and development means it is lagging behind others in the sector. More evidence that the company is able to win and hold onto big clients is necessary. Sell (817p).

Motley Fool

The Restaurant Group was forced to close most of its restaurants last year owing to the pandemic, but sales and profits had been under pressure “for years”. It has lost money in three of the past five years and net debt has soared from £32m to £824m since 2015. A recovery could take years. Avoid (130p).

The Daily Telegraph 

Specialist engineer Pressure Technologies presented “disappointing” numbers in its interim results. But the setback “feels temporary” and the potential for turnaround is “still substantial”. Hold (98p). ITV made its way back into the FTSE 100 this week, a move that highlights how a “cyclical upturn in advertising” could benefit it. Stay tuned and hold (128p). 

The Times 

It looks as though Associated British Foods is “being punished for being a conglomerate”. The company owns Primark, which was hit heavily by the pandemic because it lacks an online presence. But the group also owns household brands such as Twinings tea. Sales in its grocery department were up by 8% in the six months to April 2021. Hold (2,241p).

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An unwelcome return for roaming charges in the EU

When the Brexit transition period ended in January, all the UK’s major mobile-phone networks – EE, O2, Three and Vodafone – promised us that they wouldn’t be reintroducing fees for using our phones in Europe. Roaming charges had been banned within the European Union since 2017, but the UK’s decision to leave the single market meant these restrictions would no longer apply – both for UK users roaming in the EU and vice versa. However, the Brexit trade deal that the UK and EU agreed in December 2020 included a clause for “transparent and reasonable rates for international mobile roaming services”, which held out the possibility that regulatory and competitive pressures would prevent a return to the bad old days of huge phone bills for holidaymakers and business travellers. 

EE breaks ranks

Less than six months later, that looks unlikely. Last week, EE announced that new customers – and existing customers switching to a new contract – who sign up after 7 July will have to pay a roaming fee to use their allowances when travelling in Europe after January 2022. The fee will be £2 per day or £10 for a 30-day pass.

The other networks have yet to make such drastic changes, but they are starting to put limits on heavy users. Networks have always been allowed to apply fair-use caps – eg, to stop customers who lived in countries with more expensive networks from signing up to the cheapest plan they could find in any EU country and using it at home all the time. Three currently has a 20GB monthly cap for using your data allowance in Europe, with a charge of £3 per gigabyte above the limit. From 1 July, this will be cut to 12GB. O2 is introducing a monthly limit of 25GB from 2 August (with an excess charge of £3.50 per gigabyte), bringing it into line with Vodafone, which already had a roaming limit of 25GB (and an excess charge of £3.13 per gigabyte).

The start of a trend

Not many customers will be affected by these data caps for now – the average mobile customer used 3.6GB of data per month in 2019, according to regulator Ofcom – and EE’s fees are still low compared with what we used to pay. The question is whether this is just the start of a trend towards higher charges or tougher limits. Using your mobile abroad costs the networks money: they need to pay the networks you use in the country you visit. Since regulations are no longer forcing them to offer roaming for free, it seems likely that costs will creep up towards whatever the market will bear. 

For now, users who plan to switch to EE or change an existing contract should consider doing so before 7 July, so that they will be on a free-roaming deal for as long as it lasts. Customers of the other networks have no immediate need to act unless they are in the small group affected by the data caps – even if their provider follows EE’s lead and brings in charges, it should not affect existing deals. However, in the medium term it may once again be necessary to consider roaming charges when choosing a provider, or be ready to use a local sim card in a spare phone or a dual-sim phone when travelling in the EU.

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Philippines comes to terms with the end of the Aquino legacy

The public reaction to the death last week of Benigno Aquino, the Philippines’ president from 2010 to 2016, has been one of “limited sympathy”, says Mark Thompson in the South China Morning Post. Signs of mourning and support were mostly confined to wealthier neighbourhoods, in contrast to how the deaths of his parents galvanised the whole country. 

The huge anti-government protests that followed the assassination of Aquino’s father – also called Benigno – in 1983 eventually led to the overthrow of the dictator Ferdinand Marcos and to the election of Aquino’s mother, Corazon, as president from 1986 to 1992. The “national grieving” after her death in 2009 then fuelled his own presidential campaign. But while Aquino remained “personally popular”, his “liberal, reformist agenda” was undermined by a failure to tackle the Philippines’ structural problems. That makes it unlikely that any ally will now be able to take up his mantle and gain enough support to win next year’s presidential election.

A missed opportunity

Aquino’s legacy is clearly disappointing, says Richard Heydarian in Nikkei Asia. His administration “oversaw an unprecedented period of economic stability” during his time in office. Yet the benefits of this rapid growth “remained woefully concentrated, with the country’s richest 40 families gobbling up three-fourths of the newly created wealth”.

Anti-corruption initiatives were unprecedented in size, but were “deeply lopsided, primarily targeting opposition members and past administration holdovers” and skipping “loyalists and opportunists” in his ruling coalition. Aquino also failed to identify “clear industrial and trade policies to boost inclusive development”, while public infrastructure development proceeded at a “scandalously slow pace”. All this created the conditions for a “populist revolt” in 2016, in which Rodrigo Duterte won the presidency in a landslide by presenting the election as a “protest vote against the deficiencies of Aquino’s administration”.

The country deserves better

Duterte is constitutionally blocked from running again when his term ends next May, says Clara Ferreira Marques on Bloomberg. Yet his approval ratings remain high despite a severe recession, “a poorly handled pandemic” and “an unimpressive vaccine roll-out”, so he is well-placed to orchestrate what happens next. Most likely he will back his daughter, Sara Duterte-Carpio, as president and maybe run for vice-president himself. Dynasties are common in the Philippines, but this would stretch the norms. And given Duterte’s poor record on issues from infrastructure and inequality, there’s little reason to think that it would help “nurse what was once one of [Southeast Asia’s] fastest-growing economies back to health”.

from Moneyweek RSS Feed https://moneyweek.com/investments/stockmarkets/emerging-markets/603489/philippines-comes-to-terms-with-the-end-of-the
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Is it time to go back to the office?

Should you go back to the office, or lobby to keep working from home indefinitely? Part of the answer might lie in the productivity levels of classical composers. In a 2011 academic paper, Karol Jan Borowiecki of Trinity College Dublin looked at how much they produced when they worked alone compared to how much they produced when they lived in a geographic cluster. 

The answer should, I think, have you planning your return to your own cluster as quickly as possible. Prominent classical composers born between 1750 and 1899 were approximately 33% more productive when in a cluster: they created on average one more work every three years than they might have otherwise, with those who migrated to be in the cluster being the greatest beneficiaries of it. The more intense the cluster, the greater the impact on overall output.

This makes intuitive sense of course. The closer composers were geographically the more likely they would have been to be able to listen to their competitors’ music, get ideas from it and put the effort in to make “not good, but better” works than the others.

Office working is underrated

You can’t extrapolate this finding to today’s office without obvious caveats (information exchange between a group of, say, modern accountants is a tad easier than it was between 18th century composers). But nonetheless, the idea that sparks are created as a result of overheard conversations, chance exchanges and unintended collaborations in modern offices is just as intuitive as the idea that competitive musicians make better music.

It also seems reasonable to note that younger staff need to build networks and have mentors (as well as people to put their “stupid” questions to without being recorded on Zoom); that not everyone has a suitable place to work from home; and that it’s better to work in an office than to end up sleeping in one (work/life boundaries matter). 

There is an idea that you can – and should – mix homeworking and office working. That sounds very attractive. But if it becomes clear that the more productive workers are the ones clustering gossiping and drinking tea in the office full time, it might soon look less attractive.

Remote technology works., but presenteeism has something very big going for it too. There’s a reason JPMorgan, Goldman Sachs and Morgan Stanley have already asked all New York staff back to their desks. There is a reason why 65% of workers say they plan to return to the office this month. And there is a reason there has been a sharp rise in interest in London property since the turn of the year. 

A few months ago Max King looked at commercial property trusts. In a world where almost everything is risky (because almost everything is expensive) they may well be worth another look, particularly if inflation really is returning (see my interview with Andy Haldane). If that is not exciting enough for you, Jonathan Compton looks at emerging markets, David Stevenson offers something properly risky – an investment trust that might take you to space. Finally, if you are the secretary of state for health or the chancellor, Matthew Lynn offers a workable plan for a living-with-the-virus economy. It is time to change the Covid-19 mood music.

from Moneyweek RSS Feed https://moneyweek.com/economy/uk-economy/603494/is-it-time-to-go-back-to-the-office
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USDJPY: Bulls Remain Dominant

USDJPY, Daily

USDJPY hit a new 15-month high at 111.62 yesterday (July 1), its highest level since March 2020, after a consistent bullish rally since early May 2021. USDJPY also posted a lot of gains in the last week of June. Although current market sentiment is somewhat gloomy and a bit ‘risk-off’ following investors’ concerns in the case of the rapidly rising Covid variant Delta around the world and the strengthening of the JPY as a safe-haven currency, it still failed to help the bears in pushing the USDJPY down again. The strengthening of the USDJPY is largely supported by the strengthening of the US Dollar where the USDIndex recorded its best performance in June and is currently at its highest level since March 2021.

The change in tone by the US Federal Reserve (FED) in their FOMC policy meeting clearly supported the increase in treasury yields, thus contributing to the rise of the USDJPY (USDJPY is a currency pair that moves in line with treasury yields). The FED is seen to be getting hawkish after projecting two rate hikes in 2023. Comments by Dallas FED President Robert Kaplan (Hawkish and voter), who said high inflation will last until next year and he wants the FED to taper earlier, are clearly supporting the Bull sentiment in the USDJPY movement.

USDJPY is currently trading around 111.50, down slightly from Thursday’s high of 111.62. The nearest resistance is now at 111.70, followed by the 112.22 level, and the nearest support is now at 111.10. While the movement of MA-50 and MA-200 H1 shows an upward movement, the RSI-14 is currently in the overbought zone, and the price movement has yet to indicate any possible retracement.

Investors are also seen optimistic in June NFP data ahead of the release of the NFP monthly report later today (Friday). This Labor sector report will be the next determinant of the USDJPY’s direction in the short term.

Click here to access our Economic Calendar

Tunku Ishak Al-Irsyad

Market Analyst

HF Educational Office – Malaysia

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Investment Bank Outlook 02-07-2021

RBC Capital MarketsDay ahead: Apart from the focus on the OPEC+ deliberations, US payrolls dominate the calendar ahead of the long weekend in the US (see USD). Other releases include trade balance, factory orders, durable goods (final) in the US, the unemployment rate in NO, and the goods trade balance, building permits, and Markit mfg. PMI in CA (see CAD).There are central bank speakers from the ECB (de Cos at 08:00 BST & Lagarde at 13:30 BST), while the CNB publishes the minutes of the June meeting (08:00 BST). At this meeting, the CNB had hiked rates by 25bps in a split decision (with one of the members calling for an even larger hike) and Governor Rusnok had stated that “it’s possible” that rates will be hiked at every meeting this year.USD: As it relates to this June payroll report, our economists maintain that the right thing to do is to go in with low expectations for the many technical reasons they have been highlighting over the last couple of months (seasonal adjustment and sample issues). The US economy has an enormous amount of momentum at the moment—it’s just not showing up in the NFP report. As a result, our economists recognize that there will be a month where NFP surprises us all to the upside.Indeed, there are a few subcategories of employment that are truly ripe for a surge. Whenever that upside surprise does finally occur, all that it will reveal is that the payroll report finally caught up with the reality we all knew about the backdrop, i.e., the economy is absolutely humming. Having said that, RBC expects another below median consensus number (570k for headline, 490k for private; please see here for more details from our economists). From an FX perspective, it is important to highlight that there is a wide range of estimates around the median consensus going into today’s release (when comparing to the pre-pandemic period), which raises the bar for a significant FX market reaction.CitiThe USD continues to enjoy its walk towards the NFP print, and the long weekend for the US. EURUSD is back at an important support range while USDCNH has been marching higher. Risk reduction was the key theme overnight, resulting in net USD buying on our eTrading platforms. Today’s NFP print presents two way risks, but recent positioning suggests it’s going to be a choppy event.Chinese equities traded weaker overnight, after the Communist Party’s 100th anniversary celebrations yesterday and after the PBoC drained a net CNY20bn via monetary tools overnight. COP saw a credit rating downgrade to high yield from Fitch, as expected. The European session should be dominated by pre-NFP positioning, with just ECB Lagarde featuring again.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-02-07-2021"
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Jim Mellon: What I'm buying now – UK stocks, agtech and commodities

Jim Mellon tells Merryn which UK stocks he likes (and which ones he doesn't), why the future of meat is lab-grown, and why you should definitely have some oil in your portfolio.

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