Alpha Portfolio Service Brochure
Blue Planet II is a reminder (if we needed one) of how precious our oceans are. It is captivating viewing, but a reminder that water is a precious commodity and that we need a greater global commitment on pollution – notably plastics.
In the UK, every person uses approximately 150 litres of water a day. If you take into account the water that is needed to produce the food and products you consume or use in your day-to-day life, known as embedded water, we actually consume a staggering 3,400 litres – per day.
Worldwide, agriculture accounts for approximately 70% of all water consumption. This compares with 20% for industry and 10% for domestic use. In developed nations, however, industries consume more than half of the water available for human use. Security of water supply is critical for industry, whether crop production or manufacturing, given that it can result in lost production and disrupt supply chains.
It is not surprising that, across the World, water security is rapidly moving up the agenda. Severe droughts have caused billions of dollars of damage in Southern Europe and California this year, while South Africa is suffering its worst water shortage in more than a century.
CDP, formerly known as the Carbon Disclosure Project, an environmental impact charity, estimates that global firms are investing record amounts in water-related projects – including reclaiming waste water or improving irrigation to cope with droughts. CDP estimates capital spending on water security projects by global businesses was about $23.4bn last year. However, even this amount could be a ‘drop in the ocean’. The United Nations estimates that $6.4trillion globally will need to be spent on water-related projects by 2036.
Given its increasing scarcity and global population growth, could water become the new gold?
What have we been watching?
Global equity markets edged back following softer economic growth data from China which in turn drove commodities down. This came after an unusually long period without any correction, which has seen measures of volatility stay close to historic lows. Over the weekend, the collapse of the German coalition talks, which could prompt a new round of elections, added to the general air of uncertainty. Thanksgiving in the US on Thursday suggests a quieter week.
This week, UK investors will be focusing on the November Autumn Budget on Wednesday. Expect to see a lot about housebuilding but will we see an end to austerity? Globally, investors will be focusing on progress on US tax reform which is a small step closer to resolution. The House’s version of the tax bill was passed, while the Senate’s plan is expected to begin its mark-up process with an expectation for a full Senate vote after Thanksgiving. While it looks as if there is a decent chance that some version of tax reform can be achieved, this may well slip into the first quarter of 2018 and there are sure to be stumbling blocks along the way.
Brexit Secretary David Davis was asked by the Head of Business Europe on whether he thought a breakthrough for Brexit talks can be achieved by December. Davis was said to have noted ‘there was a 50/50 chance of getting a deal’. A spokesman subsequently denied he had said this. David Davis then presented to the City and noted he wanted banking employees to retain their ability to transfer between offices in the UK and EU after Brexit and predicted he will achieve an agreement on a post 2019 transition period ‘very early next year’. Meanwhile, PM Theresa May has bowed to pressure from pro-European Conservatives by offering a full vote on a final divorce deal with the EU, the latest sign of how political turmoil within her government is taking a toll on her Brexit plans. The Irish government has said Brexit trade deal talks should not proceed until there is firm commitment to preventing a ‘hard’ Irish border. However, over the weekend there appeared to be more signs that the UK government may be willing to concede an improved settlement offer to kick start Brexit talks.
UK CPI inflation remained steady at 3% in October, having been expected to rise with the Bank of England(BoE) forecasting it would peak at 3.2%. Factory gate price inflation edged down to 2.8% from 3.3%. The BoE is now expecting it to dip back towards 2.5%, by mid-2018. While inflation may have peaked, the BoE is likely to continue to focus on wage growth. BoE governor Mark Carney reiterated that interest rates would probably rise a ‘couple of times over the next few years’ suggesting we might see two more 0.25% hikes to 1% by the end of 2019.
In Europe, third quarter economic data confirmed that growth momentum is intact with growth of +0.6% or +2.5% on an annualised basis. The main driver was the German economy which, grew more strongly than expected boosted by strong exports. However, talks to form the next coalition German government failed over the weekend after a 12-hour negotiation session with the pro-market FDP walking out of talks due to differences with the Green party with the FDP leader saying ‘its better not to govern than to govern badly’. If no compromise is eventually found, Germany may enter uncharted territory with either a minority led government or even a new election.
In the USA, the producer price index was up 0.4% in October taking the annual rate to 2.8%. Core CPI inflation surprised modestly to the upside in October taking the annualised rate to 1.8%. US interest rate futures currently have an 88% probability of a 0.25% hike by the Fed at its next meeting on 13th December. Three interest rate hikes in 2018 are still looking likely.
Japan’s economy extended its run of positive economic growth to seven consecutive quarters with growth of 1.4% in the third quarter.
In China, tighter credit conditions are continuing to slow momentum in the domestic economy. October activity data showed fixed asset investment, industrial output and retail sales all slowing albeit from growth rates that many other countries would be envious of. The data echoes the Chinese authorities’ determination to tackle the problem of excessive debt and infrastructure spending may soften towards the end of the year as local governments have to meet budget targets. Last week, the central government ordered a small city in Inner Mongolia to halt construction of a $4.6bn debt-funded subway project, signalling Beijing’s willingness to sacrifice growth to rein in financial risks. China has also imposed tighter regulatory controls on asset management firms.
Brent oil edged back under $62 on the softer Chinese economic data, as well as higher than expected US oil inventories and news of a lack of enthusiasm from Russian oil producers for a further extension to oil production cuts. However, Saudi Arabia is still supportive of an extension of production quotas. Meanwhile, Norway’s $1trillion sovereign wealth fund is to sell all of its quoted oil companies, including BP, Royal Dutch Shell, Chevron and ExxonMobil which make up about 6% of its assets. This is to reduce its exposure to the oil price cycle given the government’s controlling stake in Statoil, the national oil company.
Finally, it looks as if Chinese consumers are no different from UK consumers in that they love an internet bargain. The world’s biggest shopping event on 11th November, ‘Singles Day’ in China is reported to have seen sales jump 39% to $25.3bn! The UK, Black Friday internet sales event is 23rd November. Last year, saw a 12% increase in UK online spending over the day to £1.23bn. Is this a reminder that compared to China, perhaps we are just ‘a drop in the ocean’.
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