‘Douze points’ or ‘Doze points’?


Nigel Farage and Boris Johnson could both be up in arms again, with yet another example of the Eurozone’s porous border ahead of the EU referendum on 23rd June. So, what is the latest scandal?

Well, this forthcoming weekend see’s the 2016 Eurovision contest in Sweden. We have just discovered that Australia is entering a song for the contest! In fact, we understand that Australia not only entered Eurovision in 2015 as well, but came fifth.

Australia in Eurovision? The fact Australia is on the other side of the world, suggests this is either a scathing indictment of today’s education system, or that somebody within the Eurovision admissions department miss-typed Austria.

Actually, the Eurovision has been televised in Australia for over thirty years. In 2015, to mark the 60th Eurovision anniversary and in recognition of the event’s popularity in Australia, the country was invited to compete as a special guest participant.

However, the biggest change to Eurovision this year is the voting. This has been introduced, presumably, given the voting patterns of former soviet bloc countries and nationalistic issues apparent in previous competitions. The new system should ensure greater transparency and make it more exciting. We won’t attempt to explain ‘douze points’ or should that be ‘doze points’?

By the way, don’t tell Nigel Farage or Boris Johnson that you can now get into Europe by watching the Eurovision Song Contest!

What have we been watching?

‘Sell in May and go away’. Will the UK market conform to this traditional view? UK economic data doesn’t look great with Brexit uncertainty but over 66% of the FTSE earnings comes from outside the UK so weak Sterling is generally good news for these companies. Furthermore, the trouble is that these days, with 24/7 internet news access, where do you actually go to get away from it all?

Whether it was May or fundamentals, it was back to risk-off mode last week. Concerns about sluggish global growth once more retuned to the fore which, was reflected in currency markets given the divergence of central bank policy. Currency volatility has been a major theme of 2016 and there were some sharp and wild moves across key currencies. The Euro touched an eighteen month high against the US Dollar as did the Japanese Yen. The US Dollar trade index dropped to a fifteen month low, while there was significant weakness in the currencies of Turkey, Brazil, Mexico and South Africa. This appeared to be triggered by growing doubts about the growth of the US economy.

Following last week’s US jobs numbers, market expectations for the next interest rate hike have drifted out to one quarter point move by the end of 2016, compared to the two quarter point hikes implied by the US Fed’s ‘dot plots’ tracking . The strength of the Euro and Yen relative to the US Dollar is likely to create a headache for central policy makers as it offsets some of the benefits of monetary stimulus already undertaken in Europe and Japan.

Commodities were also under pressure with oil, copper and iron ore all sliding following weaker than expected manufacturing and trade data from China

British Flag
UK manufacturing output fell into contraction territory in April for the first time in three years, with Brexit uncertainty the main reason. This is unlikely to improve through the remainder of Q2. The construction sector appears to be echoing the slowdown elsewhere in the economy as activity during April dropped to a three year low. Activity in the services sector also grew at its slowest pace in three years due to uncertainty over the EU referendum. Even the food retailers are suffering again with all of the big four supermarkets seeing sales dip in April according to market research data. At the same time, discounters Aldi and Lidl increased their market share from 9.2% to 10.4%. However, new car sales increased in April by 2%, compared to the same time last year as consumers continued to take advantage of cheap finance deals.

Europe
In Europe, the European Commission cut its own forecasts for Eurozone GDP growth in 2016 to +1.6% with inflation of just 0.2%. Spain finally gave up on its attempt to form a government and called a new General Election for June 26th. There was tear gas, once again, on the streets of Athens as EU/Greece bail-out condition talks re-commenced.

USA Flag
In the USA the main focus was the Presidential Election race. After Donald Trump secured the Indiana primary, his rival Ted Cruz announced his withdraw from the Republican race which virtually confirms Trump as the Republican nominee. Sanders defeated Hilary Clinton in the Indiana primary for the Democratic race, but it looks unlikely to stop Clinton facing off against Trump in the Presidential Election. The US Dollar initially weakened on slightly softer jobs data before recovering as hourly wage momentum improved.

China Flag
In China, April’s trade data showed exports down 1.8% compared to last year with imports down by almost 11%. Both figures were weaker than expected and another sign of sluggish global demand. Chinese equities moved lower on this data, but also on concerns that the regulator might take further measures to crack down on certain types of share speculation and trading.

Oil Drum
Brent oil drifted back to around $44.5 but received support following the wildfires in Canada, after at least 20% of the region’s 2.4million barrels a day of oil production was halted for safety reasons. Politics looks set to take a bigger role in Saudi Arabia’s oil policy after it was announced the country’s octogenarian oil minister had been replaced by someone closer to deputy crown prince Mohammed bin Salman.

Finally, more parents are supporting their children by either buying a property for them to live in while at university, or by contributing towards a deposit to help them get a first step on the property ladder. L&G estimates that the ‘bank of Mum and Dad’ will help finance 25% of all UK mortgages this year with an average amount of £17,500. Subsequently, Barclays has launched a 100% mortgage which, have not been seen since the last financial crisis. However, it is only available if the ‘bank of Mum and Dad’ put 10% of the loaned sum into a Barclays savings account.

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