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US scientists have stated that July was the Earth’s hottest ever month.
The combined land and ocean-surface temperature was 0.9C above the 20th Century average of 15.8C – yet more evidence of global warming? We are due the next UN Climate Change Conference (COP26) in Glasgow in November. Members have plenty to ponder but what can be done?
While the focus has been on curbing carbon dioxide emissions, scientists are now arguing that the world can buy extra time by tackling methane emissions. The recent UN IPCC report estimates that between 30%-50% of the current rise in temperatures is actually down to methane. Over a twenty-year period, methane has been around 84 times as warming as CO2. By cutting methane emissions by 40% over the next decade, about 0.3C could be shaved off global temperature by 2040.
Whilst around 40% of methane comes from natural sources such as wetlands, cattle are responsible for a huge amount of greenhouse-gas emission. According to the United Nations, globally the livestock sector produces the equivalent levels of CO2 every year as cars. Almost 40% of methane is produced by fermentation in stomachs – mainly those of cows.
While reducing carbon dioxide needs to be the long-term focus, it will take years to see the effects of this, as carbon dioxide persists in the atmosphere for centuries. However, the effect of slowing down or reducing methane will be felt in a decade or so, and tackling livestock appears a good place to start.
We need to cut carbon dioxide emissions, but reducing methane would be a big help.
What have we been watching?
Ongoing global recovery concerns continued to overhang markets. In addition, there was profit-taking in risk assets following the release of the latest minutes of the meeting of the US Federal Reserve (Fed). This confirmed a building consensus across Fed committee members that the tapering of stimulus measures should commence before the end of this year. Concerns about slowing global economic growth, Fed tapering and increased Chinese regulation has hit commodities particularly hard with copper at a four-month low and iron ore down by 18% so far this year.
Investors were concerned by the latest comments from the Chinese government. The re-distribution of wealth or rather ‘common prosperity’ are the latest thoughts to emerge from President Xi Jinping. This news adversely impacted a number of luxury goods companies. This is in addition to the passing into law of a new set of rules for the Chinese technology sector. The Hong Kong Hang Seng index is now in ‘bear market’ territory following a 20% fall since February while the Hang Seng technology index is down by a staggering 45%! Meanwhile, the Chinese government has bailed out troubled Huarong Asset Management accepting the firm is too big to let fail.
Although vaccines are continuing to significantly reduce hospitalisations and deaths, some doubt has been cast over the lasting efficacy of Covid-19 vaccines after an increase in ‘breakthrough infections’ amongst the fully vaccinated. An Oxford University study indicates that infected people carry the same viral load even if they have been fully vaccinated. Meanwhile, the Delta variant has continued to spread globally.
Questions have also been raised over the effectiveness of China’s domestic vaccines. Chinese researchers have studied blood samples from adults aged 18-59 who have had two jabs either two or four weeks apart. Only 17% and 35% respectively still had neutralising anti-bodies. In the meantime, China has continued to follow its ‘zero tolerance Covid-19’ policy and claims it has indeed hit zero Covid-19 cases. This follows draconian measures including the testing of over 100million people and strict quarantines with parts of Beijing sealed off at one stage. This has not been without cost to the Chinese economy or global supply chains. The US also appears to be facing a challenge from the Delta variant but in those parts of the country with low vaccination rates. Meanwhile, Japan has extended its Covid-19 state of emergency as it battles a record wave of new cases ahead of the Paralympic Games.
Investors are concerned that lockdown measures could further disrupt global supply chains and economic recovery. China’s zero tolerance Covid-19 policy has led to the closure of the Ningbo -the country’s second largest port which has seen the number of container ships queuing outside jump in a week from 22 to 50 vessels. Meanwhile, Toyota, the world’s biggest car maker announced it is to cut car production by 40% in September because of the global microchip shortage. On the other hand, if Covid-19 impacts economic growth, will central bankers remain supportive for longer? For example, New Zealand’s central bank had been expected to raise interest rates but deferred the decision after another national lockdown due to just seven cases.
In the UK, the jobs market is recovering much more quickly than economic forecasters had expected as job vacancies hit a record 953,000 in the three months to July, while average pay rose by 7.4% excluding bonuses. Most promisingly, some of those hardest hit by lockdown – younger workers , are now finding jobs. Meanwhile, inflation returned to the Bank of England’s 2% target in July although the market treated the figure cautiously as unusual seasonal pricing in clothing and footwear masked underlying trends. The headline rate of inflation is expected to move higher again in the next few months. UK retail sales fell in July with food and petrol sales lower albeit not helped by what could be the wettest summer on record! More importantly, household saving remains at an inflated level and supportive of consumer spending.
In Europe, the headline inflation rate for July was confirmed at 2.2%, above the European Central Bank’s (ECB) target, a three-year high. Headline inflation is forecast to reach 3% by the end of this year, albeit the ECB still believes that this is largely due to transitory factors such as higher energy prices.
In the US, retail sales slipped by 1.1% in July with the shortage of new cars weighing on total volumes. In contrast, industrial production increased as output picked up at American car plants. The minutes of the latest US Fed meeting confirmed a building consensus across committee members that the tapering process should commence before the end of this year. However, the minutes also highlighted areas of disagreement among members on the exact timing of tapering stimulus and also whether asset purchases remain the most effective tool for sustaining the US economic recovery.
The Chinese government passed into law new regulation for the technology sector. The rules, which have been set by the State Administration for Market Regulation include provisions that internet operators ‘must not implement or assist’ unfair competition online or ‘disrupt the order of market competition’. Chinese tech giants Alibaba and TenCent dropped on the announcement. Meanwhile, Chinese electric car maker BYD’s plan to sell shares in its computer chip making unit has been suspended due to a regulatory investigation into the law firm advising the company.
Brent oil slipped to $66. Investors remain worried about the outlook for fuel demand as Covid-19 cases surge worldwide just as more oil supply reaches the market from the large producers. Meanwhile, China’s zero tolerance Covid-19 policy has seen the suspension of some public transport and flights which has started to dent fuel demand.
Finally, while considering the end of the world. The odds of a hazardous asteroid hitting the Earth are higher than previously thought. NASA estimates that the odds of Asteroid Bennu, one of the two most hazardous asteroids in the solar system, hitting Earth in the next 200 years, has risen from one in 2,700 to one in 1,750. Remind me not to watch ‘Deep Impact.’
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