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New York City has filed a lawsuit against five major oil companies – BP, Chevron, ConocoPhillips, Exxon Mobil and Royal Dutch Shell – to recoup money spent on protecting the City from the effect of climate change. The suit requests a judgement to determine, the current and future costs incurred by the city and what portion the companies should pay for. Mayor, Bill de Blasio said climate change was a ‘horrible tragedy, that was wrought by the fossil-fuel companies’.
Have many companies been too slow to catch up with a world of ‘greener’ consumers? As we have previously flagged, the BBC series Blue Planet II highlighted the problem of oil based plastic, in the world’s oceans. PM Theresa May appears to have ‘jumped on the bandwagon’, with a 25- year plan to protect the environment, by eliminating avoidable plastic waste. The successful 5p plastic carrier bag levy, is now planning to be rolled out to smaller retailers. Last week, UK supermarket group Iceland, announced it intends to remove plastic packaging from all of its own-label products, by 2023.
Could investors stop investing in fossil fuel and plastic packaging businesses, following a similar trend to tobacco? Interestingly, besides filing a lawsuit, the New York City Pension fund intends to divest some $5bn of fossil fuel investments. Norway’s central bank, recommended its sovereign wealth fund, should divest its own $35bn of oil company investments. However, as Norway has sizeable oil producing assets, this could be more about risk diversification.
Nonetheless, a wind of change looks afoot, when it comes to fossil fuel and plastic.
What have we been watching?
Last week, saw ‘Blue Monday’ – supposedly the most depressing day of the year, and the day on which Carillion, one of the Government’s biggest contractors went into liquidation. Besides its 20,000 employees, an estimated 30,000 small suppliers and creditors of Carillion have been put at risk. Both mainstream political parties are probably equally to blame as the Conservatives came up with the PFI concept originally, but a third -of today’s PFI schemes were allocated under Tony Blair and Gordon Brown. However, coming on the back of the Grenfell Tower disaster and an NHS flu crisis it might continue to make PM Theresa May look accident prone as it happened on ‘her watch’.
While UK equities were restrained by a recovery in Sterling to $1.39, global sentiment was supported by re-assuring economic data from China, but countered by news of a US government shutdown. A global survey of investors also revealed that their allocation to equities had climbed to a two-year high, while money invested in bonds had fallen to a four-year low.
The main highlight last week was the continued weakness in the US Dollar which hit a fresh three- year low against the Euro with news of a US government shutdown. In addition, while the US Fed has started to increase interest rates, with global growth strengthening, other central banks could begin removing former stimulus measures. One of the members of the ECB said ‘it would certainly be conceivable and appropriate to end the QE purchases after September’. Another member noted market expectations that the ECB will not raise interest rates before the middle of 2019. The Euro was also helped by favourable political developments in Germany. Meanwhile, bond investors are watching US inflation closely where the concern is that it proves to be higher than expected given US economic growth and tax cuts. Bond investors are also uneasy about the Bank of Japan which the previous week slowed the pace of its asset purchases. A report suggested that the net debt of developed nations is expected to rise this year. ECB purchases of eurozone sovereign debt is forecast to drop from $622bn to $221bn, while the US Fed is expected to raise a net $828bn after the effects of QE scale-back are taken into account, up from $357bn in 2017. The increase in supply of government debt could add to the upward pressure on bond yields should global growth and inflation pick-up. Dollar weakness, together with higher energy prices must be starting to cause a headache for some central bankers.
Turning to Brexit, a press report suggested that EU states have drawn up revised directives that will toughen its conditions on the UK’s post Brexit transition deal. This includes restricting the UK’s ability to apply a new immigration system before 2021, preventing the UK from entering into agreements with non-EU countries without authorisation from the EU and ensuring there would be no change to fishing rights in UK waters.
In the UK, one of the Bank of England committee members said that the UK economy will potentially have two more rate hikes over the next three years. Inflation dropped slightly in December to 3% having hit 3.1% in November. The Office for National Statistics reported retail sales in December fell by 1.5% in November, but may reflect UK shoppers taking advantage of Black Friday discounts.
In Europe, Germany took a big step towards forming a new government when the Social Democratic Party voted in favour of formal coalition talks that could give Angela Merkel a fourth term in office and break a four-month deadlock.
In the USA, the Fed ‘Beige Book’ which measures business confidence across the country painted an upbeat picture, with eleven regions reporting ‘modest to moderate gains in activity’. Apple announced it will repatriate some of its offshore cash reserves and plans to invest $30bn in the USA over the next five years in a promising sign for President Trump’s policy, ‘America First‘. However, a member of the Fed warned that the longer-term risks from US tax cuts may be that the economy could actually overheat, pushing up inflation and that this might require the central bank to step on the brakes a bit harder. The US suffered its fourth shutdown in 25 years. Both Republicans and Democrats have expressed willingness to thrash out a deal to resolve it, but continue to squabble over which of them is to blame for the shutdown.
China’s economy grew by 6.9% in 2017 according to official data. This was better than expected although some remain sceptical of ‘official data’. However, the Chinese authorities plans to improve air quality and address excessive risk-taking is expected to slow growth in 2018. President Xi Jinping has called for a ‘new era’ in which local governments will be forced to abandon their traditional bias to rapid growth and pay more attention to financial risks and environmental protection.
Finally, an interesting fact about Bitcoin. The most downloaded app from the US Apple store in 2017 was Coinbase, an app where users can buy and sell Bitcoin. This platform now has more accounts than the second largest US stockbroker, Charles Schwab. Last week, Bitcoin dropped 23% in one -day on news that South Korea and possibly China were considering a ban on trading. This was down 50% from its December peak.
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