Image by Ravi Subramanyan

July 2021

INVESTMENT MARKET UPDATE

The investment market still looks to be in pretty good shape.

We hope, as ever, you find our updates useful and informative. Our thanks to our partners at Charles Stanley for their help in pulling the content together.

Last week the pan-European Stoxx 600 index hit a record high, but equities weakened over the week as concerns over inflation and the spread of the Delta variant of the Covid-19 virus remained somewhat of a drag on sentiment. Let’s look at a few more things in detail.

Image by Daniel Schludi

THE IMPACT OF CORONAVIRUS

The 19th of July saw Freedom Day arrive when the UK lifted most of the restrictions that were introduced to stop the spread of the Covid-19 virus following the rapid rollout of its vaccination programme. However not everyone is going all in. Although the legal mandate to wear a mask will be dropped, some retailers such as J Sainsbury, Tesco and Waterstones will “encourage” people to wear a face-covering on their premises. Investment bank Goldman Sachs will also require mask-wearing in its offices.

Elsewhere a group of major travel businesses including Ryanair, IAG-owned British Airways, travel business Tui and Manchester Airports Group has launched legal action against the government over its travel restrictions. They are asking for significantly more transparency over how the government takes decisions on Covid-19 travel rules. In particular, they want to know how the government assesses the threat in destination countries. Airline shares were hit once more last week after the UK government announced that the Balearic Islands of Majorca, Menorca and Ibiza would be added back onto its “amber list” of travel destinations.

Image by Scott Evans

ECONOMICS

The UK inflation rate hit 2.5% in the year to June, the highest level for nearly three years. The Consumer Prices Index measure of inflation rose from 2.1% in May, driven, in the main, by higher food and fuel costs. The rate is higher than the Bank of England’s 2% inflation target for a second consecutive month. Whilst a dip is forecast in July, inflation is expected to move higher later this year. However, all that being said, any rise is expected to be temporary due to a stronger pound and a large amount of spare capacity in the economy. Central banks are currently talking a lot about climate change – but the thing they worry about the most is inflation.

The UK unemployment rate thankfully dropped in the latest quarter as the easing of pandemic-related restrictions continued to feed a gradual economic recovery. Between March and May, it fell 0.2 percentage points to 4.8%, while the employment rate was up 0.1 percentage point at 74.8%.

Image by Jorge Alcala

GEOPOLITICS

The US tightened the screws on companies doing business in China’s Xinjiang province. American firms that still have supply chain and investment ties in the region were told they could run a significantly high risk of violating US law. The Chinese “government is perpetrating genocide and crimes against humanity in Xinjiang,” US Secretary of State Antony Blinken said.

Elsewhere, US President Joe Biden issued a significant Executive Order on 9 July, pledging to strengthen market competition to lower prices, increase choice, raise low wages and break cartels.

Image by Matthew Smith

ESG

The European Commission recently unveiled a broad set of proposals aimed at driving the European Union (EU) to its targeted ambition to cut emissions by 55% by 2030, when compared to 1990 levels. The proposals encompass policies across energy, land use, transport and taxation.

The 2030 target was initially proposed in September 2020 by European Commission President Ursula von der Leyen, raising the EU target from 40%.

Image by Dominik Vanyi

MINING AND
COMMODOTIES

Oil prices slipped last week as investors braced for increased supplies after a compromise deal between leading OPEC producers. US fuel reserves also rose, raising concerns over demand in the world’s largest consumer.

The price of copper and other metals eased after China declared it will keep its economic operations within a reasonable range over the next 18 months and take “comprehensive measures” to ease rising commodity prices. Giving an outlook for the second half of 2021 and next year at a meeting with economic experts and entrepreneurs on Monday, Premier Li Keqiang said China would maintain continuity and stability in its macro policies and would not resort to flood-like stimulus measures.

Image by Alexandre Debiève

TECHNOLOGY

G20 finance ministers recently backed an “historic” plan that will see multinational companies pay their “fair share” of tax around the world. The agreement is a result of controversial tax practices at technology companies such as Amazon and Facebook, which shift profits to low tax jurisdictions. The plan to battle tax avoidance puts in place a minimum global corporate tax rate of 15% and 132 countries have signed up to the framework so far.

Banking and payments app Revolut became the most valuable British fintech firm on record after a fresh funding round pushed its valuation to $33bn. The company, founded by the former Lehman Brothers trader Nik Storonsky in 2015, raised $800m from new investors Tiger Global Management and the major Japanese investment group SoftBank, which now hold a near 5% stake in the business. It means the London-headquartered company is worth $33bn, six times higher than last year, when it was valued at $5.5bn. Losses almost doubled last year to £207,875.