February Market Commentary

The great thing about writing this bulletin is that you make a note of something which looks hugely significant around the middle of the month and then something else comes along which makes it pale into insignificance. In this case the ‘hugely significant’ event was the fall in UK inflation – what came along was the Greek election result and victory for Syriza, the far-left coalition under Alexis Tsipras.

In truth the result of the Greek election was never in doubt from the moment it was called, with Syriza promising to ‘restore the dignity’ of the Greek people and reverse the last five years of austerity. They won 36.3% of the popular vote and 149 seats in the Greek parliament – two short of an outright majority. However it took less than an hour for them to agree a coalition with the far-right ‘Independent Greeks’ party, ANEL, who won 13 seats with 4.75% of the vote. Like Syriza, ANEL campaigned on ending the austerity imposed on Greece by the ‘Troika’ (the European Union, European Central Bank and International Monetary Fund).

Syriza’s victory – and their immediate demand for a reduction and/or re-negotiation of Greek debts – was not met with universal joy throughout Europe, with German newspaper Bild suggesting that any debt write off was out of the question and ‘an agreement was an agreement.’ The new Greek finance minister Yannis Varoufakis is equally adamant that Greece cannot be expected to repay all its debt, citing the partial write-off of West German reparations after the Second World War as a precedent.

The only certainty at the moment is that the negotiations will be long, hard and complex. Angela Merkel has ruled out cancelling any of Greece’s debt: meanwhile Syriza is refusing to soften its demands and has already stated that the minimum wage will be raised from €500 per month to €751. Symbolically, Varoufakis announced that the 600 cleaners sacked at the finance ministry will regain their jobs. You can’t imagine that Frau Merkel and her economically prudent colleagues will be able to understand why one ministry needs 600 cleaners.

In the rest of the world it was a great month for Apple – as we report in the section on the US – but the International Monetary Fund cut its forecast for global economic growth. Wary of full-blown deflation in Europe, the Central Bank announced a massive programme of quantitative easing. The pace of growth in the UK slowed down, but to the great joy of the British public the General Election campaign moved into full swing the minute the Christmas decorations came down – still with three months to go to the vote itself.

As for world stock markets, January was a decidedly mixed month. Some markets – Russia and Germany – made significant gains, whilst others – Brazil and the US – marched firmly in the opposite direction.

In the UK specifically…

Figures released in the middle of the month showed that UK inflation has fallen to 0.5%. This means that Bank of England Governor Mark Carney will have to write a letter to the Chancellor explaining why it has fallen so low: the letter and the inflation report will be published on February 11th. As the Chancellor has said on several occasions the UK is not immune to the slowdown – and possible deflation – affecting the rest of Europe. There will be nothing in the Governor’s letter that he doesn’t already know.

There was more bad news for the Chancellor as it was confirmed that UK growth for last year was 2.6% – significantly below the 3% figure he had so proudly trumpeted in the Autumn Statement. Growth for the last quarter was down to 0.5% (as opposed to expectations of 0.6%), giving rise to fears that the UK recovery was running out of steam.

There was, however, good news in the motor industry, with UK car production at a 7 year high, and Jaguar Land Rover announcing plans to hire 1,300 new staff at its Solihull plant in order to build the new ‘Jaguar crossover sports utility vehicle.’

Waitrose announced plans to open 26 new stores and hire 2,000 extra staff, but this was countered by more depressing news from Tesco, who confirmed the impending closure of 43 stores.

Fortunately the FTSE 100 index of leading shares was much more Waitrose than Tesco in January and started the year with a healthy rise of 3%: having opened the year at 6,566 it finished January at 6,749.


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