A Christmas steal

This year it is not just Grinches that can go on a Christmas shopping spree without having to part with too much of their hard earned cash. Thanks to the supermarket price wars the feast, pudding and roast beast, is getting cheaper. The best value high street purveyors of turkey, spuds and brandy butter are offering their wares at double-digit percentage point discounts this year compared to last. Overall, a bargain meal for eight will cost a more than reasonable £2.53 per head, a 4.93% decline from 2014.

The deflationary effects of cost cutting by supermarkets is estimated to have dragged overall food and drink prices 2.7% lower over the year according to research by the British Retail Consortium/ KPMG Sales Monitor. The overall cost to the grocery industry is estimated at more than £1.5 billion. Good news for shoppers has been bad news for shareholders with both Tesco and WM Morrison – two of the top three listed supermarkets by market share – sharply underperforming the UK’s FTSE100 index.

The price cutting is hurting and may not be sustainable in the long run. Food prices are also volatile, depending on weather conditions, disease, pests and transport costs. The most inflationary item in our Christmas basket was Brussels sprouts. They are at a premium as many have been rotting in their fields (much to the joy of children) due to an unusually wet October. This year we can enjoy a cut price feast, but that does not mean we will avoid a nasty bout of inflationary indigestion in 2016.

 David Hooker – Insight Investment, a BNY Mellon company

This year it is not just Grinches that can go on a Christmas shopping spree without having to part with too much of their hard earned cash. Thanks to the supermarket price wars the feast, pudding and roast beast, is getting cheaper. The best value high street purveyors of turkey, spuds and brandy butter are offering their wares at double-digit … read more

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Santa’s little helpers shun shops for sofa

Retailers without a significant online offering have faced an uphill struggle so far this festive season. The two key trends visible this year in both the US and UK have been the fact that promotions are spread over a longer period than last year, and the switch to online shopping is even more pronounced.  Stores were relatively quiet on ‘Black Friday’, now deemed to be the start of the sales on both sides of the pond, while cyber traffic was up. More shoppers are increasingly choosing to shop on mobile phones too, which adds yet another dimension for retailers to consider. Alongside the consumer’s ongoing search for value, the growth of online shopping is a trend we believe will continue to grow in influence and one we think will further highlight the divergence in the sector. Online sales growth is typically less profitable for bricks and mortar retailers as it adds variable cost without diluting fixed costs. These factors underline our cautious and selective stance on the retail sector globally.

Rosie Bichard – Newton, a BNY Mellon company

Retailers without a significant online offering have faced an uphill struggle so far this festive season. The two key trends visible this year in both the US and UK have been the fact that promotions are spread over a longer period than last year, and the switch to online shopping is even more pronounced.  Stores were relatively quiet on ‘Black … read more

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Christmas Quiz: win one of five mini remote control helicopters

To enter, please answer the above questions and submit via email to Marketeye@bnymellon.com before midnight Wednesday 16th December 2015. The full terms and conditions of the competition can be found here and the competition is only open to FCA registered financial professionals resident in the UK. When entering please confirm that you accept the terms and conditions.

Valid entries must include the following:

  • Full name
  • Email address
  • I, [Full name], confirm I have read, understood and accepted the terms and conditions and agree to be bound by them.
  • Answers to all ten questions

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To enter, please answer the above questions and submit via email to Marketeye@bnymellon.com before midnight Wednesday 16th December 2015. The full terms and conditions of the competition can be found here and the competition is only open to FCA registered financial professionals resident in the UK. When entering please confirm that you accept the terms and conditions. Valid entries must … read more

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How will commodity prices sway developed market growth in 2016?

More than a year on from the collapse in commodity prices we can see how quickly the global growth prospects of energy exporting countries – in this Australia and Canada – have been affected. We’re not witnessing any restriction in oil and gas supply or any sustained pick-up in demand or pricing – and, given the US’s newfound status as a global non-OPEC producer, nor do we expect to see any concerted action on tackling chronic levels of oversupply. Typically with commodities you see significant overinvestment followed by swift declines in pricing due to overcapacity. It’s a cycle that can last several years to play out and we’re really only at the start.

The reality for 2016 is likely to be a divergent world with different rates of growth and hence a variety of approaches to interest-rate policy. We believe developed economies will continue to expand into 2016 although at different and, on average, moderate rates. It is certainly unlikely to be an environment in which growth picks up to a point where major central banks across the globe will drastically withdraw from their accommodative monetary policy regimes.

Vassilis Dagioglu – Mellon Capital, a BNY Mellon company

More than a year on from the collapse in commodity prices we can see how quickly the global growth prospects of energy exporting countries – in this Australia and Canada – have been affected. We’re not witnessing any restriction in oil and gas supply or any sustained pick-up in demand or pricing – and, given the US’s newfound status as … read more

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Crossing the threshold

The Asian growth story is an enduring multi-decade shift that belies the recent short-term noise around Chinese stockmarket volatility and falling demand for commodities. Even taking into account a slowdown in growth, the populations of Asian countries are still increasing their levels of wealth faster than their Western peers. In China, meanwhile, the transition to a consumption-based economy continues apace – with news that for the first time ever the size of its middle class population exceeds that of the US.

This kind of development supports our view that investors would be well placed to focus on the long term trends and consider adding exposure to Asian economies. This is especially the case at current valuations where the debt of even profitable, blue chip companies enjoying strong government support is trading at attractive yields.

Sarah Percy-Dove – Standish, a BNY Mellon company

The Asian growth story is an enduring multi-decade shift that belies the recent short-term noise around Chinese stockmarket volatility and falling demand for commodities. Even taking into account a slowdown in growth, the populations of Asian countries are still increasing their levels of wealth faster than their Western peers. In China, meanwhile, the transition to a consumption-based economy continues apace … read more

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Do ‘baby boomers’ really have their finances sorted?

Demographic data shows that across the globe populations are ageing. The post-World War II ‘Baby boomer’ generation – is now entering or approaching retirement. In the UK, there are more than 22.7 million people aged 50 years and over, representing more than a third of the total UK population.[1]

While they may appear to be entering retirement from a position of relative financial strength, the reality of the situation is far more challenging. The first priority for most people will be financing their own retirement with an income they can live off to replace their salaries. As people can now expect to live longer, they need to be sure their investments are suitable to provide for this. Further, many people will have an important second objective of preserving capital in order to bequeath their wealth to their dependents.

With interest rates unlikely to rise dramatically in the near future, income returns on assets such as government bonds and cash deposits remain at historic lows, and in many cases below the rate of inflation. Our view is that a focus on dividend-paying equities can offer investors the comfort of an attractive income stream in an otherwise low-return environment, and provide a shield against inflation.

Nick Clay – Newton, a BNY Mellon company

[1] Mid-2013 Population Estimates, UK Office for National Statistics, 2014

Demographic data shows that across the globe populations are ageing. The post-World War II ‘Baby boomer’ generation – is now entering or approaching retirement. In the UK, there are more than 22.7 million people aged 50 years and over, representing more than a third of the total UK population.[1] While they may appear to be entering retirement from a position … read more

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What’s really going on with the Japanese economy?

One of Prime Minister Shinzo Abe’s initial economic arrows was aimed at pulling Japan out of deflation to move closer to the Bank of Japan’s 2% target. While that is yet to be achieved there are some encouraging on-the-ground indicators: Wages are going up as evidenced by the data on part-time workers. This is the first sector of the labour force to see wage increases because corporations are more reluctant to increase the compensation of full-time and permanent staff in the early stages of a recovery. Nevertheless, this demonstrates how much employers are willing to pay to attract the ‘marginal worker’, so the fact these pay packets have been expanding is a positive sign.

The inflation rate (CPI) minus energy and food is also close to 1%. We call this the ‘core core’ reading and I believe it is a more important metric to keep an eye on than CPI. Additionally, living in Tokyo, inflation feels higher still. The University of Tokyo Daily Price Project, which tracks daily point of sales data, currently shows a reading of around 1.5%, which feels much closer to reality. Abe has made an impressive start towards an inflationary environment; a commendable achievement against a global backdrop of prices under pressure.

Miyuki Kashima, BNY Mellon Japan

One of Prime Minister Shinzo Abe’s initial economic arrows was aimed at pulling Japan out of deflation to move closer to the Bank of Japan’s 2% target. While that is yet to be achieved there are some encouraging on-the-ground indicators: Wages are going up as evidenced by the data on part-time workers. This is the first sector of the labour … read more

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The 30-year view

For those with a penchant for jarring juxtapositions, a then-and-now comparison of current versus mid 1980s macro-economic data makes for interesting reading.

A time traveller from three decades ago might have expected to find flying cars, self-lacing running shoes and other mainstays of science fiction. What they would not have expected was a global economy dominated and distorted by QE, ZIRPs and NIRPs.

In our analysis, October 2015 is characterised by a loss of momentum in economic activity around the world – even amid persistently low interest rates in leading economies, and despite the fact that the main central banks either remain engaged in QE programmes or have yet to sell any of the assets acquired under them previously.

Hindsight is a wonderful thing but we believe future investors looking back will question why the current crop of central bank policies were ever thought to be reasonable.

James Harries – Newton, a BNY Mellon company

For those with a penchant for jarring juxtapositions, a then-and-now comparison of current versus mid 1980s macro-economic data makes for interesting reading. A time traveller from three decades ago might have expected to find flying cars, self-lacing running shoes and other mainstays of science fiction. What they would not have expected was a global economy dominated and distorted by QE, … read more

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How tighter lending could spell the end for ‘zombie’ commodities producers

For stressed commodity companies whose cost of production exceeds current pricing, the advent of a risk-off environment in the corporate debt markets could pose a serious challenge. This is particularly the case within the US high yield energy sector, which we saw was running into difficulties as it moved into the fourth quarter because of oil hedges rolling off, but more importantly because of revolving credit facilities being renegotiated at much tighter conditions.

This, we believe, is still an ongoing concern and will lead to a significant pick-up in defaults by small US energy companies that will now find it more difficult to get financing.

We would argue that for too long cheap money has led to an explosion of capacity, not just directly, but also by saving inefficient (zombie) businesses from default. In our view this could be about to change.

Paul Brain – Newton, a BNY Mellon company

For stressed commodity companies whose cost of production exceeds current pricing, the advent of a risk-off environment in the corporate debt markets could pose a serious challenge. This is particularly the case within the US high yield energy sector, which we saw was running into difficulties as it moved into the fourth quarter because of oil hedges rolling off, but … read more

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Are Millennials finally fleeing the nest?

We believe new and existing home sales appear positioned for a sustained, moderate – but jagged – multi-year recovery that should persist for years, supported by a plethora of demographic, cyclical and financial factors.

For the past decade, the percentage of young adults living at home has surged to record highs, but this trend may be about to reverse, placing US household formations at a significant inflection point. As Millennials enter the prime household-forming age range, we could see the release of pent-up housing demand over the next three to five years. This could be spurred by improved job prospects, accumulated savings from living at home — and parents’ growing desire to be home alone.

Michael Arends – The Boston Company Asset Management, a BNY Mellon company

We believe new and existing home sales appear positioned for a sustained, moderate – but jagged – multi-year recovery that should persist for years, supported by a plethora of demographic, cyclical and financial factors. For the past decade, the percentage of young adults living at home has surged to record highs, but this trend may be about to reverse, placing … read more

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