Let The Good Times Roll! 29 April 2021
It was a mega week for Dubai realty, with a total of 1,791 real estate and properties registered transactions, valued at US$ 2.32 billion, during the week ending Thursday, 29 April. The Dubai Land Department confirmed that 1,121 villas/apartments were sold for US$ 599 million and 121 plots for US$ 143 million. The three most expensive residential units sold were a Marsa Dubai villa for US$ 88 million, a Palm Jumeirah villa for US$ 64 million and a Burj Khalifa apartment for US$ 54 million. The most popular locations were in Al Hebiah Third, with 25 sales transactions worth US$ 14 million, Nad Al Shiba Third with 18 sales, at US$ 13 million, and Nad Al Shiba First with 15 sales for US$ 10 million. The top two land transactions were in Palm Jumeirah, sold for US$ 19 million, and a US$ 3 million sale in Hadaeq Sheikh Mohammed Bin Rashid. Mortgaged properties for the week totalled US$ 1.63 billion, including a plot for US$ 1.09 billion in Palm Jumeirah. 171 properties were granted between first-degree relatives, worth US$ 73 million.
In Q1, the sales of ready villas and townhouses in Dubai jumped more than three-fold, from 673 to 2,273 units, as residents made a move to more spacious homes amid the coronavirus pandemic. Property Finder estimated that Dubai Hills recorded a 145% jump in villa sales to 203, compared to Q1 2020, Palm Jumeirah a fourfold rise to 65, Town Square nine times higher at 99 and Arabian Ranches saw sales rise to 100. Other areas including The Meadows, The Springs, Dubailand and Jumeirah Golf Estates all recorded higher sales. Ready apartment sales also increased by 40% during the period.
As indicated in a recent blog, Dubai’s property market saw its first annual price increase since 2015, as the average March property price nudged 1.3% higher to US$ 238 per sq ft; this time last year, the market recorded a 9.8% contraction. With the market growth picking up, March also witnessed transactions at a ten-year high, according to Property Monitor. However, not all locations are basking in the glory of rising prices for the fifth consecutive month but certain villa and townhouse communities have particularly emerged as hot spots, with prices heading north for at least the next eighteen months – notwithstanding another “covid attack”. Another sign of the times is that completed property sales now outweigh off plan sales by roughly 2:1 – not long ago, this ratio was the other way round.
Tellimer Research’s conclusion is in line with other consultancies’ recent findings that Dubai’s real estate sector has stabilised for the first time in five years, driven by a successful vaccination programme. Other factors, including the government’s economic support measures and initiatives, such as visas for expatriate retirees and the expansion of the ten-year golden visa scheme, have also pushed the sector forward. Tellimer noted that the rate of price decline has slowed markedly but are still 4% lower, year on year. However, the upcoming Expo will boost demand for properties, whilst the supply pipeline has indeed slowed over the past eighteen months after major developers pulled the plug on new projects.
Gulf Islamic Investments will invest up to US$ 400 million to acquire property in the Gulf, Europe and the US, and a further US$ 200 million in India and Saudi Arabia. The Dubai-based financial services company, which is regulated by the Securities and Commodities Authority, aims to increase its assets under management by 50% to reach US$ 3 billion by the end of 2021. Since 2014, GII has invested US$ 1.2 billion in the property sector, acquiring residential, commercial and industrial buildings in Dubai, the UK, France and the US. Apart from being the largest investor in Dubai’s e-commerce company Mumzworld, it owns logistics centres and staff accommodation in DIP. The firm is evaluating an IPO but will decide on it when the “time is correct”.
In October, Dubai will host the 72nd edition of the International Astronautical Congress – the world’s largest space conference, organised by the International Astronautical Federation, in collaboration with the Mohammed Bin Rashid Space Centre. The Congress, being held for the first time in an Arab country, will feature plenary events, keynote lectures, in-depth technical and special sessions and interactive workshops. It will be the first such event that high-level stakeholders, from space agencies and global institutions, will have gathered under one roof since the onset of Covid-19.
As tomorrow, 30 April, is the last day for registering, the federal Ministry of Economy has begun to implement inspection campaigns to ensure targeted firms’ compliance with the registration procedures, in line with the anti-money laundering regulations. The UAE passed an anti-money laundering and terrorism financing law in 2018 and in February, the Ministry of Foreign Affairs and International Cooperation announced the launch of the ‘Executive Office to Combat Money Laundering and Terrorist Financing’ to implement the law. The inspection campaign targets all categories of DNFBPs (“Designated Non-Financial Business and Professions), including brokers, real estate agents, auditors, dealers of precious metals and gemstones, and corporate service providers. The fines for violations start from US$ 13.6k and go up to US$ 1.36 million and could even lead to the revocation of the licence or the closure of the facility itself, with enforcing penalties commencing 01 May.
The UAE is planning to update and enlarge its companies’ law by adding ten new sectors which will allow for 100% ownership of onshore entities, in a bid to encourage more foreign direct investment into the country. They will include “chemical, petrochemical, pharmaceutical, defence and heavy industries; the national food and healthcare security industries; and industries of the future, including space and renewable energy among others.” Such industries will be prioritised with the aim of helping the industrial sector increase its contribution to the economy by US$ 45.5 billion to US$ 81.7 billion (AED 300 billion) over the next decade. The Ministry of Industry and Advanced Technology will be responsible for rolling out programmes and initiatives that will support 13.5k local industrial SMEs.
DP World has launched an e-commerce platform, initially in Rwanda, to increase trade with Africa and enhance the business interests of UAE and other global companies with the continent. The aim of the business-to-business online marketplace, known as Dubuy.com, is to create digital trading corridors to the physical corridors DP World has built across the African continent, with its investment in ports, terminals and logistics operations. At the beginning, it will assist Rwandan SMEs find regional and global businesses but then will spread to other physical corridors DP World has built across the African continent. Online marketplaces in Africa account for just 0.5% of global e-commerce and the introduction of Dubuy.com will undoubtedly help with growing this sector in the continent.
Despite the pandemic, Dubai Silicon Oasis Authority posted a 2.7% hike in 2020 revenue to US$ 148 million. The regulatory body for Dubai Silicon Oasis attracted 1.7k new companies last year, a 54% increase, raising the number of companies registered there to 4.9k. It also inaugurated its US$ 409 million Dubai Digital Park project, spanning an area of 150k sq mt, which now boasts a number of MNCs and has an 80% occupancy rate.. With a US$ 27 million investment, it also provides sixty smart city services, in line with the vision of making Dubai the smartest and happiest city in the world. Its Dubai Technology Entrepreneur Campus (Dtec) has more than 900 start-ups from 72 countries – 7% higher on the year – with several involved in blockchain and AI technologies. DSOA has 17 sq mt of retail units, 47k sq mt of office space, 235 apartments and 5k sq mt of ready-made. and plug and play offices.
Petrol prices will nudge a little higher in May, as the UAE Fuel Price Follow-up Committee announced new monthly prices, effective from 01 May. Special 95 will retail US$ 0.003 higher at US$ 0.594, whilst diesel will be US$ 0.013 cheaper at US$ 0.591 per litre.
The RTA estimates that its marine transport network will undergo a 188% expansion to span 158 km, with a 400% increase in the number of scheduled passenger lines under a master plan running up to 2030. The fleet will be 32% higher, at 258, whilst the number of stations would jump 65% to 79 by the end of the decade. Dubai’s marine transport ferried over 14 million passengers last year, with the sector expected to see a sustained growth as the Water Canal and other waterfront developments make their expected demand; during the year, the marine transport network increased 24 km to reach 79 km. In 2021, the RTA will open four water transport lines, extending 10 km.
Having acquired a 16.3% stake in 2016, and a year later a further 5.4%, Amanat has divested itself of its stake in UAE education provider Taaleem for US$ 95 million to an unnamed buyer. This deal made the Dubai-listed company a total cash return of US$ 61 million, including dividends – a very tidy return on its investment. The money made will be used “as an avenue to recycle the cash for other investment opportunities that are more strategically aligned as an influential shareholder.” It already has financial interests in Abu Dhabi University Holding and Middlesex University Dubai, as well as owning the property assets of the North London Collegiate School in Dubai. Earlier in the year, Amanat paid US$ 232 million for Cambridge Medical and Rehabilitation Centre.
There was some good news for Drake & Scull, announcing three new contracts, (totalling US$ 102 million), including two new wastewater treatment plants – for US$ 49 million in Tunisia and another one for US$ 9 million in India. The Dubai-based contractor also reported that it was bidding for projects worth US$ 477 million in Iraq and Kuwait. After several years of losses, Drake & Scull had already posted a 2020 profit of US$ 30 million. The contractor noted that its restructuring process was at an advanced stage, with discussions about a capital reorganisation, as its liabilities outweighed its assets by over US$ 1 billion at 31 December 2020.
Q1 Etisalat results saw the telecom giant increasing Q1 profit by 7.9% to US$ 627 million, with consolidated revenues at US$ 3.6 billion; there was a 0.7% hike in EBITDA to US$ 1.85 billion, with an increased 51% margin. Its aggregate subscriber base also climbed 4% to reach the 156 million mark, of which 12.4 million are in the UAE. The Abu Dhabi listed company’s shares were 0.14% lower, with a value of US$ 5.80.
Emirates Integrated Telecommunications Co posted a 27.6% decline in Q1 profit to US$ 70 million, as revenue dipped 3.7% to US$ 785 million. EITC, also known as du, noted that revenues grew for a third consecutive quarter-over-quarter, as economic activity continued to improve, but that on a year-on-year comparison, mobile revenues declined 12.7% due to the impact of Covid-19. Its mobile subscriber base was 1.9% higher at 6.8 million, mobile revenues stabilised at US$ 257 million, whilst its fixed revenues reached an all-time high of US$ 181 million; capex was 83% higher at US$ 155 million, with much of the expenditure on the core network, 5G roll-out, as well as improving mobile coverage and capacity.
The bourse opened on Sunday 25 April and, having shed 8 points (0.3%) the previous week, lost 20 points (0.8%), to close on 2,625 by Thursday 29 April. Emaar Properties, US$ 0.01 lower the previous week, lost a further US$ 0.03 to close at US$ 1.02. Emirates NBD and Damac started the week on US$ 3.27 and US$ 0.32 and closed on US$ 3.39 and US$ 0.33. Thursday 29 April saw typical Ramadan market trading at 134 million shares, worth US$ 40 million, (compared to 92 million shares, at a value of US$ 47 million, on 22 April).
For the month of April, the bourse had opened on 2,550 and, having closed the month on 2,625, was 75 points to the good. Emaar traded higher from its 01 April 2021 opening figure of US$ 0.96 – up US$ 0.06 – to close April on US$ 1.02. Two other bellwether stocks, Emirates NBD and Damac, started April on US$ 3.13 and US$ 0.33 and closed on 30 April on US$ 3.27 and US$ 0.32 respectively.
By Thursday, 29 April, Brent, US$ 2.23 (3.4%) higher the previous week, was up US$ 5.18 (8.2%) to close on US$ 68.56. Gold, up US$ 51 (2.9%) the previous four weeks, was US$ 8 (0.4%) lower, by Thursday 29 April, to close on US$ 1,770. Although Opec recognised that a resurgence of Covid-19 cases “could hamper economic and oil demand recovery”, it has maintained production curbs at current levels, as it balanced “the continuing recovery in the global economy” with a sharp rise in cases in some countries. It expects that demand will pick up in H2 and it was noted that overall conformity among its members to existing supply restrictions reached 115% in March. There are some member countries that have not reached their production quotas and have been given until September to rectify this. It also raised its growth forecast by 400k bpd to six million bpd. Gold prices will move higher in the coming days, with news that Joe Biden has proposed raising CGT in the world’s largest economy, at a time when a weak greenback and subdued US yields keep the metal price high. However, if it does not breakthrough to US$ 1,800 by mid-May expect a decline to around US$ 1,720.
There is no doubt that commodities are in the middle of a rare supercycle, as many countries’ economies have started to show marked signs of improvement. The knock-on effect is that industry starts moving quicker to meet pent-up demand and one of their most important needs are base metals. Global demand, led initially by China and more latterly the US, has moved quicker than expected and that is why copper and iron ore have climbed to a decade high, with aluminium prices also moving higher. By mid-week, copper was trading at US$ 9.75k per ton and the bets are on that it will continue this upward movement and could top US$ 15k in the coming years. However, there is always the possibility of Covid returning which would then put a dampener on any further economic progress, with another possible drag factor being that Chinese demand has faltered. Another risk factor concerns reports that Chinese authorities have already implemented a swathe of production curbs across industries. In a bid to stabilise raw material prices. Last year Chile, the world’s largest copper producer, mined 5.7 million metric tons, equating to 25% of the global production. The other four leading producers are the US, Australia, the Democratic Republic of the Congo and Zambia, Some of these producers have a history of strikes and could also be subject to another Covid wave which would also cause supply problems – indeed, there are reports that Chile’s ports may go out on strike next Monday.
Covid almost brought the diamond industry to a standstill, with billions of dollars of uncut gems stashed away in safes, as production was cut and retail outlets in lockdown. There was concern that the huge stockpile would skew the market when business restarted – now it seems that, in a matter of months, they have suddenly found buyers, being the middlemen who cut, polish and trade stones. On top of that, leading miners, such as De Beers and Alrosa, managed to raise prices, as pent-up demand saw more money, that would normally have been expended on overseas holidays etc, being spent on luxury goods including diamonds. In Q1, De Beers sold 13.5 million carats of diamonds, almost double the amount it mined in the period, and it is reported that stockpiles have returned to normal levels. It has been hiking prices since the end of last year, with business back to pre-coronavirus levels, selling more than US$ 1.6 billion in rough gems – the most since 2018. Meanwhile, Russian miner Alrosa’s inventories tumbled about 60% to 12.8 million carats – its lowest level in almost three years.
It was a good Q1 for Porsche which reported a 36% hike in global numbers, to 72k, compared to the same period in 2020. In the first three months of 2021. The two leading models were the Macan and the Cayenne, with sales of 22.5k and 19.5k, as the iconic 911 and its first ever electric car, the Taycan, saw deliveries of over 9k. All global areas witnessed double digit growth, as China remains the carmaker’s largest market, with Q1 sales of 22k – 56% higher on the year, with US seeing numbers up by 56% to 17.4k and Europe to 6k by 16%. The outlook for the remainder of the year is bullish.
Tesla posted a major increase in Q1 net profit from US$ 16 million to US$ 438 million, with revenue 74% higher at US$ 10.3 billion, driven by record deliveries and strong environmental credit sales. The company’s 31 March cash and cash equivalents decreased by US$ 2.1 billion to US$ 17.1 billion in the first three months of the year. A company spokesman commented that “we have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses.“ Even as it transited its two new S and X models, the world’s biggest EV maker achieved its highest ever vehicle production and deliveries. The company delivered 184k vehicles in Q1 despite a shortage of chips that has hit the global automotive industry.; its latest forecast sees a 50% annual growth in vehicle deliveries, dependent on “equipment capacity, operational efficiency and capacity and stability of the supply chain”. Interestingly, in 2017, when Tesla began production of the Model 3, its average cost for each vehicle across the fleet was about US$ 84k – now down 55% to US$ 38k. Its shares have climbed 362% over the past twelve months.
Heathrow Airport failed in their bid to increase tariffs on passengers and airlines, so as to recoup losses incurred because of the pandemic. UK’s Civil Aviation Authority has rejected their request and allowed the UK’s biggest airport to raise just US$ 300 million (10% of their original request). From next year, the airport will be able to charge an additional US$ 0.42 (1.4%) per passenger for landing fees to its new figure of US$ 41.76. It also rightly concluded that risks to Heathrow’s financing should be a matter for shareholders, not consumers.
After spending US$ 677 million to carry on trading during the pandemic, there was no surprise to see UK’s second-largest grocery chain post a US$ 364 million loss last year. Sainsbury’s recorded bumper food and Argos sales during the pandemic, with like for like sales 8.1% higher, and is confident of profits returning to some form of normality this year: Argos sales were 11% to the good, as digital sales boomed and, not to be outdone, Sainsbury’s online grocery shopping more than doubled to 17% of revenue for the year. The retailer has already embarked on a restructuring, (and recently announced that 1.2k jobs were at risk) but is going ahead with plans to open 25 to 30 convenience stores per year until the end of 2023. It already has more than 800 convenience stores, where sales were up 13%.
HSBC surprised the market, (and probably themselves), when posting an 81.2% jump in Q1 profit to US$ 5.8 billion, with more than 65% of profits emanating from Asia and 17.2% from the UK; revenue slipped 5% to US$ 13 billion due to the impact of interest rate reductions. With “an improvement in the economic outlook, notably in the UK”, the bank was able to “release” US$ 400 million from its previous US$ 3 billion bad debts provision. Europe’s biggest bank by assets, with its restructuring plan, including cutting 35k jobs, on track, noted that solid growth in its mortgage business in the UK and Hong Kong also helped to boost profits. Although the bank expects better economic conditions this year, it warned of continued uncertainty, as countries recover from the pandemic at different rates and as governments pare back support measures. It will also have to face continuing low rates until at least the end of 2021 which will have a drag on revenue.
Microsoft posted a 47.3% hike in fiscal Q3 profit at US$ 15.5 billion, driven by strong cloud, gaming and personal computing businesses, as well as a net US$ 620 million income-tax benefit; revenue was up 19.0% to US$ 41.7 billion. The March quarter recorded its 15th straight double-digit revenue growth. Over the quarter, its operating income was 31% higher at US$ 17 billion, sales in its PC business were up 19% to US$ 13 billion and revenue in the company’s intelligent cloud business revenue rose 23% year-on-year to US$ 15.1 billion. Although no figures were available, LinkedIn annual revenue was almost 25% higher, its productivity and business processes division, which includes both its Microsoft Office business and revenue from LinkedIn, increased 15% to US$ 13.6 billion. Quarterly R&D investment was at US$ 5.2 billion. Over the year, its market cap has risen by more than 50% and is currently a tad under US$ 2.0 trillion.
Alphabet, the owner of Google, posted impressive Q1 figures, with net profits up 162% at US$ 17.9 billion, as revenue advertising came in 33% higher. With global economies slowly opening up, and restrictions being lifted, the commercial world has started spending more on online advertising, the main reason why Google’s search business jumped 30% to US$ 31.9 billion, with sales at YouTube climbing 49% to US$ 6 billion. Although business will still track its current upward mobility, US and European regulators continue to discuss tightening oversight of Google and other tech giants but have yet to agree on any legislation. When they do, this could prove to be a major problem for Alphabet and a hit on its margins.
One major beneficiary of the pandemic was the UK book market which rose 7% to US$ 2.92 billion last year, with the Publishers Association commenting that people had “rediscovered their love of reading” in lockdown. Whilst demand for fiction and non-fiction did improve, by 16% and 4% respectively, audio-book sales were the big winners – up 37% – whilst educational book sales slumped, down 20%, with schools being shut for months. According to the association, total UK publishing sales – including consumer, educational and academic titles – rose 2% in 2020 to US$ 8.9 billion.
Late last week, Turkish authorities confirmed that the country-based cryptocurrency exchange, and the Thodex website, had been closed, amidst reports that its founder had fled the country and flown either to Albania. They have now opened investigations into Thodex’s founder, 27-yeqr old Faruk Fatih Ozer, who has absconded with more than US$ 2 billion of the firm’s 391k investors’ assets. Prosecutors have launched an investigation into Ozer on charges of “aggravated fraud and founding a criminal organisation”. The country has little regulation into the running of the country’s crypto market, as the Turkish central bank having decided to ban the use of cryptocurrencies in payments for goods and services starting from 01 May. A second Turkish cryptocurrency platform Vebitcoin folded at the weekend after having abruptly announced it had ceased operations, citing financial strains. Subsequently, Turkish authorities launched an investigation, blocked the firm’s accounts and arrested four people, accused of fraud. Increasing numbers of Turks are opting to use cryptocurrencies in an attempt to protect their savings from a sharp decline in the value of the lira.
After abandoning discussions, about a takeover bid for Ares Management, Australia’s AMP has instead decided to split off AMP Capital’s private markets investment management business. This move would see the end of Boe Pahari as AMP Capital’s global head of infrastructure equity, who was only appointed last year; he was subsequently demoted, following the publication of sexual harassment revelations. The demerger will create two focused businesses, AMP Limited and Private Markets, the latter operating in growing, global markets. Michael Sammells, who is currently the non-executive director of AMP Limited and current chairman of AMP Capital, will be the interim chairman of the offshoot. Last week, the wealth management division reported US$ 1.2 billion in net cash outflows, while the AMP Capital division posted a US$ 2.2 billion funds outflow. Its future is not looking bright.
Cisco chief, Chuck Robbins, reckons it will take a further six months for the supply of computer chips to return to some form of normalcy. Many industries have experienced serious supply delays because of a lack of semiconductors, triggered by the Covid pandemic and exacerbated by other factors such as increased demand from the white goods and home appliances consumer sector, with major advances in technology including 5G, AI, IoT and cloud computing demanding enhanced computer chips. Some analysts estimate that current demand is at least 25% higher than what would have been expected twelve months ago. However, supply is being ramped up, with more capacity being built; for example, Intel is investing US$ 20 billion to significantly expand production, including two new plants in Arizona. Indeed shortages, have been made worse by companies overordering and not wanting to get caught short again. The US-based Semiconductor Industry Association reckons 75% of global manufacturing capacity is in East Asia; Taiwan’s TSMC, (which is planning a US$ 100 billion investment to expand capacity), and South Korea’s Samsung are the dominant players.
A lower-than-expected rise in Australian consumer prices in March sees quarterly and annual figures at 0.6% and 1.1% will make it easier for the Reserve Bank to maintain current stimulus measures longer. However, it seems that the public may not benefit, as commercial banks have already started to raise interest rates on longer-term fixed mortgages. On top of that, building costs are nudging higher with demand on the rise, driven by low rates and government subsidies, whilst material prices are higher along with labour charges caused by a shortage of skilled labour. For example, it was estimated that to lay a brick in Perth last year cost US$ 1.04, now US$ 2.30. In Q2, the impact of increases in housing rent – and rising building costs – will also impact the inflation figures. The RBA is highly unlikely to make any move to push rates higher until inflation moves into the 2% – 3% bracket and unemployment settles to under 5%.
Because of the pandemic, and the ensuing printing of money to support their various economies, the EU public deficit and debt have soared, over the past twelve months, with government debt, in the euro area and the EU, reaching 98.0% and 90.7% of GDP, compared to 83.9% and 77.5% a year earlier; the government debt to GDP jumped to 7.2% and 6.9% from the previous levels of 0.6% and 0.5%. On a country basis, the nations with the highest debt, compared to the size of its economy, were Greece (205.6%), Italy (155.8%), Portugal, (133.6%), Spain (120.0%), Cyprus (118.2%), France (115.7%) and Belgium (114.1%), All the EU countries, except for Denmark, had deficits higher than 3% of GDP, contrary to EU rules known as the Stability and Growth Pact, with Spain, Malta, Greece and Italy posting the highest deficits. However, ECB President Christine Lagarde confirmed that its US$ 2.23 trillion emergency bond buying will not be curtailed in the near future, as indicators point to Q1 economic activity having contracted.
Trials have been running for over a year in cities across China for the new “Digital Currency Electronic Payment” (DC/EP) system – a digital yuan controlled by the central bank. Eighteen months ago, Mark Zuckerberg had warned the US House of Representatives Financial Services committee that “we can’t sit here and assume that because America is today the leader that it will always get to be the leader if we don’t innovate.” That enquiry had concerned Facebook’s proposed Libra new digital currency which deeply worried the committee that it might upend the bank-dominated financial system. Consequently, Libra has stalled, whilst China has the world’s most robust central bank digital currency (CBDC). The digital yuan is the complete opposite of Bitcoin, as it is more concerned with control and regulation and has become a new tool for the ruling Communist Party to monitor and hegemonize its people, as well as being used to try to loosen America’s grip on the global financial order. An all-seeing currency will also allow the government to track how citizens are spending their money in real time and give them more control over their citizens. The new currency will permit users to pay for goods and services, via a smartphone app, in much the same way as its competitors, WeChat and Alipay, and it appears that its speedy roll-out has been prompted by the current duopoly. If it were a success, the new digital currency could upset the US and become the future global financial leader.
Following a creditable 4.3% growth in Q4 2020, the US economy expanded 6.4% on an annual basis in Q1, driven by increased consumer spending that had been pent up since the onset of Covid. Personal consumption, the most important part of the US economy, leapt an annualised 10.7% – the second-fastest since the 1960s. In February 2020, the inflation-adjusted value of domestically produced goods and services was at an annualised $19.3 trillion, and with the latest figure of US$ 19.1 trillion, it indicates that the economy has returned to almost normal levels quicker than many analysts had forecast. What is happening is that unprecedented demand has not be readily met by producers, experiencing material shortages and supply-chain challenges. This, at least in the short-term, will lead to higher prices and the possibility of inflation levels rising too quickly. To make matters worse, the Federal Reserve, and the Biden administration, are continuing to print money that will take inflation higher and result in the inevitability of raised interest rates.
To no surprise to anyone, President Joe Biden is reportedly looking at almost doubling the country’s capital gains tax from 20% to 39.6%, in a bid to recoup some of the massive social spending, exacerbated by pandemic; the capital gains increase would raise an estimated US$ 370 billion over a decade, The Democratic incumbent is also discussing hitting those, earning US$ 1 million or more, by raising the existing top tax rate from 39.6% to 43.4%. Accordingly, the markets’ rection surprised no analyst, as the S&P 500 dipped 0.9% on the news, with the ten-year treasury yields falling to 1.5% The Biden administration has already warned that there would be hikes in corporation tax, that would help fund the US$ 2.3 trillion infrastructure-focused ‘American Jobs Plan’, and that those earning more than US$ 400k can expect to be paying more tax in the future.
By the day, it seems that the former prime minister, David Cameron, sinks deeper into trouble for his cavalier approach, when representing the now disgraced and bankrupt Greensill as a special advisor, a role he took on in 2018. The Treasury has released more than forty pages of messages, relating to its contact with David Cameron and Greensill Capital, with the ex-PM communicating with all his old cronies, including Rishi Sunak, two other ministers, former Cabinet Secretary, Sir Marc Sedwell, and other top Treasury officials. Even the Bank of England said Mr Cameron had contacted it multiple times last year, as the finance firm sought access to a Covid loan scheme. The two questions that need answering is why Greensill Capital was given so much time and access to the Treasury, and why so much public money was put at risk. Other emails point to the desperation of the former PM, seeing a possible US$ 700 million commission payment slipping away. One, to the BoE’s deputy governor, Sir Jon Cunliffe, included reference to the fact that Greensill had “failed to get anywhere” with its proposals, despite “numerous conversations” and a later one to him bemoaning the fact that Greensill’s inability to access the scheme had proved “incredibly frustrating”.
Following bilateral discussions last Friday, led by UK International Trade Secretary Liz Truss and Australian Trade Minister Dan Tehan, it seems that the UK and Australia agreed “the vast majority” of a free trade deal, with an agreement set to be signed in June. If the outstanding details are ironed out, the deal could add US$ 700 million to the UK’s GDP over the long term; it will also be one of the first post-Brexit trade deals negotiated by the UK that is not a “rollover deal”, a replica of a trading arrangement earlier negotiated on the UK’s behalf by the EU.
All the doomsayers will be spilling their coffee, with news that the EY Item Club has amended its earlier 5.0% 2021 growth forecast for the UK to 6.8% which would be the highest ever rate since records began; it also expects that the country will return to pre-pandemic levels by Q2 next year. The three main drivers behind this have been the impressive vaccination programme, the relaxing of lockdown procedures and the high levels of “enforced” savings which are now ready to be spent. which in turn has lifted consumer confidence to high levels. It also expects unemployment figures to be better than expected as its new forecast is 5.8%, rather than its January 7.0% figure. Even Deloitte considers that the UK is on track for a faster economic recovery than previously thought and that “the UK is primed for a sharp snap back in consumer activity”. Furthermore, the IHS Markit/CIPS Purchasing Managers’ Index was 3.3 higher on the month to 60.0 in April, with any figure above 50 indicating expansion. With the April opening of non-essential shops, it was no surprise to see the service sector growing faster than manufacturing for the first time since the Covid crisis began last March. Let The Good Times Roll!