The Boys Are Back In Town 26 August 2021
For the past week, ending 26 August, Dubai Land Department recorded a total of 1,345 real estate and properties transactions, with a gross value of US$ 1.69 billion, and is heading for a bumper month. It confirmed that 1,163 villas/apartments were sold for US$ 668 million, and 215 plots for US$ 327 million over the week. The top two land transactions were both for plots in Hadaeq Sheikh Mohammed bin Rashid, selling for US$ 9 million and US$ 8 million. The most popular locations were in Jabal Ali First, with 75 sales transactions worth US$ 86 million, Hadaeq Sheikh Mohammed bin Rashid, with 35 sales at US$ 20 million, and Palm Jumeirah, with 11 sales transactions worth US$ 13 million. Mortgaged properties for the week totalled US$ 510 million, including a plot for US$ 109 million in Al Khairan area. 99 properties were granted between first-degree relatives worth US$ 207 million.
As Dubai’s economy bounces back to life, along with the emirate’s residential property sector, a Reuter’s poll of eleven housing experts sees the market on a steady course, with prices expected to rise modestly over the next couple of years. Three months ago, their estimate was that house prices would rise 3.0% and 2.5% in 2021 and 2022; this has been upgraded to 1.1% and 2.8%. To an observer, these figures seem to be on the light side and will come in a lot higher, especially when other global locations, such as Australia, New Zealand and Canada have had property hitting record high levels, but Dubai prices are still around 36% lower than in the bull market of 2014.
Another week and another report by an international agency. This time, CBRE Research noted that total transactions in H1 surged 69.2% and 46.4%, compared to the same periods in 2020 and 2019, as demand for bigger homes increased; it estimated that average home prices only increased by an annual 2.8%, led by the demand for villas and larger homes, with the apartment segment lagging somewhat behind and even recording price reductions. Secondary market transaction volumes jumped 148.4%, while off-plan transaction volumes were at a much-reduced figure of 13.4% in H1. When it comes to the supply issue, CBRE indicated that 18.6k units were handed over in H1, with a further 37.5k expected to be added to Dubai’s property portfolio by year end. On that basis, 56.1k will be handed over in 2021, well down on an earlier estimate pf 83.0k – but expect the figure to be on the south side of 50k. (In the past, it was common to see some consultancies overestimate new property forecasts, sometimes by 50%, which may have encouraged potential buyers to delay their purchases). One of the reasons for the current boom is that new supply coming to the market also remains lower than expected. The consultancy also noted that for the rest of 2021, “prime prices will be in positive territory but not at the same growth levels that we’ve seen to date”.
Union Properties announced the launch of Motor City Views, featuring 880 residences, comprising 313 studios, 427 one-bedroom, 133 two-bedroom and seven three-bedroom apartments. The apartments will be divided into three buildings, each with seven floors, and are serviced by recreational areas designated for residents such as air-conditioned sports halls, a covered children’s playground and swimming pools. The development, which will cover an area of 857k sq ft, will also have a retail area, including a shopping mall, with diverse shops, restaurants, and various recreational activities.
This week saw the sale of a Dubai luxury villa for over US$ 27 million – the third time this year that a property sale has exceeded the AED 100 million mark – and a sure sign that the market is on a strong recovery curve. The luxury villa, sold by Luxhabitat Sotheby in less than a month, became the highest value property ever sold in Dubai Hills Estate, and was bought by an anonymous buyer.
As would be expected, the chairman of Danube Properties, Rizwan Sajan, expects demand for Dubai property to pick up, as foreign investors continue to snap up unsold units, amidst a steady recovery in prices. He noted that “a good number of high-net-worth foreign investors from India, Russia and other countries are flocking to Dubai to buy real estate assets at a very attractive price.” To take advantage of the bullish market, Danube is planning to launch its first project, in Arjan, since the outbreak of the Covid-19 pandemic, before the end of October. The Danube chairman also noted that “in the last 28 years, I have seen three ups and downs. But whenever there is a crisis, Dubai has emerged stronger because its fundamentals are very strong.”
Dubai Electricity and Water Authority has announced the completion of its Water Pumping Station project at the Mohammed bin Rashid Al Maktoum Solar Park. The project, which has a daily capacity of 7.5 million imperial gallons of water, cost US$ 6 million. DEWA confirmed that all electricity and water infrastructure expansion plans are developed based on demand forecast in Dubai until 2030. The station uses clean energy from the solar park and can be operated remotely.
Dubai-based Emirates Central Cooling Systems Corporation will invest US$ 234 million, in a deal with Nakheel, to acquire the developer’s district cooling assets which they will also manage and operate. Empower’s new portfolio serves more than 18k customers in 17 major urban projects through 19 plants across Dubai, in locations such as The Gardens, Nakheel Mall, Dragon Mart, Jumeirah Islands, Souk Al Marfa on the Deira Islands, The Circle Mall, Al Khail Avenue Mall and others. (District cooling companies deliver chilled water through insulated pipes to properties). Similar deals have occurred over the past nine months, including December’s purchase of two Saadiyat Island district cooling units by Tabreed from Aldar Properties in a US$ 262 million deal and the more recent April agreement that saw Emaar sell its Downtown Dubai district cooling business, for US$ 676 million, to Dubai’s Tabreed.
The Emirates Tourism Council notes a 13.1% H1 rise in hotel revenue to US$ 3.08 billion, as occupancy rose from 53.6% to 62.0%, driven by the country’s rapid Covid-19 vaccination campaign. Some 8.3 million guests, a 15% hike in year-on-year numbers, stayed in the UAE in H1, with the number of “local” hotel guests 77% higher, at 2.3 million. The UAE has seen 80% of its near ten million population inoculated. Another major improvement is expected in H2, during the six-month Expo 2020 Dubai starting on 01 October – which is only five weeks away. The economy of Dubai has shown positive indicators of a quicker than expected rebound and tourism is one of the drivers for the July improvement in the emirate’s IHS Markit PMI.
Dubai’s Crown Prince, Sheikh Hamdan bin Mohammed, has noted that the recovery of the tourism sector is “gathering pace”, despite the challenges currently faced by international markets. With the twin aims of increasing the inflow of international tourists, as well as targeting new source markets, the Emirates Tourism Council has approved a joint action plan of the Ministry of Economy and local tourism departments. Furthermore, the plan includes initiatives such as large-scale campaigns promoting several “promising destinations”, introducing long-term and multiple-entry tourist visas, (including the possibility of a five-year tourist visa), and marketing the country’s major tourism spots.
According to the RTA, marine public transport, (ferry, abra, water taxi and water bus), transported 5.7 million riders in H1 – 20.5% higher than the comparative 2020 figure.
A strategic alliance sees Outlet Mall join with the Lulu Group to form the region’s first and largest regional megamarket concept; targeting both B2B and B2C customers, and encompassing an area of some 200k sq ft, it will introduce the region to the cash-and-carry concept. This alliance will focus on bulk buying prices and will offer UAE residents exclusive bargains, as well as a broad range of low-cost, high-value products at competitive prices. Furthermore, with the expansion, Dubai Outlet Mall, which first opened in 2007, will spread over 3.5 million sq ft, to become the largest outlet mall on the planet, with a catchment area of 1.2 million customers.
Dubai’s Sharaf Group is to build an ultra-modern ‘Used Lead Acid Battery’ recycling facility, built on a 250k sq ft area, in Dubai Industrial City. The project is in line with the emirate’s vision of “Clean Environment” and “Zero Waste” by 2050 and the fully automated facility will process 21k tonnes or 85% of the ULABs generated in Dubai every year. The facility is being built by Italian battery recycle plant manufacturer, Engitec Technologies, and will commence operations in Q1 2023.
In the seventeen months to April 2021, it is reported that local Emirati authorities, assisted by HP staff members, conducted three major raids on several large-scale counterfeiting storage facilities in Dubai and Ajman, resulting in 207k illicit items being confiscated. Over that period, multiple major counterfeiting schemes, designed to assemble and distribute illegal HP printer cartridges in the UAE market, have been permanently closed down – a win win win situation for the government, HP and consumers.
The top ten UAE banks, including four from Dubai – Emirates NBD, Dubai Islamic Bank, Commercial Bank of Dubai and Mashreq – posted a healthy Q2 Return on Equity of 10.9%, its highest level since Q4 2019 when it reached 13.3%. The main drivers behind this improvement were a 2.8% quarter on quarter increase and lower impairment charges. The Central Bank notes a strong, ongoing domestic credit demand across all sectors of the economy, but the US Fed’s commitment to maintaining the current low level of interest rates is expected to keep domestic banks’ income streams under pressure. Q2 also witnessed deposit growth outpacing loans at most banks, as consumers and businesses cut spending, which in turn saw a boost to liquidity; the asset quality of these banks has also stabilised overall, after deteriorating in 2020.
Embattled Drake & Scull International announced an H1 net profit of US$ 21 million, with revenues of US$ 22 million, with a stable order book of US$ 96 million; it has ongoing operations in the UAE, Algeria, Tunisia, Palestine, India, Kuwait, Iraq, and Germany. The Dubai-based construction firm expects its 600 creditors’ approval of its restructuring plan by the end of Q3 and noted that its financial restructuring was progressing positively. As part of the restructuring plan, the company’s capital will be raised, and priority in subscribing to new shares will be given to existing shareholders.
Majid Al Futtaim posted increases in both EBITDA, (US$ 436 million) and net profit (US$ 18 million), despite a 10% decline in H1 revenue to US$ 4.25 billion. The privately held company, which owns and operates 28 shopping malls, 13 hotels and four mixed-use communities, noted that the 2.0% increase in earnings was primarily down to stabilisation of the retail market and steady asset valuations. The company’s retail business registered 12% declines in both revenue and EBITDA at US$ 3.6 billion and US$ 170 million respectively. Its property arm posted 6.0% rises in both revenue to US$ 436 million, and EBITDA to US$ 300 million. Revenue from the company’s hotels unit remained flat, year on year, at US$ 40 million, whilst there was a 25% jump from the company’s leisure, entertainment and cinemas businesses to US$ 137 million, albeit from a low base last year. The ME’s largest mall operator noted that there had been “encouraging signs of recovery” across its markets, as consumers gain assurance in resuming their pre-pandemic activities, and appeared confident in returning to pre-pandemic levels over the next two years.
ENBD Reit announced that its net asset value declined 3.3% on the quarter to US$ 174 million, mainly attributable to sustained valuation pressures and softening real estate market conditions. The Shariah-compliant real estate investment trust, which posted gross rental income 11.4% lower at US$ 7.5 million, managed to reduce operating expenses by 16.9% and saw occupancy dip 1% to 75%. The weighted average unexpired lease term increased 0.77 years to 3.97 years as 30th June 2021, compared to the previous year. Shareholders will be paid the equivalent of an 8.6% annualised dividend return of ENBD Reit’s share price.
Islamic Arab Insurance Company reported a net H1 income of US$ 11 million, driven by a solid performance in improving core business profitability and investment income, up 87.5% to US$ 9 million. The company, listed as Salama on the DFM, posted a 1.2% rise in net underwriting income to US$ 23 million, attributable to measures to revamp and restructure operations and processes and related IT infrastructure, as well as to tighten underwriting controls. Its subsidiaries, in Egypt and Algeria, also posted positive results, but their combined profit dipped 20.3% to US$ 4 million. In Q2, the insurance company’s focus on the local market saw Gross Written Contributions at US$ 179 million and an 11.7% increase in invested assets to US$ 348 million. The Board will meet next week to discuss the distribution of semi-annual dividends to shareholders.
The DFM opened on Sunday 22 August, 134 points (5.0%) higher the previous five weeks, rose 62 points (2.8%) to close the week on 2,900. Emaar Properties, up US$ 0.01 the previous week, gained a further US$ 0.02 to close on US$ 1.13. Emirates NBD and Damac started the previous week on US$ 3.68 and US$ 0.34 and closed at US$ 3.79 and US$ 0.34. On Thursday, 26 August, 233 million shares changed hands, with a value of US$ 44 million, compared to 99 million shares, with a value of US$ 50 million, on 19 August.
By Thursday, 26 August, Brent, US$ 8.16 (10.9%) lower the previous three weeks, regained US$ 3.77 (5.6%), to close on US$ 70.53. Gold, US$ 38 (2.2%) higher the previous week, gained a further US$ 12 (0.7%) to close Thursday 26 August on US$ 1,799.
On Monday, Bitcoin topped the US$ 50k level for the first time in three months, trading at US$ 50,267. It had fallen to US$ 27.7k in January, and to under US$ 32k mid-July, following a crackdown in China and a decision by Elon Musk’s Tesla not to accept it as payment. However, with more mainstream financial companies beginning to utilise the digital currency, and an announcement by PayPal saying it would allow UK customers to buy, sell and hold a range of cryptocurrencies, Bitcoin reacted with prices heading north again. It also continues to be helped by the Fed holding interest rates at record lows and making riskier assets more attractive to investors, with its ongoing support of the post-pandemic US economy. Any newcomer to the cryptocurrency market is advised to wait until Bitcoin declines to US$ 30k again before taking the plunge.
The amount raised by start-ups in the MEA region has topped US$ 2.1 billion, YTD, and is more than double the figure of the annual funding raised over the past three years, driven by the growth of the region’s fast growing digital economy; the two leading sectors, with the strongest investor backing, were fintech and food services. Management consultancy, RedSeer also expects the size of the region’s consumer digital economy to more than double by 2023, led by the online retail and travel sectors. Meanwhile, Bain & Company expects that MEA online sales will top US$ 28.5 billion by the end of 2022 – more than triple the 2017 total of US$ 8.3 billion.
There is no surprise to see that q-commerce is gaining traction in the region, with the fairly new business model being defined by very fast delivery from local shops, restaurants, and dark stores, and usually characterised by an under 2-hour delivery. Latest Redseer research indicates that q commerce – with the most common example being online food deliveries – has already taken up 20% of the Mena region’s digital economy and will contribute US$ 20 billion in gross merchandise value over the next three years.
A Spac (special purpose acquisition company) announced that it has entered into a Merger Agreement, under which Virgin Orbit will become a publicly traded company, utilising its parent company, Vieco US Inc, and NextGen Acquisition Corp. On completion, this transaction will provide finance of US$ 483 million, comprising US$383 million of cash, held in the trust account of NextGen (assuming no redemptions), and a US$100 million fully committed PIPE, (Private Investment in Public Equity). This will value Virgin Orbit at approximately US$ 3.2 billion and the process is expected to close by year end. The ownership will probably comprise Virgin Orbit’s existing shareholders base, including Virgin Group, Mubadala Investment Company, management and employees, holding an 85% stake, NextGen – 10 %, PIPE investors – 3% and SPAC sponsor – 2%.
Only recently, Morrisons’ directors had recommended investors accept a US$ 9.2 billion offer from a consortium led by US-based investment group, Fortress. Now it has changed its mind and accepted a better US$ 9.7 billion offer from another US private equity group Clayton, Dubilier & Rice, who, in June, had put a much lower US$ 7.6 billion bid which was turned down then.Fortress said it was “considering its options”, amid signs shareholders think the battle is not over. The latest offer represents a 60% premium to Morrisons’ share price before takeover interest emerged in mid-June. However, Morrisons’ shares, which jumped 4.4% on Friday, after the latest news, are trading above the new and improved offer price – a sure sign that there is more to run in this saga. (It seems that UK companies are the flavour of the month for overseas investors, as indicated by the fact that they have spent more buying UK listed companies in the last eight months than they had in the past five years; maybe sterling should be trading at a higher level).
Marks & Spencer announced that, over the previous nineteen weeks to 14 August, revenue from its food business was 10.8% and 9.6% higher compared to 2020 and 2019. It posted that clothing and home business had seen a “good recovery”, with revenue up 92.2% from last year and down just 2.6% on 2019. On this rare piece of good news for the retailer, as well as it issuing a profits upgrade, there are signs that its latest turnaround plan – “Never The Same Again” – is working; on the news, its share value traded 11.0% higher.
Staggering figures from the UK see that the country has lost 83% of its main department stores in the five years, since the collapse of the BHS chain, and that 67% of these remain unoccupied, with 237 big stores still empty. A study by CoStar noted that in 2016, the country was home to 467 stores, with the current figure now dropping to 79. Of the 388 stores that closed, 237 are still sitting empty, with a further 52 having plans in place for a change in usage.
According to CelebrityNetWorth, Charlie Watts, who died this week, was worth in excess of US$ 250 million, most of which came from ownership of shares in corporate entities of The Rolling Stones, which include royalties, album sales and tours, as well as other business ventures. The Rolling Stones’ member, since 1963, was considered to be one of the best drummers in the rock era and was the sixth richest drummer behind Ringo Starr (The Beatles – US$ 360 million), Lars Ulrich (Metallica – US$ 350 million), Dave Grohl (Foo Fighters – US$% 320 million), Larry Mullen Jr (US$ 300 million – U2) and Phil Collins (US$ 300 million – Genesis).
To see how bad the situation was in the seventeen-year Sepp Blatter FIFA era, one has just to see that the US Department of Justices has criminally charged fifty defendants and returned US$ 200 million to the global football body, five years after it started its corruption probe. Of that total, twenty-seven people and four corporate entities have pleaded guilty, with two people convicted at trial, with the money “raised” from the bank accounts of former officials, who were prosecuted for corruption, being used by the FIFA Foundation, an independent foundation, to help finance football-related projects. Blatter’s successor, Gianni Infantino, who earlier had been Secretary General of UEFA from October 2009 under the disgraced Michel Platini, commented that “I am delighted to see that money which was illegally siphoned out of football is now coming back to be used for its proper purposes, as it should have been in the first place.” It may be a bit rich of him to further claim, “we have been able to fundamentally change FIFA from a toxic organisation at the time, to a highly esteemed and trusted global sports governing body.” There is still some concern of Infantino’s involvement in the European Super League talks he has since distanced himself from. Corruption will probably never escape from football, with the latest scandal being Swiss prosecutors continuing a corruption investigation into two individuals, who worked for UEFA in the run-up to EURO 2020.
One of the biggest casualties of the pandemic was the global travel and tourism sector, battered by lockdowns, travel restrictions and border closures. It is estimated that its contribution to the global GDP almost halved from 11.4% to 5.5%, and more than US$ 4.5 trillion was “lost” last year because of the impact of Covid; over that time, 62 million jobs were lost in sector.
With Sydney under another lockdown, latest figures see payroll jobs continuing to head lower. It is estimated that payroll jobs have fallen 8.9% in Greater Sydney and 3.8% in NSW since lockdowns first began and that the negative momentum is accelerating; the main sector impacted is construction, with a fall of 22% across the state. Payroll job losses in the accommodation and food services, retail trade and construction industries accounted for 44.3% of job losses across Australia in the second half of July, and 45.4% in NSW. This is in direct contrast with the national unemployment rate falling to a thirteen-year low of 4.6% because of thousands of workers leaving the labour pool altogether, resulting in the labour force becoming smaller on a national scale.
It seems incongruous that Australia does not have to follow the leads of US and UK governments and reveal how many multiples of the median worker’s wage that is paid to the company supremos. The “CEO pay ratio”– that compares the average employee’s wage to how much the boss gets paid – is not mandatory but many are now calling for its implementation to clarify who gets what in major Australian entities. It is reported that in the US, Brian Niccol, the chief executive of US fast food chain Chipotle, has this ratio at a staggering 1,129:1. It has been estimated , utilising publicly available figures from before the coronavirus pandemic in 2019, those CEOs who out-earned workers by more than one hundred times included Alan Joyce, the Qantas chief, (126:1), Woolworth’s Brad Banducci, (143:1) and Goodman Group’s Gregory Goodman, (169:1). It is suggested that one of the top fat cats was CSL’s Paul Perreault, with a CEO pay ratio of 380:1. Critics want it a legal requirement so that observers can consider whether there is a “fair” split between the workforce and the management team and to emphasise, in some cases, the soaring gaps between executives and workers. Since being mandated in the US and UK, it has exposed the well-paid leaders of listed companies, boosted the income of minimum wage workers and increased macro remuneration transparency. After a decade-long slide, last year wage growth nudged a record 1.4% higher but what the Australian CEOs actually received is another story.
With the surprise election last week of Hakainde Hichilema as President of Zambia, Africa’s second biggest copper producer, there is increased hope that US$ 2.0 billion of expansion plans can start, once an agreement in the long running dispute over royalties is settled. The copper industry and the outgoing president, Edgar Lungu, had a fractious relationship that saw the industry stagnate, despite recent high copper prices. The slowdown can be seen from comparing production in Zambia and the Democratic Republic of the Congo. In 2010, Zambia produced nearly twice as much of the metal than the DRC – now its northern neighbour produces twice as much as Zambia. In the later stages of Lungu’s six-year presidency, some of the larger players, such as First Quantum Minerals, which accounts for more than 50% of the country’s copper output, and EMR Capital have the finance to fund their projects, while others have to spend “hundreds of millions of dollars” that have been held back since 2019 because of tax changes that deterred investment. The new incumbent may have to allow miners to deduct mineral royalties from the tax they pay on profits, as well as sliding-scale taxes that are levied on a pay-as-you-earn basis.
In the twelve months to May, copper prices jumped 123% from US$ 4.8k to US$ 10.7k but has since declined to US$ 9.4k by 26 August. It is estimated that Zambia is the seventh largest global copper producer, mining 882k tonnes of the total output of 18 million metric tonnes. Its importance to the country’s economy can be seen that it contributes over 26% to its GDP and accounts for over 70% of Zambia’s exports. Last year, it became the first country to default on an external debt and is still awaiting IMF’s approval of a US$ 13 billion bailout, which is probably dependent on reforming the mining industry. There is no doubt that mining is the key to the country reducing its 14.4% budget deficit to GDP and creditors restructuring its US$ 12.5 billion external debt.
Any cuts to Australia’s iron exports have a significant impact on the economy and government budgets. Two interesting facts about the commodity are that it accounts for 20% of the country’s exports and 5% of Australia’s GDP; China also buys about 70% of the iron ore Australia exports which makes up about 60% of ore Australia exports, which in turn makes up about 60% of all the iron ore China imports. For the fiscal year, ended 30 June 2021, the total company tax paid by miners was around US$ 24 billion. Needless to say, any cuts to Australia’s exports – or major price falls – will have a significant impact not only on miners’ profits but also on the economy and government budgets.
With the country in almost total lockdown, and its international tourism non-existent, the Australian economy needs increased exports to keep moving forward and that iron ore has played an important role in ensuring Australia’s economy remains buoyant. Prior to the onset of the pandemic, iron ore prices hovered around the US$ 100 a tonne, but when May 2020 arrived all bets were off and, in the twelve months since then, its price has more than doubled to top US$ 220 by the end of May 2021, before falling 27.4% to US$ 160 by 26 August.
There are reasons behind this boom/bust saga. When the pandemic first hit in China, its response was fast and positive – once the lockdown was eased, the Chinese started building apartments and infrastructure which requires steel, (pig iron, one of the main raw materials to make steel, is made from iron ore). The second factor was Covid in Brazil which led to many of its mines being closed down, with the subsequent cut in production from that country, that led to higher prices. Now twelve months later, the Brazilian mines have all reopened and it is estimated that, so far this year, it has shipped about 12% more iron ore than at the same point last year. In the meantime, this returning supply is coming into a market of falling demand, as the Chinese economy – specifically property and infrastructure – has slowed markedly, with the negative knock-on impact on prices, as the infrastructure and property sectors account for up to 25% and 30% of China’s steel demand respectively. Another point is that China does not want to increase steel output this year, as it has already produced too much in H1. Furthermore, China will almost certainly cut back on iron ore, as next February Beijing will host the Winter Games and the administration will not want two weeks of smog dominating the global media, so will cut back on construction work, weeks before the event.
There is no doubt that Australia has ridden the crest of a wave over the past year, but with the double whammy of reduced demand and falling prices, iron ore will no longer be able to carry the economy as it did last year; the government budget is looking at iron ore price falling back to US$ 55 by the end of Q1 2022. It is estimated that for every US$ 10 per tonne decrease in the iron ore price, relative to the budget forecast this financial year, Australia’s nominal GDP and federal government tax receipts are expected to fall US$ 4.6 billion and US$ 931 million respectively.
For the year ending 30 June, Qantas turned in a US$ 1.83 billion loss, slightly down on the previous year’s deficit of US$ 1.96 billion, and this despite revenue tanking 58.4% to US$ US$ 5.93 billion. The Australian carrier estimates that Covid has cost it over US$ 16 billion in lost revenue – because of a full year of closed international borders and more than 330 days of domestic travel restrictions – and the reduction in this year’s loss is mainly down to an aggressive cost-cutting campaign, (already at US$ 650 million), and staff stand-downs, mainly in the worst hit states of NSW and Victoria. The airline is hopeful that some international routes could open by year end and is planning to bring five A380 aircraft back into service next year. Over the financial year, Qantas paid down around US$ 500 million of debt and is currently discussing a potential land sale in Mascot, near Sydney airport, to raise even more finance; at year end, the Aussie carrier had US$ 3.8 billion in cash and available debt facilities.
With all this economic turmoil, there is no surprise to see the Aussie dollar tanking, trading at US$ 0.7244 on 26 August, 8.5% lower from its US$ 0.7913 mark six months ago in February. Normally a low dollar would be manna from heaven for the tourism sector, but with no international travellers allowed in the country, no benefit has accrued. One other major sector – international education – cannot gain from a lower dollar when there are only a limited number of overseas students in the country. To complete the trifecta, a lower dollar will inevitably increase prices of imports, resulting in what is known as cost push inflation. This, in turn, will reduce consumer confidence and consumer spending and what the Australian economy needs for full recovery is the complete opposite.
Although July UK retail sales dipped 2.5%, partly due to weaker food sales, following the end of Euro 2020, they are still 5.8% higher on pre-pandemic levels; food sales were 1.5% down on the month, after climbing 3.9% in June. Non-food stores reported a 4.4% drop in volumes, driven by declines at second-hand goods stores and computer/telecoms equipment stores. There was also a drag on fuel sales, caused by rainy weather earlier in the month, with declines also noted at clothing stores and household stores. Department stores were the only sector to show a rise but that was only 0.2%.
The UK’s Competition and Markets Authority is becoming increasingly concerned that the US$ 40 billion proposed takeover of chip designer Arm, owned by Japan’s Softbank, by US firm Nvidia, would stifle innovation in several areas, such as gaming and self-driving cars. Consequently, it is requesting a more comprehensive investigation into whether the takeover is warranted. Not surprisingly, the US suitor, the world’s largest graphic and AI chip maker, has reacted by indicating that the deal would benefit Arm, licensees and competition in the UK, but the watchdog is not too impressed. The takeover will now likely be subject to a deeper “phase 2” investigation, which increases the likelihood that it could be stopped altogether.
As UK July car production declines 37.6%, on the year, to its lowest July monthly, total of 53.4k units, since 1956, second hand car sales are soaring of the main drivers to these disappointing numbers include shutdowns, the global microchip shortage and staff being affected by the so-called “pingdemic”. YTD, car production is 20% higher than in the corresponding period last year – but down 28.7% on 2019 returns. Exports dipped 37.4% on the month to 45k, whilst more than 25% of the vehicles made were either battery electric or hybrid electric. It is estimated that the UK industry, with a US$ 109 billion turnover, employs 180k in manufacturing and 864k in supply chain; there are thirty manufacturers in the UK building seventy different models. For the remainder of 2021, the man drag on production will continue to be the shortage of microchips (semiconductors), with Goldman Sachs’ analysts estimating that this will cut the global carmakers’ profit by US$ 20 billion.
Although the stamp duty holiday must have played a part in the latest UK property boom, there are some who consider that more important contributors were low interest rates and moves to bigger housing units. According to the Resolution Foundation, the stamp duty holiday was unnecessary and has cost the government US$ 6.1 billion in lost revenue, indicating that prices will continue to move north because of the other factors in play. Not surprisingly, the Treasury has rebuffed these claims, saying the policy saved jobs by stimulating the housing market and that the cut introduced for first-time buyers estimated that between 50-70% of the value fed through into higher house prices. The think tank also noted that similar house price rises occurred in the US, France, Germany, Canada and Australia, even without the tax holiday. For the twelve months to June, UK house property prices jumped 13.2% – its fastest rise in seventeen years – equating to an average price increase of US$ 43k. The four locations, showing the fastest rises, were the NW, Wales, Yorkshire & the Humber and the NE at 18.6%, 16.7%, 15.8% and 15.3%, as London came in at the bottom of the listing at 6.3%.
With the easing of most Covid restrictions, and the subsequent boost to the UK economy, government borrowing came in 3.0% higher, year on year, at US$ 14.4 billion – the second highest July return since records began. Because of the economic impact of Covid, government debt – the difference between government spending and tax receipts – has expanded to over US$ 2.2 trillion, equivalent to 98.8% of GDP. Last fiscal year, to 31 March 2021, it is estimated that the government borrowed a total of US$ 411 billion or 14.2% of GDP. The Office for National Statistics also calculated that because of the need to support individuals and businesses, day-to-day spending by the government more than quadrupled to US$ 1.3 trillion and that interest payments on central government debt were US$ 4.7 billion in July, compared to US$ 1.5 billion a year earlier.
August’s IHS Markit/CIPS Composite PMI fell to a six-month low, dipping 3.9 on the month to 55.3, mainly attributable to staff and supply shortages and indicating the bounce-back from the pandemic is losing momentum. This comes despite measures easing to the lowest since the pandemic began, being offset by rising virus case numbers, whilst the number of companies reporting that output had fallen due to staff or materials shortages has risen far above anything ever seen by the study. As from last week, the rules changed yet again absolving people with double vaccinations from self-isolation requirements for contacts of people with Covid. If this trend were to continue, it is inevitable that forecasts of the economy returning to pre-pandemic levels in October will be wide of the mark. Other surveys pointing to a slowdown in the economy include manufacturing output growth easing in the three months to August, and stock levels weakening to a new low for the third consecutive month.
As the UK economy continued to reopen, the July Consumer Price Index slipped 0.5% to 2.0%, which has been the BoE’s target for some time. The dip was driven by price falls in clothing/footwear, as well games, toys and hobbies; package holidays also fell slightly. On the other side, transport prices headed in the other direction, with average petrol prices 19.0% higher, year on year, at US$ 1.83 per litre – its highest price in eight years. It is widely expected that the annual inflation will continue to hover around the lower side of the 2.0% mark, but will drift higher later in the year, driven by the removal of the temporary VAT cut for the hospitality sector and bigger energy bill hikes.
Commission President Ursula von der Leyen confirmed that the EU has yet to recognise the Taliban and is not holding political talks with the militants, a week after they seized control of Afghanistan – not to their surprise but to that of the rest of the world – by walking into Kabul, without firing a shot. She added that “we may well hear the Taliban’s words, but we will measure them above all by their deeds and actions.” The EU is considering a US$ 67 million increase in humanitarian aid, which the Commission had allocated this year, for Afghanistan, and confirmed that it was ready to provide funding to EU countries which help resettle refugees. There must be questions asked on how this debacle could have taken place in the first place and why the world’s best security, defence and armed forces were apparently caught napping. To their embarrassment and shame, after twenty years, The Boys Are Back In Town.