Rich Getting Richer, Poor Getting Poorer! 21 October 2022
The 2,703 real estate and properties transactions totalled US$ 2.18 billion, during the week ending 21 October 2022.The sum of transactions was 147 plots, sold for US$ 305 million, and 2,023 apartments and villas, selling for US$ 1.31 billion. The top two land transactions were both for land in Al Thanayah, sold for US$ 23 million, and the other in Island 2 for US$ 17 million. Jabal Ali First recorded the most transactions, with forty-eight sales, worth US$ 41 million, followed by Hadaeq Sheikh Mohammed bin Rashid, with eighteen sales transactions, worth US$ 115 million, and Al Yufrah 2 with eleven sales transactions, valued at US$ 4 million. The top three transfers for apartments and villas included one sold for US$ 260 million in Palm Jumeirah, another purchased for US$ 183 million in Marsa Dubai, and a third sold for US$ 146 million in Business Bay. The mortgaged properties for the week reached US$ 401 million, with the highest being for land in Island 2, valued at US$ 74 million, while 107 properties were granted between first-degree relatives worth US$ 105 million.
In their Q3 report, Betterhomes indicated that Russians have emerged as top buyers in the Dubai property market, surpassing those from UK, India, Germany, France, the US, Pakistan, Lebanon, Canada and Romania. The main driver behind the Russian influx is down to the Ukraine crisis, with high-net-worth individuals, from both protagonist nations, moving to safer, more stable and faster-growing locations, including Dubai. It posted that H1 had seen Indians being the top of the list, followed by the UK, Italy, Russia and France. The property brokerage firm confirmed that Q3 witnessed a record number of transactions – at 22.9k – 61% higher on the year, but noted that prices were almost flat. It did signal out Palm Jumeirah, where it sees prices showing no signs of easing, that had already grown 10% YTD. Apartment prices in Damac Hills, Mohammed bin Rashid City, Dubai Studio City and Al Khail Heights increased 7.0%, 6.0%, 3.0% and 3.0% respectively. Betterhomes also noted decreases in Culture Village, JBR, DuBiotech, Jumeirah Village Triangle and Dubai Investment Park, posting 11%, 10%, 9%, 5% and 4% losses respectively in Q3.
There are many Dubai residents whose main topic of conversation seems to be the high rental rates of residential property in the emirate. Only last week, this blog noted that on the year, it was estimated that apartment and villa rents had jumped 26.6% and 25.5%. However, there are certain areas, in and around the emirate, that have affordable housing, including Dubai Production City, International City, Jumeirah Village Circle, Dubai South, Dubai Investment Park, Damac Hills 2, Dubai Land, Al Muhaisnah and Al Warsan.
What could well become one of the most expensive eateries in Dubai, Sublimotion will offer a theatrical dinner experience, a ten-course meal, live performances and 360-degree screens with surround imagery. The restaurant, located in the Mandarin Oriental, will only host twelve diners at a time, with each seat costing US$ 1.36k, (AED 5k), for a two-hour experience. Set in a roofless box, with a long table, with food descending from the ceiling, the new season will run from November 2022 to May 2023. The whole experience has a crew of twenty-five designers, engineers, stage directors, composers, illusionists, and actors, working to deliver the two-hour dining performance. Launched by chef Paco Roncero, in Ibiza in 2014, it moved to Dubai last year.
Flydubai has signed a wet lease agreement, with Smartwings, for four Next-Generation Boeing 737-800 aircraft between 17 November 2022 and 16 January 2023. The aircraft, crew, maintenance and insurance (ACMI) agreement, with the Czech Republic-based airline, will help the Dubai carrier add more capacity for its passengers and cater to demand for travel during the busy winter season. Flydubai currently operates a single-fleet type of Boeing 737 aircraft, that includes thirty-two next-generation Boeing 737-800s, thirty-three Boeing 737 MAX 8s and three Boeing 737 MAX 9s. The all-economy class aircraft will operate on select routes, on the flydubai network, including Chattogram, Colombo, Dhaka, Karachi, Multan, Muscat and Sialkot.
According to the OAG’s latest report, Dubai International has retained its position as the world’s busiest international airport. The consultancy, using seat capacity for its calculation, estimates that Dubai’s 4.12 million seats, 5.0% higher on the month, was well ahead of second place, London Heathrow’s 3.47 million. Amsterdam, Paris Charles de Gaulle and Frankfurt made up the top five spots. The last ten days of this month represent one of the busiest periods for Dubai International, as schools break for their half-term. It is expected as many as 2.1 million passengers will pass through the world’s busiest international airport, equating to an average daily traffic, touching 215k passengers. Sunday 30 October is expected to be the busiest day with an expected 259k passengers.
The 2022-2023 academic year sees good news for Dubai parents, because there will be no school fee hikes, as the country’s education regulator, the Knowledge and Human Development Authority, also determines allowable fee increases thorough its Education Cost Index. The Index, based on several factors, including salaries, rent, and utilities, was set at minus 1.01%, meaning that Dubai private schools were not allowed to implement any fee increases. Aside from the ECI, the schools are also subject to a fee framework, developed by the KHDA, which outlines eligibility requirements for raising tuition fees, with performance playing a huge part in this framework. The Dubai Schools Inspection Bureau (DSIB), a unit established by the KHDA, is in charge of rating schools – from “Very Weak” to “Outstanding.” The following is a list of the ten most expensive schools in the emirate.
|DSIB Rating||Min Fee||Max Fee|
|Jumeirah College||Outstanding||19.9K||24.9K||Year 7||Year 13|
|Repton School||Outstanding||20.4k||25.9k||Year 7||Year 13|
|Nord Anglia||Very Good||17.3k||26.1k||FS!||Year 13|
|King’s School||Outstanding||14.6k||26.6k||FS1||Year 13|
|Dubai College||Outstanding||23.6k||26.7k||Year 7||Year 13|
|Swiss Intl Scientific||Good||14.4k||27.0k||Pre-K||Year 12|
|Dwight School||Acceptable||15.9k||27.1k||Pre-K||Year 12|
|GEMS World Academy||Very Good||10.9k||31.1k||Nursery||Year 12|
|N London Collegiate||Good||18.1k||35.4k||Grade 1||Year 12|
The federal Ministry of Finance unveiled amendments to the Decree-Law No 7 of 2017 on Excise Tax, with immediate effect. These changes, thought to be beneficial for the business sector, include facilitating fulfilment of obligations for taxable persons, minimising tax avoidance, and addressing challenges, related to the application of the excise tax. There are two major amendments, with the first seeing persons, importing excise goods for purposes other than conducting business, being excepted from tax registration, while remaining liable to pay the relevant excise tax on the import. The other is interesting in that a person subject to tax shall pay the amounts he receives as tax to the FTA, even in cases where the tax was applied by mistake or evasion. There have been several additions to the legislation relating to tax audits, tax assessments and permissible timeframes to submit a voluntary disclosure.
In a bid to foster the region’s emerging position in the global coffee market, DXB LIVE is to organise the second edition of World of Coffee Exhibition 2023, to be held at the DWTC between 11-13 January. The target audience will include the likes of coffee producers, manufacturers, retailers, traders, and the broader industry from all parts of the world. The integrated event management and experiential agency of Dubai World Trade Centre has also signed an agreement to organise this exhibition in the region for a period of five years, with future exhibitions being hosted in different MENA countries to take advantage of the genuine potential that the region gives to this business. The exhibition will continue to solidify Dubai’s position as a world-class destination for hosting international events, as well as its growing position in the global coffee market.
Jebel Ali Power Generation and Water Production Complex – with a daily production capacity of 490 million imperial gallons of water per day, which is equivalent to 2,227,587 cubic metres per day – has been included in the Guinness Book of records for the second time; the accolade came because DEWA owns and manages the world’s largest single-site water desalination facility. Last year, Dubai’s power giant was awarded the largest single-site natural gas power generation facility in the world, with the complex having a power generation capacity of 9,547MW. DEWA utilises three pillars to sustain water production – clean solar energy to desalinate seawater, the use of reverse osmosis technology, which consumes less energy than MSF plants, and Aquifer Storage and Recovery. When completed by 2025, this project will allow 6k million imperial gallons of water to be stored and retrieved when needed, making it the largest emergency potable water storage in the world. This technology will provide a strategic reserve that will supply Dubai with more than fifty million imperial gallons of water per day for ninety days in emergencies, while ensuring the safety of the stored water.
In H1, DEWA invested US$ 463 million, (22% higher on the year), to commission a new 400kV transmission substation and ten new 132kV transmission substations. By the end of H1, Dubai had twenty-six 400kV transmission substations and 329 substations. It is forecast that the utility will spend US$ 2.72 billion on electricity transmission projects over the next two years, including US$ 544 million for 400kV transmission projects and US$ 2.18 billion for 132kV projects. One of the main aims of this investment is to ensure that all the emirate’s power production will be from clean energy sources by 2050, in line with the Dubai 2040 Urban Masterplan, the Dubai Clean Energy Strategy 2050, and the Dubai Net Zero Carbon Emissions Strategy 2050, to provide 100% of Dubai’s total power production capacity from clean energy sources by 2050.
After receiving DIFC approval and authorisation, M7 Real Estate has opened its first office in the DIFC – its first foray in the ME. The move, by the pan-European investor and asset manager, is aimed to capitalise on the continued strong demand for high-quality European real estate from regional investors. The company, owned by Oxford Properties, already manages almost US$ 1 billion of European property, on behalf of ME investors, equating to 20% of the company’s assets under management. It is also keen to tap into a new sector of investors, apart from its current portfolio of select Middle Eastern clients. Established in 2009, M7 manages a portfolio of 580 assets, comprising 47.3 million sq ft of area, with a capital value of US$ 5.7 billion, and invests across a variety of multi-tenanted asset classes in Europe. Its Dubai office sees the company now having a presence in fifteen countries, and since its acquisition by Oxford Properties, it is focussing on further global expansion.
Dubai-based Network International announced Q3 revenue rose 28% year-on-year, driven by UAE consumer spending and growth in regional tourism, and that revenue from merchant solutions came in 39% higher. The UAE and Jordan posted 19% growth, attributable to strong consumer confidence, whilst the value of international payments grew 84%, year on year. The LSE-listed payments processor also confirmed that its Saudi Arabian market entry was going to plan.
Effective 26 October, Emaar Properties will now allow 100% foreign ownership, having gained approval from the Securities and Commodities Authority and Dubai Economy and Tourism Department; formerly, the limit was set at 49%. Its latest financials showed that Q2 profits were 100% higher, at US$ 561 million, as revenue was up 8% at US$ 1.89 billion. At last month’s AGM, the shareholders also approved the acquisition of Dubai Creek Harbour from Dubai Holding, costing US$ 2.04 billion.
Troubled Union Properties has had a chequered recent past and this week has agreed with its creditors to restructure US$ 162 million of debt and will repay US$ 61 million to its lenders. In August 2020, the developer had reached an agreement with Emirates NBD, its biggest creditor at the time, to restructure US$ 258 million in bilateral debt. Last October, SCA, the country’s market regulator, filed a complaint against its senior executives, accusing them of abuse of authority, fraud and causing damage to the interests of the company. Earlier this year, UP initiated a much-revised turnaround strategy, with the triple aim of restoring shareholder value, enhancing profitability and cutting costs, and confirmed that it was in negotiations with two of its major creditor banks to restructure loan facilities. Although details of its latest “comprehensive restructuring plan” were sketchy, it will “effectively reduce financing costs” for the company, and, at the same time, help it significantly improve its profitability and cash flow generation.
Deyaar Development announced a US$ 10 million Q3 net profit, on the back of a revenue stream of US$ 57 million – with US$ 28 million and US$ 157 million posted for the nine months to 30 September. In Q3, the developer confirmed rapid progress in the construction work of its Mesk and Noor districts in Midtown, with their completion expected by the end of this year, and the beginning of 2023, respectively. During this week’s meeting, its Board recommended to approve the US$ 136 million cash settlement, offer provided by Limitless, comprising US$ 54 million – immediately upon signing the agreement – and completing the US$ 82 million balance within a period, not exceeding eighteen months from the signing of the agreement.
TECOM, the company that owns Dubai Internet City, Dubai Media City, Dubai Design District (D3), and Dubai Industrial City, has posted a 43.4% hike in H1 profits to US$ 117 million, attributable to “encouraging revenue growth, enhanced operational efficiencies and prudent financial measures.” The Board has proposed a US$ 54 million interim dividend, equating to US$ 0.0109 per share, (AED 0.04); TECOM had declared that it would be distributing US$ 218 million, (AED 800 million), annually until October 2025 in its previously announced dividend policy.
DFM-listed Aramex has made an all-cash investment of US$ 265 million to acquire Access USA Shipping (MyUS), a global technology-driven platform. The transaction was the biggest ever purchase for the leading global provider of logistics and transportation solutions. MyUS, which will retain its brand name, will be fully integrated into Aramex’s business, operating as a business unit within the company’s courier business segment. MyUS provides cost-effective package forwarding solutions. In 2021, the company posted US$ 100 million in revenue and delivered 1.1 million packages to its 180k customers who shop from retailers based in the US, UK and China.
The DFM opened on Monday, 17 October, 4 points higher on the previous week, and rose 22 points (0.6%) points by Friday 21 October, to close on 3,399. Emaar Properties, US$ up 0.08 the previous fortnight, gained US$ 0.04 to close the week on US$ 1.70. Dewa, Emirates NBD, DIB and DFM started the previous week on US$ 0.69, US$ 3.53, US$ 1.64, and US$ 0.39 and closed on US$ 0.68, US$ 3.56, US$ 1.66 and US$ 0.39. On 21 October, trading was at 172 million shares, with a value of US$ 76 million, compared to 181 million shares, with a value of US$ 120 million, on 14 October 2022.
By Friday 21 October 2022, Brent, US$ 1.59 (1.7%) lower the previous week, was up US$ 1.87 (2.0%) to close on US$ 93.50. Gold, US$ 18 (1.1%) lower the previous week, gained US$ 13 (0.8%), to close Friday 21 October, on US$ 1,663.
No doubt using money from its recent super profits, BP has invested US$ 4.1 billion to acquire US renewable gas producer Archaea, as part of its strategy to reach net zero carbon emissions by 2050; the deal will see the energy giant, whose cash balance has been greatly enhanced by recent surges in oil prices, pay US$ 3.3 billion in cash and US$ 800 million in debt. The company posted that the acquisition of Archaea, which currently produces renewable natural gas equivalent in amount to about 6k bpd, would create “a real leader in the biogas sector, and support our net zero ambition”. In June, BP announced that it was taking a 40.5% stake in an Australian energy project, being billed as one of the world’s largest renewable power stations. Maybe the new Chancellor will be looking at raising more revenue by imposing a windfall tax on super profits earned by energy companies. Shell’s outgoing CEO, Ben van Beurden, indicated that governments should “probably” tax energy firms more to help protect the poorest from rocketing energy bills, but another former employee. Liz Truss, has remained silent on the subject.
In the UK, consumer-rights champion Julie Hunter is leading a legal claim against Amazon, citing it had breached competition law and caused customers to pay higher prices by the Amazon app obscuring better-value deals. It is alleged that independent sellers have been excluded from the buy box, even when they offer the same product cheaper, or on better terms – thus breaching UK and EU competition law. The case will be heard in the Competition Appeal Tribunal and will reportedly seek damages from Amazon, estimated in the region of US$ 1.0 billion. It appears that anyone living in the UK, who has made purchases on Amazon.co.uk or the Amazon mobile app since October 2016, is an eligible member of the claimant class.
Better news for the tech giant saw the first ever ballot for strikes, at a UK Amazon warehouse, fail to reach the legal threshold for industrial action – by just three votes – and despite 99% of those who took part backing action. UK law states at least 50% of members entitled to vote must do so for strike ballots to be valid. The union is looking for a US$ 16.80 (GBP 15.00) an hour pay rate, whilst the US conglomerate said it had increased pay and offered a “comprehensive benefits package” to its employees in Coventry.
With the persistent global semiconductor shortage not going away, Toyota Motor Corp, like many other similar companies, has indicated that its annual vehicle production was likely to come in below its initial target of 9.7 million vehicles; it is expected that this month and next, production will come in at least 100k less, at almost 800k. The Japanese carmaker posted that the figures for the first five months of its fiscal year, to August, were down 6.7% on initial forecasts. Toyota is also concerned that demand for its vehicles will also be impacted by the global economic slowdown, surging inflation and rising interest rates. It has confirmed that it will suspend eleven of its production lines, at eight domestic factories, in November for between two to nine days. Last year, it ended up turning out 8.5 million vehicles, compared to its original forecast of 9.3 million.
On Wednesday, following the announcement that Tesla had missed Wall Street estimates for Q3 revenue, because of fewer deliveries of vehicles than expected, its shares fell 6.3% to US$ 208.16; over the past twelve months Tesla’s market value has tanked by almost 50%. Earlier in the year, Elon Musk had said that his EV company would boost deliveries by 50% this year – a figure that some are now questioning, since Q3 had only seen a 35% hike in numbers. Tesla’s Q3 revenue was $21.45 billion, with gross margin down from 30.5% to 27.9% on the year.
French cement maker Lafarge has pleaded guilty in the US to supporting the Islamic State, and other terror groups, and has agreed to pay a US$ 778 million penalty, and “deeply regretted” the events and “accepted responsibility for the individual executives involved”. In 2010, the company had invested US$ 680 million for a plant in Jalabiya, near the Turkish border, and that Lafarge’s Syrian subsidiary had paid Islamic State and another terror group, al Nusra Front, the equivalent of US$ 6 million to protect staff at the plant, as the country’s civil war intensified. The firm agreed to the US$ 778 million penalty for payments it made to keep a factory running in Syria after war broke out in 2011. With fighting intensifying the company evacuated in September 2014 but not before these deals helped it with US$ 70 million in sales; in the following year, the business was sold to Switzerland’s Holcim.
For the year ended 31 August, online fashion retailer Asos has reported a US$ 36 million loss, (compared to a US$ 198 million profit a year earlier), with lower customer spend on fashion, due to the rising cost of living. It expects that conditions will worsen into their new fiscal year, as inflation and living costs continue at high levels. The owner of Topshop and Topman indicated it was facing “an incredibly challenging economic environment” and although a decline in the sector is almost certain, it remains confident in its ability to take market share against that backdrop. However, it expects to be in a loss position again at the end of H1 (February 2023), as it needs to clear surplus stock at reduced prices. Asos, and its rival Boohoo, benefitted from Covid but both have been losing business, as people return to traditional store shopping. Little wonder that its share value has tanked 80% YTD.
As it prepares to offer a new streaming option with advertising, Netflix Inc saw its share value jump 14% on the day this week, after starting Monday 60% lower on the year. The streaming giant has manged to reverse customer losses, that had hammered its stock this year, and is forecasting a pick-up of 4.5 million new customers, projecting more growth ahead, driven by its new option. Its Co-CEO, Reed Hastings, confirmed the need for the company to continue gathering momentum by focusing on content, marketing and a lower-priced plan with advertising. Having added 2.4 million new subscribers worldwide in Q3, more than double what Wall Street expected, it now has a total of 223.1 million global subscribers.
The Competition and Markets Authority has reissued a final order to Meta to sell animated images platform Giphy, warning that the takeover of the gif-creation website could harm social media users and advertising; this is thought to be the first time that the UK has blocked an acquisition by a tech giant, signalling a new determination to scrutinise digital deals. It had acquired Giphy – the largest supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter – in 2020. In November, the UK’s competition watchdog had ordered the then known Facebook to dispose of Giphy and to pay a US$ 50 million fine for refusing to comply with the CMA during investigations.
Not only has it had its licences suspended, Australian gambling giant Star Entertainment Group has also been fined a record US$ 62 million (AUD 100 million) for failing to stop money laundering at its Sydney casino. All over the country, casino owners have been under great pressure to reform their gambling operations following reports of widespread criminal activity. As noted in a recent blog, the casino had permitted organised crime and money laundering in its Sydney operation and had, on some occasions, tried to cover their tracks, with the regulatory chief Philip Crawford noting that “the institutional arrogance of this company has been breath-taking.” After a similar inquiry in Queensland, The Star was earlier this month also found unsuitable to run its three casinos in that state.
Treasurer Jim Chalmers has warned fellow Australians that the country “will not be spared from the consequences of a global slowdown”, ahead of next week’s budget. Having just returned from Washington, where he attended an IMF meeting with G20 finance ministers, he cautioned that the global economy is treading an “increasingly perilous path”, and that “downside risks loom large”. He noted that “the budget will confirm the stark deterioration in the outlook for global growth, and in several major economies, with some at risk of falling into recession.” The finance minister stated that he will deliver a responsible budget – and that global peers have posted much lower growth forecasts than expected earlier in the year – because of a weaker global economy, with higher inflation and heightened risks.
Hong Kong shares have slumped to their lowest level since the 2008 GFC, with the Hang Seng falling by over 3.0%, following its chief executive, John Lee, announcing measures to boost security and plans to attract more overseas talent to the territory. However, the fall came about because he failed to elaborate on economic targets for the city, which has lost ground to rival financial centres like Singapore and Dubai. Hong Kong is in currently technical recession – after posting two successive quarters of contraction. There is market concern that the tax rebates are not enough to draw foreigners back to Hong Kong and about the “unprecedented silence on key economic indicators.” On top of that – and probably the main drivers behind declining consumer confidence – are the downside outlook for China’s economy and a rise of Covid cases in the middle of the party congress in Beijing.
Yesterday, EU leaders finally started to debate how to handle Europe’s rising energy prices and imposing a cap on gas prices. On one side of the fence is Germany, and on the other Italy, looking for a swift and ambitious cap on prices. The bloc’s twenty-seven member states have been squabbling for months over measures to lower energy bills and there seems little chance of a common approach becoming a realty, more so because the top two nations in the bloc, Germany and France, cannot agree on any approach. There are several avenues that the ministers can study as they try to satisfy these differing views with a series of proposals that it hopes will help Europeans pay for their heating as winter approaches. One such proposal is to allow joint purchases by the EU energy giants in order to command cheaper prices to replenish reserves. Other ideas put forward include giving the Commission the power to establish a pricing “corridor” on Europe’s main gas index, to intervene when prices get out of control. One major hassle is the link between gas and electricity prices, because under EU rules, a gas price index helps set the price of electric power across the continent, but the index has skyrocketed since the beginning of the Russia-Ukraine conflict, since it was Moscow that supplied 40% of the EU’s gas imports before the war. Spain and Portugal have already gained an exemption and now there are other nations looking for the same exclusion. However, Germany opposes this idea, arguing that cheaper gas will dissuade users from cutting back on their energy use.
Most analysts expect that the ECB will lift rates on its deposit and refinancing accounts by a further 0.75% next Thursday, (or a possible 1.0%), as it belatedly tries to contain inflation rates which, like the BoE, is running at five times more than the central bank’s target. By December, the deposit and refinancing rates are expected to reach 2.0% and 2.50% respectively compared to 1.25% and 2.00% predicted last month. The ECB’s first increase did not come until July, when it added 50 basis points to all its rates, taking the deposit rate to zero — its first time not in negative territory since 2014 — and followed that up with a 75 bp lift in September. Skyrocketing energy prices, allied with fractured supply chains, and the ongoing and deteriorating Ukraine crisis, are the main factors pushing such rates even higher. It is expected that it may show signs of improvement and end the year on a still high 9.6% – and could, but probably will not, drop to its original 2.0% target by the end of 2024. The central bank, which has also started unwinding its US$ 3.25 trillion of bond purchases, will have to carry out a balancing act so as not to force a recession because of higher rates.
President Biden’s administration has awarded US$ 2.8 billion in grants – to twenty companies across twelve states – to boost the production of electric vehicle batteries and the minerals used to make them. He also announced the American Battery Materials Initiative to commit the entire government to securing a reliable and sustainable supply of critical minerals used for electricity and EVs. The aims of this strategy are to make 50% of all new vehicles sold in the US electric or plug-in hybrid models, and provide 500k new EV charging stations, and to reduce the country’s reliance on China and other nations for its green energy revolution. In August, the Chips and Science Act provided US$ 52.7 billion for semiconductor research, development, manufacturing and workplace development.
As the White House announced the release of a further fifteen million barrels from its Strategic Petroleum Reserve, Joe Biden called for an increase in domestic oil production. The struggling President wants to see oil prices head further south before the 08 November midterm elections that will decide the make-up of the US Congress. It was also announced that the country’s strategic reserves, housed in vast salt caves in Texas and Louisiana, will be refilled when oil prices are at or below about US$ 67- US$ 72 per barrel. Earlier in the month, the Saudi Arabia-led Opec+ alliance agreed to a two million bpd cut, in a move that could be seen to be a snub to Biden to hinder his Democratic Party at the polls. He has also urged refiners and retailers to pass their savings on to consumers, condemning their “record” profits amid a global inflation crisis “at the expense of the vast majority of Americans”.
A neutral observer would ask why opposition parties and other critics, in the UK, are solely blaming the government for the current high inflation rate when, say the US and EU, with almost identical figures, and other administrations get away using the Ukraine crisis, supply chain problems, high energy prices, slowing global economy etc for their justification? This week, the Federal Reserve came out with their latest “beige book”, confirming that economic prospects are becoming “more pessimistic” in the country on growing worries of weaker demand, citing heightened inflation and rising interest rates. The US central bank has to try hike rates to cool surging consumer prices, and simultaneously avoid tipping the world’s biggest economy into a recession by raising them too high and too quickly. This year, it has already pushed the benchmark lending rate five times to add a total of three percentage points.
The volume is being turned up as more industry leaders are pointing to the fact that a recession is on the horizon., with the latest being Elon Musk, who considers that a recession will last for eighteen months ending in Q2 2024. Earlier in the week, he had commented that “a recession of sorts” in China and Europe was weighing on demand for its electric cars. This opinion is shared by Jeff Bezos, former supremo at Amazon, who wrote that “the probabilities in this economy tell you to batten down the hatches.” Their opinion is shared by many others including the IMF MD, Kristalina Georgieva, who has consistently warned of rising recession risks, and David Solomon, CEO of Goldman Sachs, who commented that “there’s a good chance we could have a recession in the United States”. Even stock markets are feeling the pressure, worried that if the Fed continues with hefty rate rises, the US economy could go into recession, as the benchmark ten-year T-Bond yield hit fifteen-year highs.
Moneyfacts estimates that some UK mortgage rates are at their highest level since August 2008 – as the average rate for a two-year fixed rate loan rose to 6.53% and the average interest rate on a five-year fixed rate mortgage rising to 6.36%. It does offer a glimmer of hope to homebuyers, as it expects markets to calm and pressure on mortgage rates to ease, with the recent many government U-turns. The number of mortgages available for homebuyers dropped sharply after the government’s disastrous mini-budget but has recovered somewhat – although there are still far fewer available compared with 2021. At the same time, there has been a marked slowdown in house sales, which was happening even before the tumultuous events of the last seven weeks. Housebuilder Bellway commented that there had been a fall in “elevated” demand from homebuyers, that had picked up in the coronavirus pandemic and that it expected sales to be flat in the coming year. The Royal Institute of Chartered Surveyors (RICS) warned that “storm clouds” in the housing market were visible, with the market “losing momentum”, as buyer enquires fell for the fifth month in a row in September.
Following a change of faces at No. 11, its new incumbent, Jeremy Hunt, has indicated that some taxes would go up, and government spending would rise by less than previously “planned” by the odd couple – Liz Truss and Kwasi Kwarteng. The incoming Chancellor has confirmed that “some taxes will not be cut as quickly as people want, and some taxes will go up. So it’s going to be difficult,” as he tries to restore UK’s economic policy credibility. This comes after the Prime Minister last Friday confirmed that the corporation tax rate would increase, abandoning her plan to keep it at current levels, and government spending would rise by less than previously planned. The new Chancellor did not hold back blasting his new (and now departed) boss on all fronts, agreeing with her fundamental approach of seeking to spark economic growth, but the way she and Kwarteng went about it had not worked. He also continued by saying “there were mistakes. It was a mistake when we’re going to be asking for difficult decisions across the board on tax and spending to cut the rate of tax paid by the very wealthiest,” and that “it was a mistake to fly blind and to do these forecasts without giving people the confidence of the Office of Budget Responsibility saying that the sums add up. The Prime Minister has recognised that, that’s why I’m here.” To some, this seems to have been her death warrant.
Three weeks after the disastrous mini-budget, masterminded by the incompetent Liz Truss and her thankfully departed Chancellor, Kwasi Kwarteng, the UK government continued to do U-turn after U-turn to try and put the country on better footings. (Chancellor, Jeremy Hunt – being one of eleven Tory MPs who announced they would seek the leadership of the Conservative Party, with three withdrawing before the race began – was the first to be eliminated). Now he has added a further change to the energy price support, which had been touted to last for two years will be cut in April; until then, the price will be capped at US$ 2.8k but could now top US$ 4.9k from April 2023; it was confirmed that the most vulnerable would continue to be protected from soaring energy prices. The Chancellor, in defending this change, said “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices”, and that the Treasury will review the support given from April.
Thursday saw the demise of the UK’s 56th Prime Minister, Liz Truss who resigned after only forty-five days in the office, and on the news, the pound rose against the dollar, lifting 1.13 to the greenback, and government borrowing costs dipped. The market was evidently glad to see her back, and were “relieved” by the news, despite a lot of uncertainty remaining.
Latest figures from the Office for National Statistics indicate that retail sales fell by more than they did before the onset of Covid-19, and retail sales, down 1.4%, fell by more than expected last month. As a result, sterling dipped against the greenback today, trading at US$ 1.11, after rallying a day earlier as Prime Minister Liz Truss resigned. To further dampen the pound’s progress was news that government borrowing rose slightly to its second highest September on record. Apart from the impact of negative economic data, it seems that investors are also concerned with political and economic uncertainty that is spooking global markets and ensuring a volatile ride for sterling.
The UK rate of Consumer Price Index inflation in the UK rose to 10.1% in the twelve months through to September, 0.2% higher than a month earlier and returning to double digits first seen in July; this figure is quintupled the almost laughable 2.0% target of the BoE. The Office for National Statistics figures showed that the CPI monthly rate was at 0.5%, compared to 0.3% a year earlier. The RPI jumped to 12.6% while CPI, including housing costs (CPIH), nudged 0.2% higher on the month to 8.8%. Although partially offset by lower fuel costs, rising food prices were the greatest addition to the cost-of-living squeeze on households. If no further action is taken, inflation will move higher in April if the government cuts funding for household energy bills. Food costs jumped 14.6% in the year to September – the biggest rise since 1980 – with bread, cereal, meat and dairy prices all climbing.
An ultra-high-net-worth-individual is defined as an individual who has more than US$ 100 million in tangible assets. A study by Henley & Partners estimates that there are 25.5k “centimillionaires” on the global stage, with the US home to 38.0% of the number, followed by China, India, UK and Germany, accounting for 7.9%, 4.4%, 3.8% and 3.8% respectively. Switzerland, Japan, Canada, Australia and Russia fill the top ten positions. A report, earlier in the year, by Knight Franks reckoned that there were 9.3%, (52k) more people globally added to the ultra-wealthy segment, defined as having net wealth of over US$ 30 million, with US numbers 12.2% higher. When it comes to the UAE, the Boston Consulting Group has estimated that 41% of the country’s wealth last year was derived from UHNWIs, estimated to nudge 2% higher up by 2026. Currently, in the global list of global of centimillionaires, Dubai, with 202 centimillionaires, ranks 18th,with New York at the top, followed by the San Francisco Bay Area, London and Los Angeles with 737, 623, 406 and 393 respectively. Latest figures show that 85% of the world live on less than US$ 30 per day, two-thirds live on less than $10 per day, and every tenth person lives under the poverty line of US$ 1.90 per day. These figures will become more worrying once the full impact of the current cost of living crisis hits home. There is no doubt that it is a case of Rich Getting Richer, Poor Getting Poorer!