Do It Again                                                                                     18 August 2023

The 3,571 real estate and properties transactions totalled US$ 2.83 billion, during the week, ending 18 August 2023. The sum of transactions was 120 plots, sold for US$ 608 million, and 2,782 apartments and villas, selling for US$ 1.87 billion. The top three transactions were all for plots of land, one in Al, Barshaa South Third sold for US$ 38 million, Palm Jumeirah for US$ 29 million and in Al Hebiah Fourth, for US$ 25 million. Madinat Hind 4 recorded the most transactions, with twenty-one sales, worth US$ 8 million, followed by twenty sales in Al Hebiah Fifth for US$ 14 million, and thirteen sales in, Jabal Ali First valued at US$ 22 million. The top three transfers for apartments and villas were all for apartments, with the first in Palm Jumeirah, valued at US$ 31 million followed by one in Zabeel First for US$ US$ 16 million and the other in Burj Khalifa for US$ 15 million.The mortgaged properties for the week reached US$ 542 million, with the highest being for land in Business Bay mortgaged for US$ 95 million. whilst 109 properties were granted between first-degree relatives worth US$ 119 million.

This week, MAG announced it had handed over 546 townhouses at its MAG City development in Mohammed bin Rashid Al Maktoum City, District 7, Meydan. The project comprises 904 residential units across studios, 1 – 2 B/R apartments and 694 2, 3 and 4 B/R townhouses. Total sales for the project topped US$ 480 million. The company will also hand over another five buildings, with 688 residential units, by the end of October.

Savills reported that H1 was the busiest half year ever for Dubai’s residential sector, with 57.7k transactions – split 46.1k:11.6k – apartments/villas. Dubai Lands Department posted that the H1 figures comprised 60.4k sales transactions, including 2.7k commercial deals, and that the total sales value was US$ 48.31 billion. The consultancy also noted a change in the sales pattern as the sector used to lie dormant during the traditional summer months but that is no longer the case. Savills also noted that early indicators point to the sector remaining robust for the rest of the year. Research also showed that activity in the off-plan segment remained strong, accounting for 53% of the units sold, and that there had been an increase in new project launches; in Q1, 27.9k units were launched, more than the total 2022 figure of 24.9k. JLL’s Q2 Market overview report shows that, in Q2, off-plan residential sales increased by 38% in value and 30% in volume. In Dubai, it was estimated that 57% of all transactions recorded were for values between the US$ 163k and US$ 545k, (AED 500k and AED 2.0 million) range, with investors primarily focusing on studios and 1BR units in areas like JVC, Dubailand, and MBR City. It is interesting to note that a Kamco survey found that Dubai accounts for 54% of the GCC’s total real estate value.

Latest figures from Knight Frank confirm the rude health of the Dubai real estate sector. It reported that Q2 house prices in Dubai have risen by 4.8%, the tenth consecutive quarter of growth, and by 24% during this property market cycle. Since January 2020, apartment prices are up 21% to US$ 351 per sq ft and villas by 51% at US$ 414 per sq ft. Despite these impressive figures, prices are still 11% off 2014 peak levels, with the consultancy noting that “the relatively long-run of price growth is showing no signs of slowing. If anything, all the market dynamics continue to point toward further increases, particularly when it comes to villas as the supply-demand dynamic remains out of kilter”.  Certain locations have performed better than others, led by the prime markets of Jumeirah Bay Island, Emirates Hills and the Palm Jumeirah, where Q2 villa prices are up by 11.6% in Q2 and by 125% since January 2020, and with just eight villas are currently under construction in these three areas, to say supply is tight is an understatement. The fastest growth in the last twelve months was seen in Dubai Hills, registering an average 24% rate. Palm Jumeirah still retains top spot when it comes to villa sales, with growth rates of 44% over the past twelve months and 146% since 2020. Villa prices are now 67% higher than their 2017 peak, while apartments still lag 7% from their last peak in 2015.

This current third freehold residential cycle differs from others in that it has not been dominated by speculators, snapping up off-plan deals, but by genuine end-users and second-home buyers in particular. Knight Frank points out that in 2009, for instance, when the GFC was in full cry, 61% of all home sales in Dubai were off-plan transactions, but in 2021 and 2022, this has stood at 42% and 44%, respectively. Covid slowed the number of launches of new projects, but over the past twelve months, the number has risen to meet the increased demand so as to see this figure moving higher to around 50% of current sales. It also noted that ready property remains in high demand, particularly among international second home buyers who are looking for instant access to the ‘Dubai lifestyle’”.

By the end of 2028, Knight Frank expects 85.2k homes to be delivered, split 69:31, (59k units:23.2k) apatments:villas, noting that if the expected 40k units are completed this year, the figures indicate just 42.5k – at an annual average of 8.5k  – to be built in the next five years to 2028; this would equate to a 75% reduction on the long-term rate of home deliveries. If this were to happen, then there would be an inevitable upward pressure on prices, at least in the next two years, not helped by a continuing upward movement in the size of Dubai’s population which is forecast to more than double to 7.8 million by 2040. However, to meet future supply needs, there has to be another massive development boom to meet the growing needs of the emirate that will have to be managed better than the previous boom/bust episodes.

By the end of June, Dubai’s population had grown to 3.602 million, and to make calculations simple let us assume the number of residential units had reached 780k, bearing in mind the estimated number at the end of 2022 was estimated at 743k. This would equate to 4.615 people per unit.  D33, Dubai’s Economic Agenda, (whose aims are to double its foreign trade and emerge as the world’s fourth most prominent financial centre behind New York, London, and Singapore by 2033), will see the population at six million. Assuming that there are 4.615 people per unit, the number of units equals 1.3 million. That being the case, a further 520k units will have to be built over the next ten years, equating to 52k units a year. Over the next seventeen years, to 2040, assuming the population has risen to its forecast 7.8 million, and that there are still 4.615 people per unit, the number of units required would grow to 1.69 million, more than doubling the current portfolio of 780 k. This equates to 910k extra supply or 53.2k units built every year for the next seventeen.

The rental market is running in tandem with property sales. Prime single-let apartment yields (6.25% – 7.50%) remain slightly higher than villa yields, but some beachfront locations will attract premium rates. Average city rents, at US$ 25 per sq ft, have witnessed annual increases of 22.3%, whereas Palm Jumeirah rents have risen by about 15%, on the year, but 110% higher since January 2020, to US$ 41 per sq ft. In the mainstream market, more affordable villa locations are also recording similarly high growth in lease rates. Over the past twelve months, The Springs has seen rents up by 31% to US$ 23 per sq ft and Arabian Ranches by 17% to US$ 22 per sq ft.

Meanwhile, Savills reports that Dubai’s industrial and logistical space had the strongest demand on record, attributable to companies relocating their operations to Dubai from other locations. Industrial rents in Dubai have risen sharply over 2022, as demand continued to outstrip supply. On average, warehouse lease rates increased across Dubai, specifically, Grade A rents in Al Quoz which increased by 57% last year. Much of the demand came from oil and gas-related companies, e-commerce operators, contract logistics, and indoor farm operators. Another factor in play was the e-commerce sector, with the large players having a large warehouse close to key infrastructure such as one of the emirate’s two international airports or one of the ports; in addition, they tend to set up smaller-sized units closer to the city to ensure speedy delivery times. It is estimated that for every 1.0% rise in the population, an additional 0.5% of warehouse space is required.

A survey by Savills places Dubai as the best city in the world for remote workers due to the quality of life it offers and prime rents. Its 2023 Executive Nomad Index rates twenty of the world’s top cities for long-term remote workers, based on internet speed, quality of life, climate, air connectivity and prime rents. Dubai has moved two places higher to the top spot, compared to 2022, whilst last year’s number one Lisbon has dropped to fifth. For the first time, Abu Dhabi made the list, coming in at number four behind Malaga and Miami. The survey noted that most of the executive nomads are “Dinkies” (Dubai income – No Kids) and they “favour high residential buildings in Downtown Dubai, close to the DIFC, the financial hub, or in Dubai Marina for proximity to Media City and Internet City”, and that “most of the city’s co-working spaces are operating at near 100% occupancy, which supports Dubai’s ranking as a top destination for executive nomads.”

Last month, Emirates and Air Canada expanded their codeshare agreement to include flights to and from Quebec and their latest deal sees this arrangement extended to include Montreal from which Emirates passengers can now travel between eleven domestic Canadian points using the services of both airlines on a single ticket, as well as an additional sixty-nine points, including the likes of Halifax, Edmonton, Ottawa and Calgary, on an interline basis. Emirates currently have seven weekly flights to both Quebec and Montreal. Travellers with itineraries on Emirates’ flights can plan their entire trip on a single ticket and benefit from the airline’s baggage allowance, in addition to bag check-through to the final destination. Emirates has twenty-nine codeshares, 117 interline and eleven intermodal rail partners in more than one hundred countries.

As from last Wednesday, Dubai International has forecast an influx of 3.3 million over the following thirteen days, equating to a daily average of 254k, with the peak dates of 26 and 27 August expected to deal with 258k passengers. As usual, DXB will be working closely with airlines, control authorities and commercial and service partners – as well as all other stakeholders – to ensure a seamless journey for travellers.

Future Energy Company PJSC – Masdar has been appointed the Preferred Bidder, (out of twenty-three expressions of interest from international applicants), to build and operate the 1.8k MW sixth phase of the Mohammed bin Rashid Al Maktoum Solar Park for using photovoltaic (PV) solar panels based on the Independent Power Producer (IPP) model, costing up to US$ 1.5 billion. This phase sees DEWA achieve the lowest Levelised Cost of Energy (LCOE) of US$ 0.06215 per kWh for any of its Solar IPP Projects thus far. The largest single solar park in the world will have a capacity of 5k MW by 2030 with investments totalling US$ 13.62 billion.

DP World Limited posted healthy H1 figures, with both revenue and adjusted EBITDA higher – by 13.9% to US$ 903.7 billion and 7.0% to US$ 2.611 billion, equating to 28.9%. This result was even more impressive when operating in an environment of a softer container market and weakened freight rates amid turbulent global economic conditions. It seems that DP World’s strategy of concentrating on high-margin cargo, end-to-end bespoke supply chain solutions and cost optimisation has paid dividends.

As it continues to expand its global supply chain, DP World, one of the top five global port operators, has posted that it expects to add approximately three million Twenty-Foot Equivalent Units of new container handling capacity by the end of the year. The global trade enabler, which currently manages approximately 9% of the world’s handling capacity, will see its total gross capacity increase to 93.6 million TEUs by year end. Drewry, a leading supply chain adviser, estimates that there will be an 8.6% growth, to 932 million TEUs, by 2025 –  up from 858 million TEUs in 2021. The firm’s capacity expansion plans come at a vital time with inflation, increased cost of living and geopolitical uncertainties causing concern about global trade and fuelling demand for faster, more resilient supply chain solutions.

Dubai Aerospace Enterprise has signed a deal with a unit of China Aircraft Leasing Group Holdings to acquire sixty-four Boeing 737 Max jets, including. a combination of 737-8, 737-9 and 737-10 variants, with delivery scheduled to begin over the next three years; no financial deals were readily available. Firoz Tarapore, chief executive of one of the world’s biggest aircraft lessors, confirmed that “on a pro forma basis, this transaction will increase our fleet of owned, managed, committed and mandated-to-manage aircraft to approximately 550 aircraft, valued at approximately US$ twenty billion.” The aviation industry is currently caught in the middle of a conundrum – supply is tight, and demand is growing.

According to the latest statistics from the Central Bank of the UAE, the country’s national banks increased their credit facilities, for the business and industrial sectors, by around US$ 7.74 billion, in the first five months of this year, to US$ 203.13 billion., With foreign banks contributing the balancing 9.7%, or US$ 21.83 billion, the grand total credit balance was US$ 224.96 billion – a 4.0% increase over the five months to May 2023. The credit balance for the sectors from banks in Abu Dhabi was around US$ 100.85 billion as of the end of May, while banks in Dubai provided US$ 96.40 billion, and those in other emirates lent some US$ 27.75 billion to these sectors. Of the US$ 224.96 billion balance, traditional banks and Islamic banks supplied US$ 185.23 billion and US$ 39.73 billion respectively.

Yalla Group Limited’s unaudited H1 financial results showed improvements, on the year, with both revenues and net income higher – by 2.9% to US$ 153 million, and 26.6% to US$ 48 million. On a quarterly comparison, 17.9% the revenues and net income were both higher, by 4.1%, to US$ 79 million and by 366% to US$ 20 million. Over the period, there was a 14.3% year-over-year increase in monthly active users, reaching 34.2 million, and a 26.6% YoY rise in paying users to 13.4 million.

There have been movements at the top of the chain at Shuua Capital, with news that one of its top shareholders and a director, Jassim Alseddiqi, who has around a 30% stake, will step down as its MD in Dubai’s leading investment banking and asset management firm.  Shuua manages US$ 5 billion in assets, and it seems that there will be a significant change that could make way for new shareholders in the company. The MD added that “in line with this transition and my evolving direction and endeavours, I’ve decided to reposition my stake in Shuaa Capital, paving the way for new shareholders.” Meanwhile, Bloomberg reports that shareholders, other than Mr Alseddiqi, (who collectively own more than 50% of the firm), are also in early talks to sell down their stakes in the company, giving investors a chance to own a piece of one of the Gulf region’s oldest financial institutions. Over the past several years, the company has gone through a structural transformation and management reshuffles and at its peak, it managed more US$ 13 billion in assets. With its five-year aim of doubling its asset base to US$ 20 billion, it is currently considering several potential regional investment deals, including some in real estate and hospitality.

Al Ansari Financial Services saw H1 operating income rise by 5.0% to US$ 157 million, driven by robust demand across all products, with significant contribution from offerings and services to corporate customers; net profit dipped 2.5% to US$ 72 million. The Group, a leading integrated financial services group in the UAE and the parent of Al Ansari Exchange, has also approved a US$ 72 million dividend pay-out. Despite an increase in costs – attributable to the opening of fifteen new branches since H1 2022 – EBITDA remained flat at US$ 81 million. Mohammad Bitar, deputy group CEO of Al Ansari Financial Service, said the group is seeing strong demand for its relatively new offerings, while it continues to sustain its market leadership position in core offerings, remittances, and banknotes, noting that the value of transactions topped US$ 14.7 billion.

The DFM opened on Monday, 14 August 2023, 19 points (0.5%) lower the previous week, shed 13 points (0.3%) to close the week on 4,051, by 18 August 2023. Emaar Properties, US$ 0.05 lower the previous week, lost US$ 0.03 to close on US$ 1.85 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.71, US$ 4.58, US$ 1.57, and US$ 0.45 and closed on US$ 0.71, US$ 4.60, US$ 1.54 and US$ 0.44. On 11 August, trading was at 198 million shares, with a value of US$ 129 million, compared to 180 million shares, with a value of US$ 90 million, on 11 August 2023.

By Friday, 18 August 2023, Brent, US$ 12.19 higher (16.4%) the previous six weeks, shed US$ 0.38 (2.1%) to close on US$ 84.84. Gold, US$ 32 (1.2%) lower the previous week, shed US$ 28 (1.4%) to US$ 1,918 on 18 August 2023.  

A Wood Mackenzie report forecasts that oil and gas exploration spending will recover from historic lows, to average an annual US$ 22 billion, over the next five years. Some of the factors behind this capex increase include attractive economics, greater emphasis on energy security and the discovery of new resources. The consultancy expects a 6.8% hike in exploration spending this year and that deepwater and ultra-deepwater exploration would provide the most growth opportunities in the long term, specifically in the Atlantic Margin of Africa and the gas-rich Eastern Mediterranean. It also commented that spend levels “not much higher” than the current run-rate can deliver the supply needed to meet demand through to its “peak and beyond.” The International Energy Forum has estimated that annual oil and gas upstream spending needs to increase by 28.3% to US$ 640 billion by 2030, to ensure adequate supplies. The IEA expects that China will account for 70% of the extra 2.2 million bpd coming on line this year, with 2024 growth reduced to one million bpd. The group has forecast global oil demand growth of 2.4 million bpd for this year and 2.2 million bpd for 2024.

UBS, Switzerland’s biggest bank, has repaid a US$ 57.2 billion, (Sfr 50 billion), emergency liquidity assistance loan, as well as voluntarily terminating the US$ 10.5 billion, Swiss franc (Sfr 9.0 billion) loss protection agreement with the Swiss government; accordingly, the UBS Group has ended an agreement with the Swiss government to cover losses the bank could incur from Credit Suisse. This came about after stress-testing a portfolio of Credit Suisse non-core assets. UBS plans to make a decision in Q3 on whether it will fully integrate it with its own Swiss unit or seek another option such as spinning it off or listing it publicly.

Following a class action lawsuit, initiated in 2018, some Apple users are set to receive a US$ 65 pay-out. The tech giant had agreed a 2020 US$ 500 million settlement, but an appeal by two iPhone proprietors delayed payment until this was dismissed by the 9th Circuit Court of Appeals. In 2017, Apple acknowledged its practice of slowing down the iOS software on older iPhones, contending that the updates were intended to prevent older batteries from shutting down devices at irregular intervals. In a 2019 court submission, Apple argued that lithium-ion batteries degrade over time, leading to decreased efficiency. The company, however, did not apprise users about the iOS updates that allegedly contributed to the sluggish performance of phones.

With reports that its controlling shareholder, billionaire chairman Reinold Geiger, (who holds some 70% of the Group), is considering a potential deal to take L’Occitane International  private, trading in the skincare chain‘s shares was halted on the Hong Kong Stock Exchange last Friday; over the past thirty days, the share value had risen 40% – and up 10% on last Monday’s trading, closing on US$ 3.58, (HK$ 28). The retailer has over 3k outlets in ninety countries, with more than 85k employees, and last financial year posted revenue and operating figures of US$ 2.23 billion and US$ 239 million. In an exchange filing, the company posted that the buyout price could be as high as US$ 6.5 billion (a share value of U$$ 4.47 – HK$ 35) were “false and without basis”, but if a deal did go through, the potential offer price would not be less than US$ 3.32, (HK$26) a share.

On Monday, the Securities and Exchange Board of India requested a further fifteen days to complete its investigations into twenty-four transactions into the Adani Group’s dealings with some offshore entities. The SEBI noted that it had still to complete seven more transactions. The Adani Group’s listed companies tanked more than US$ 100 billion in market value this year after the US-based Hindenburg Research raised several governance concerns, with the group having denied wrongdoing. In March, the Supreme Court asked the SEBI to look into the allegations and submit its findings to a six-member panel. Shares of the Adani Group’s companies slid up to 5% on Monday after Deloitte resigned as auditor of Adani Ports, the first such move at the Gautam Adani-led conglomerate since Hindenburg’s report on the company in January.

In its first day of trading on the New York bourse, Vietnamese electric vehicle maker VinFast saw its market value soar to US$ 85 billion, well above those of Ford and General Motors, valued at US$ 48 billion and US$ 46 billion. This is for a company that has yet to make a profit. Its major shareholder, with control of 99% of the firm’s outstanding shares, is VinFast’s chairman and founder Pham Nhat Vuong, who was already Vietnam’s richest man. In H1, VinFast delivered 11.3k EVs – a drop in the ocean when compared to Tesla’s output of 889k vehicles over the same period. 

With the real estate crisis in China worsening, troubled property giant Evergrande filed for Chapter 15 bankruptcy protection in the US. The world’s most heavily indebted property developer has debts of over US$ 300 billion and has incurred losses of US$ 80 billion in the last two years. The embattled mega company defaulted on its huge debts in 2021, and its shares were suspended from trading in 2022. The group’s real estate unit has more than 1.3k projects in more than 280 cities in the country, with other business interests including an electric car maker and a football club. Last week, another major Chinese property giant, Country Garden, warned that its H1 losses could top US$ 7.6 billion, whilst some of the biggest companies in China’s real estate market are struggling to find the money to complete developments.

There is no doubt that warning signs – such as sharp falls in exports, (down 14.5% in July), and rising youth unemployment levels – that the Chinese economy, which has dipped into deflation, is in crisis. Rating agency Moody’s downgraded the company’s rating, citing “heightened liquidity and refinancing risks”. Even Joe Biden has got into the act, saying that “China is in trouble”, as he highlighted its high unemployment and aging workforce, and adding that China’s growing economic issues make it a “ticking time bomb.” Furthermore, the country is also tackling ballooning local government debt and challenges in the housing market.

There was some good news emanating from China this week, with the announcement that the country had overtaken Greece as the world’s largest maritime fleet owner in terms of gross tonnage; Greece, slipping to second place, had been at the forefront for the past decade. The latest rankings from Clarksons Research showed that the Chinese-owned fleet stands at 249.2 million GT. Greece was second with 249 million GT and Japan third with 181 million GT. The study also noted that China benefitted from its position as the world’s manufacturing hub, its resilient cargo trade and strong public financial support for the shipping sector. In H1, Chinese shipyards completed 21.13 million deadweight tons, with new orders on hand up 20.5% to 123.8 million, DWT of new ships, up 14.2% year-on-year, with new orders at 37.7 million DWT, up 67.7%.

With the rouble slipping to its lowest level in sixteen months, the Bank of Russia has decided to lift interest rates by 3.5% to 12.0%, as the currency on Monday fell past the 100 per US$ level. The bank last made an emergency rate hike in late February 2022 with a 10.5% rate hike to 20.0% at the start of the war but then gradually reduced the rate, as strong inflation pressure eased, so that by September 2022, it was at 7.5%. Last month, it added 1.0% to make the rate 8.5%. The economy has been hit by increased military expenditure to bankroll its war with the Ukraine, and the fact that imports are rising faster than exports. The central bank noted that “inflationary pressure” was building, (now at 7.6%), but that its target was to bring inflation down to 4% by 2024. As long as Western sanctions are in place, the EU price cap plan, to limit the amount Russia earns from its oil exports, remains and the banking system is excluded from the Swift payment system, it will struggle to attract capital inflows and the economy will continue to suffer.

In one of the country’s biggest anti-money laundering exercises, Singapore police have seized about US$ 735 million – including luxury homes, ninety-four properties, US$ 23 million in cash, fifty cars, wine, gold bars, two hundred and fifty designer handbags and watches. Last Tuesday, simultaneous raids were held across the city-state and ten people were arrested, all of whom held foreign passports from China, Cambodia, Turkey and Vanuatu. According to the police, the group was “suspected to be involved in laundering the proceeds of crime from their overseas organised crime activities including scams and online gambling.”

The fact that Japan’s economy has grown faster than analysts had expected has surprised the market – and this despite weaker-than-expected results for both business investment and private consumption. The main reason for the improvement has been a surge in exports, helped by a weak yen, and increased tourism. Q2 GDP growth was the highest quarterly figure since Q4 2020. The 6.0% annual rise exceeded economists’ forecast of 2.9%, with net exports contributing 1.8%. The size of the economy grew to a record high US$ 3.85 trillion. However, it must be noted that the prime reason for growth was down to exports, whilst domestic demand remains weak and the impact of wages lagging far behind cost-push inflation impacting the drop in consumption. Capital spending by businesses was flat, versus forecasts of a 0.4% increase, while private consumption, which accounts for more than 50% of total GDP, unexpectedly declined by 0.5%. There is no doubt that rising prices are increasingly causing consumers to hold off on buying items, with a weak yen, (at its lowest level since November 2022) continuing to drive up costs for imported goods.

Last week, it was announced that China had reversed its 2021 tariff on Australian barley but not for other export products that faced increased levies for several reasons including the government being unhappy with the then Prime Minister, Scott Morrison’s criticism of their human rights record and their investigative involvement with the pandemic. Before the Chinese move, it was Australia’s most valuable export market in 2020, but a year later, anti-dumping tariffs effectively ended the lucrative trade. Around the same time, wine exports to the UK also dropped off after hitting a peak during Covid-2020. Since then, Australian worldwide wine exports have slumped by a third and now there is an estimated wine glut of 2.8 billion wine bottles, equating to filling eight hundred and sixty Olympic-size swimming pools. China’s anti-dumping tariffs ranged between 116.2% – 218.4% on bottled wine and saw a trade worth US$ 580 million in 2020 trickle to just over US$ 5 million in the fiscal year to June 2023. Even if the Chinese were to remove these tariffs, it would take at least two years for the industry to return to some form of normalcy, during which time, some winemakers would have gone out of business or sold out. It is not only the Chinese that is having a negative impact on business – a report by Rabobank shows that over the past five years, there has been volume declines in imports from nine of the top ten supplying countries, as consumers become more price sensitive.

There are many around who think that Australia is likely to go into recession, within the next twelve months, despite the lower Aussie dollar giving exports a boost and the fact that there is a relatively robust labour market. An inevitable recession is on the cards, as the ongoing triple impact of inflation, higher cost of living expenses and rising interest rates start to bite harder into business and consumer spends. The national economy has been showing signs of stress for some time, with worse to come as the latest two 0.25% rate hikes, in May and June, have yet to be felt by many mortgage borrowers. Obviously, having to pay more on your monthly mortgage payments will have the effect of reduced consumer spend, with the resulting drag on the economy. Then there is the current inflation rate of 6.0% to worry about which will probably not halve to 3% until well into 2025. Another worrying factor is the weak state of the Chinese economy bearing in mind that the country is by far Australia’s biggest trading partner, accounting for US$ 103.9 billion and 25.9% 0f Australian exports.

Eurostat has posted that Q2 seasonally adjusted GDP rose by 0.3% in the euro area and was stable in the EU, compared with Q1 when it had remained stable in the euro area and had increased by 0.25% in the EU; on the year, the seasonally adjusted GDP increased by 0.6% in the euro area and by 0.5% in the EU. In both blocs, the number of employed persons increased by 0.2%, following an 0.5% hike in Q1. On the year, the euro area posted a 1.5% increase, and the EU a1.3% rise in Q2.

The US Transportation Department posted that it expects the number of flights between the two biggest global economies will double by the end of October 2023. This has come about because both the US and China have decided to relax travel restrictions put in place during the pandemic. Each country will gain an additional six weekly round-trip flights as of 01 September, up from the current twelve, with the total rising to twenty-four by the end of October, with flights split between Delta/United/American and six Chinese carriers. Pre-pandemic weekly flights numbered three hundred and forty, but air services have suffered since the US blocked such flying.

UK’s July inflation rate showed a marked decline of 1.1%, on the month to 6.8%, and now stands at a fifteen-month low; nine months ago, inflation topped 11.1% in October 2022. The main drivers behind this improvement were a reduction in the energy price cap and food costs, (which are still nearly 15% higher than one year ago), rising less rapidly, particularly milk, bread and cereals. However, it must be remembered that it is still more than triple the BoE’s 2.0% target and remains stubbornly high overall compared to many other nations. According to the Office of National Statistics, the three sectors keep inflation high were the rising costs of hotels, air travel and rents. It is almost certain to see two more 0.25% rate rises, over the next two months which would then see rates at 5.75%.

Q2 UK wages are growing at a record 7.8% – the highest annual growth rate since comparable records began in 2001. Although higher wages tend to result in a longer time for price rises to ease, wage growth is still lagging the pace of price rise, with real pay growth was “still falling a little”, dropping by 0.6%. The unemployment rate rose from 4% to 4.2%, with a lower number of people in jobs. Singing from his usual hymn sheet, Prime Minister Rishi Sunak said there was “light at the end of the tunnel” for the millions struggling with the cost of living, and that “the best way to be able to bring interest rates down and stop them going up is to bring inflation down.”

Although UBS neither admitted nor denied charges that it had lied about the quality of mortgages that were packaged and sold to investors in a series of deals in 2006-2007, a court in Georgia fined the failed bank US$ 1.4 billion to resolve fraud claims in the US stemming from the 2008 financial crisis. This was the last case to be heard in US courts in connection with the aftermath of the 2008 GFC, with the Swiss bank saying it had already set aside money for the “legacy” matter and the deal would resolve all civil claims in the US. The lawsuit was brought to court five years ago, alleging that the Swiss bank had misled investors in connection with the sale of mortgage-backed securities more than a decade earlier, and that UBS’ conduct had “played a significant role in causing a financial crisis that harmed millions of Americans”. UBS is the eighteenth firm to reach a settlement in the US over its role in the 2008 crisis, with all eighteen cases leading to more than US$ 36 billion in penalties. There is no doubt that global banks’ exposure to bad US mortgages in the early 2000s played a key role in sparking the financial crisis, which led to a major downturn and the worst economic crisis since the Great Depression of the 1930s in America. The resulting unexpected – and sometimes unexplained – losses brought the financial system to its economic knees and its impact led to the collapse of several major banks, including Lehman Brothers. Prosecutors have spent the past fifteen years accusing banks of stoking up the flames with illegal mortgage lending, which spread to the wider financial system thanks to expansive trading of securities backed by mortgages. The banks in the US have been fined a reported US$ 36 billion for their disingenuous behaviour and although there have been signs of contrition, the question is not if – but when – Will they Do It Again?