Let’s Twist Again! 20 October 2023
The 1,524 real estate and properties transactions totalled US$ 2.23 billion, during the week ending 20 October 2023. The sum of transactions was 232 plots, sold for US$ 700 million, and 1,292 apartments and villas, selling for US$ 839 million. The top three transactions were all for plots of land, one in Al Hebiah Fourth sold for US$ 18 million, the second in Al Thanayah Fourth for US$ 15 million and the third in Al Yufrah 4 for US$ 14 million. Palm Jabal Ali recorded the most transactions, with fifty-one sales, worth US$ 324 million, followed by twenty-four sales, in Al Hebiah Fifth, for US$ 25 million, and twenty-one sales in Madinat Hind 4, valued at US$ 8 million. The top three transfers for apartments and villas were for a villa in Business Bay, sold for US$ 36 million, another in Rega Al Buteen for US$ 22 million, and a third in Mankhool selling for US$ 19 million. The mortgaged properties for the week reached US$ 553 million, with the highest being for land in Business Bay for US$ 215 million; 133 properties were granted between first-degree relatives worth US$ 153 million.
Omniyat is hoping to expand its property portfolio by 50%, to US$ 15.0 billion over the next two years, attributable to new projects and acquiring assets; it will comprise “a mix of residential, hospitality and commercial property.” Chief executive, Mahdi Amjad, commented that the Dubai-based developer has already seen it double to US$ 10.0 billion since 2021. The company, founded in 2005, is developing a number of luxury projects at Palm Jumeirah and Business Bay, including The Lana, Dorchester Collection, Ava and Dorchester Collection at the Palm. It has also recently acquired a new waterfront development called Marasi Bay Marina, from Dubai Holding, as it continues to boost its portfolio. A recent launch was the twenty-duplex residences Orla Infinity, part of the US$ 2 billion Orla collection, at Palm Jumeirah, with another planned in Downtown Dubai by the end of the year. The company has always funded projects through a mix of debt and equity, and has a “a very clear philosophy on making sure the project is 100% funded as we start the construction process so that there is zero interruption regardless of sales cycles.” Omniyat posted almost a 70% growth in sales in the first nine months of the year, but value of these sales was not made available.
On Wednesday London Gate’s Maya V was launched and sold out within an hour. The development, comprising one hundred and two units, comprising one-to-three-bedroom apartments, and located in Jumeirah Village Triangle, is slated for completion by the end of 2024. The developer also revealed plans for its flagship ventures, including Marina 106 and Nadine I & II which will be situated in coveted Dubai locations. The former, situated in Dubai Marina, will soar 434 mt high, with six hundred and forty-nine units including one to four-bedroom apartments and deluxe duplexes. Nadine I & II, inspired by the architectural wonders of Venice and Rome, will create a vibrant community in Al Furjan. Eman Taha, CEO of London Gate, commented that “our developments will cover Dubai’s prominent hotspots and will deliver one of the tallest buildings overlooking the Dubai Marina, one-of-its-kind branded residences, along with extraordinary residential spaces across Dubai land and Jumeirah Village.”
Henley & Partners has ranked Dubai sixth in its top ten global cities where centi-millionaires – people who hold US$ 100 million in investable assets – own their second home. With more than five hundred centi-millionaires, it is below the likes of New York, Los Angeles and London, with numbers swelling at peak times from 775 to 1.2k, 504 to 950 and 388 to 800.
On Monday, HH Sheikh Mohammed bin Rashid opened the 43rd edition of the world’s largest tech show, GITEX Global. The five-day event, hosting 6k exhibitors and 180k tech executives from one hundred and eighty countries, took place at the Dubai World Trade Centre. The Dubai Ruler noted that, “for over four decades, the UAE has brought together the brightest minds and innovators from across the globe uniting them in a shared pursuit of shaping the future of technology. This dialogue has fostered strategies, insights and partnerships that have contributed significantly to the advancement of technology, ultimately enhancing the quality of human life.” At the event, it was announced that Dubai’s GITEX brand will hold its European debut in Berlin from 21 -23 May 2025. This will be the second overseas venture for the tech show, following the successful launch of GITEX Africa in Marrakech last year.
Monday also saw the start of the four-day Expand North Star, the world’s largest gathering for start-ups, organised by Dubai Chamber of Digital Economy, one of the three chambers operating under Dubai Chambers. More than 1.8k start-ups, from over one hundred countries, participated and it is estimated that more than 1k investors, (with a combined total of over US$ 1 trillion under management), have been in Dubai, which is rapidly emerging as the heart of the world’s digital economy. This year’s event introduced Launchpad Dubai, a new platform aimed at accelerating the growth and expansion of global tech companies in Dubai including fast-growing start-ups and billionaire unicorns. Last year, the event led to the launch of around one hundred and fifty start-ups in the UAE, as a direct result of deals signed during the exhibition. GITEX Global and Expand North Star covered a combined area of 2.7 million sq ft – a 40% increase over the previous year – showcasing the latest innovations and trends in AI, the cloud, Web 3.0, cyber security, climate technology and more.
The UAE had an overall index score of 62.5 in Mercer’s Global Pension Index. The index uses a weighted average of the sub-indices of adequacy, sustainability and integrity, and on a global scale, the Netherlands had the highest overall index value at 85, followed by Iceland at 83.5 and Denmark at 81.3; at the other end pf the scale, Argentina had the lowest index value of 42.3, according to Mercer. The UAE scored well, at 72.2, when it came to generous retirement benefits, ensuring a continued income to sustain a good quality of life, with a suitable minimum pension relative to earnings, and scored 70.8 in integrity, owing to the strong governance structure around the pension system. The index is a study of global pension systems that account for 64% of the world’s population, bench marking retirement income systems around the world. For each sub-index, the pension systems with the highest values were Portugal, in terms of adequacy (86.7), Iceland for sustainability (83.8), and Finland, in terms of integrity (90.9).
The UAE’s retirement income system comprises a minimum means-tested state pension and an earnings-related national employment-based scheme. Emiratis are eligible for a pension, (and other retirement benefits), after twenty years’ service or having reached the age of forty-nine. All benefits are guaranteed by the government, with employees contributing 5% of their salary and employers between 12.5% – 15.0%. Most non-Emirati employees are currently covered by the government’s gratuity programme which provides for end-of-service entitlements. The emirate’s government has also launched a savings retirement initiative for non-Emirati employees working in Dubai’s government and public sector. Foreign employees working in Dubai’s public sector will be enrolled in the savings programme by default and employers will contribute the total gratuity to the plan from the date of joining, without including the financial dues for previous years of service.
Negotiations have concluded that have resulted in a UAE-Korea CEPA, paving the way for a new chapter of bilateral economic cooperation. This comes after the two nations signed a number of memoranda of understanding, last January, including the ROK-UAE Trade and Investment Promotion Framework to pursue optimal trade collaboration strategies, covering areas such as supply chains, digital trade, logistics, business environment and technical barriers to trade, and US$ 30 billion plans to invest in strategic sectors of the Korean economy. It is hoped that a UAE-Korea CEPA will reinforce East-West supply chains, facilitate two-way FDI flows, and enhance joint research and knowledge exchange across a range of sectors, including energy, advanced manufacturing, technology, food security and healthcare. The UAE is Korea’s second-largest Arab trade partner, while Korea is the UAE’s eleventh-largest trading partner, among non-Arab Asian countries.
Gulf Navigation Holding posted a mega increase in profit for the first nine month from US$ 0.5 million to US$ 9.5 million, with revenue at US$ 22.6 million; Q3 revenue was 62% higher at US$ 1.9 million. The DFM listed maritime and shipping company’s CEO, Ahmad Kilani, said that “these results reflect our commitment to continuing to achieve growth and increase profitability by implementing the company’s strategy of improving financial performance, enhancing the efficiency of operational operations, and diversifying sources of income”.
The DFM opened on Monday, 16 October 2023, 200 points lower the previous week, lost 213 points (5.4%) to close the trading week on 3,965, by Friday 20 October 2023. Emaar Properties, US$ 0.21 lower the previous fortnight, shed US$ 0.24 to close on US$ 1.74 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.68, US$ 4.82, US$ 1.50, and US$ 0.41 and closed on US$ 0.65, US$ 4.51, US$ 1.44 and US$ 0.35. On 20 October, trading was at 160 million shares, with a value of US$ 126 million, compared to 372 million shares, with a value of US$ 204 million, on 13 October 2023.
By Friday, 20 October 2023, Brent, US$ 6.49 higher (7.7%) the previous week, gained US$ 1.29 (1.4%) to close on US$ 92.23. Gold, US$ 114 (6.2%) higher the previous week, gained US$ 45 (2.3%) to US$ 1,991 by 20 October 2023.
An estimate by the International Energy Agency indicates that the world must add or revamp eighty million kilometres of power grids by 2024, (equating to all grids globally today), to meet national climate targets and support energy security. It reckons that annual investment in grids needs to double to more than US$ 600 billion a year by 2030, and that existing grids had not been keeping pace with the rapid growth of key clean energy technologies such as solar, wind, electric cars and heat pumps.
Magnitt’s Mena reported a 32% hike in MENA venture funding in Q3, attributable to a marked jump in early-stage investments; the actual number of deals remained flat at seventy-eight. Nine-month total regional venture funding, at US$ 1.4 billion, was 44.0% lower on the year, with total transactions 46% lower at two hundred and eighty six, (compared to around seven hundred deals over the same periods in 2021 and 2022); global venture funding declined 42.0% over the same period. 44.1% of early-stage investments were in the under US$ 1 million bracket, compared to around 80% in 2019 and 44% in 2022. The two main contributors remained Saudi Arabia, (US$ 536 million) and the UAE (US$ 371 million) – both down on the year by 41.0% and 57.0%. Other countries include Egypt, Qatar and Jordan attracting investments of US$ 334 million, US$ 45 million and US$ 23 million – all declining on the year by 13%, 63% and 40%. With the current political unrest – both regionally and globally – it seems unlikely that no quick fix is on the horizon.
Following requests from their client base, Ferrari has decided to accept payment in cryptocurrency for its luxury sports cars in the US and will extend the scheme to Europe. Other major companies may have flirted with the idea of using this means of payment, but some like Tesla which in 2021 began to accept payment in bitcoin, before halting it because of environmental concerns. Others have not taken the path because of crypto’s volatility and patchy regulation. In H1, Ferrari shipped more than 1.8k cars to its Americas region, which includes the US, with its order book full until 2025. The luxury carmaker does not know how many vehicles will be paid for by cryptocurrency.
With slowing demand for its products, and falling margins, Nokia is looking at cutting up to 14k jobs, from its current global 86k workforce; since 2015, it has slashed thousands of jobs. The Finnish telecoms giant, once the world’s biggest handset manufacturer, has just reported a 20% decline in Q3 revenue, blaming slowing demand for 5G equipment. Apple iPhones and Samsung’s Galaxy have since overtaken Nokia’s predominant market position, as it failed to anticipate the popularity of internet-enabled touchscreen phones. After divesting its handset business to Microsoft, which the software giant later wrote off, the tech firm focussed on telecoms equipment., and saw a resurgence in 2020 when it became the largest equipment provider to BT, after China’s Huawei was formally blocked from the UK’s 5G networks. However, in recent times 5G equipment makers have been impacted, with US and EU operators cutting investment in the sector.
All US chip stocks, including Advanced Micro Devices and Intel, declined on Tuesday following the Biden administration confirming new restrictions on exports of advanced chips to China, including two made-for-China chips from Nvidia. It was October 2022, that the US announced that it would ban the export of chips in a bid to close loopholes that became apparent to prevent China’s military from importing advanced semiconductors or equipment. The US chipmaker said that the new export restrictions will block sales of two high-end AI chips it created for the Chinese market – A800 and H800. It is a massive blow to any company that sees 25% of its revenue cut because of political pressure. The Semiconductor Industry Association, which represents 99% of the US semiconductor industry by revenue, said that the new measures are “overly broad” and “risk harming the US semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere”. The Chinese said it “firmly opposes” the new restrictions, which also targeted Iran and Russia and go into effect in thirty days. Besides the US, both Japan and the Netherlands – which is home to key chip equipment maker ASML – have also imposed chip technology export restrictions on China.
There are reports that Nvidia and iPhone maker Foxconn are joining forces to build so-called “AI factories”, a new kind of data centre that uses Nvidia chips to power a “wide range” of applications. They include training autonomous vehicles, robotics platforms and large language models. Nvidia’s chief executive, Jensen Huang, noted that “a new type of manufacturing has emerged – the production of intelligence and the data centres that produce it are AI factories,” adding that Foxconn had the expertise and scale to build these factories globally. The world’s most valuable chip company has seen its share value rise above US$ 1 trillion, as its shares have more than tripled in value this year – making it the fifth publicly traded US company to join the so-called “trillion-dollar club”, along with Apple, Microsoft, Alphabet and Amazon.
As expected – and because of a “planned downtime” and subsequent dip in vehicle deliveries – Tesla reported a 44% drop in Q3 net income to US$ 1.8 billion, driven by a dip in vehicle deliveries, down 6.7% to 435.1k, as production, 10.3% lower to 430.5k; this was Tesla’s seventeenth consecutive profitable quarter, but the first time in eight quarters, it did not hit the US$ 2 billion mark. Total revenue – at US$ 24.1 billion – was slightly down on market expectations. The company’s operating income decreased by 52% on the year to US$ 1.7 billion while operating expenses surged 43% to US$ 2.4 billion. On Wednesday, its shares dipped 4.8% in the day’s trading – and a further 4.0% during after-hours – giving it a US$ 760.4 billion market value. It also confirmed that it hopes to start production of its cyber trucks at its Texas Gigafactory, and that, “our cost of goods sold per vehicle decreased to US$ 37,500 in third quarter”. At the beginning of the month, the EV maker cut prices for the seventh time this year.
Chinese EV maker, BYD, (Build Your Dreams) posted a doubling of its Q3 profits on the year. The company is now ahead of Tesla when it comes to production but still second to the US giant in terms of sales. The strength of the Chinese vehicle market can be seen from the fact that it overtook Japan this year to become the world’s biggest vehicle exporter. BYD had an advantage from the start, as it was a battery company that later started to make cars in contrast to car makers who expanded to build electric models. Its founder, Wang Chuanfu, started the company in 1995, as manufacturers of rechargeable batteries – used in smartphones, laptops and other electronics – that competed with pricier Japanese imports. Seven years later it became a publicly traded company, and soon after diversified and acquired a struggling state-owned car manufacturer, Qinchuan Automobile Company. In 2008, US billionaire investor Warren Buffet bought a 10% stake in BYD Auto, saying that it would one day become “the largest player in a global automobile market that was inevitably going electric”. He was proved right as China dominates global EV production largely because of BYD, and will continue to do so as, last June, the Chinese government offered EVs US$ 72.3 billion worth of tax breaks over four years. The fact that BYD manufactures its own batteries, unlike its peers who rely on third-party manufacturers for supplies of one of the most expensive part of an EV, gives it a unique – and profitable – selling point.
US prosecutors have accused three high-profile cryptocurrency firms – Gemini, a crypto exchange, Genesis, a crypto lender, and its parent company Digital Currency Group – of defrauding investors of more than US$ 1.0 billion. It is claimed that Gemini had lied to customers about the risks of an investment account it offered, which paid high interest rates on crypto. The scheme was halted last November, cutting off customer access to funds. The three companies had worked together on Gemini Earn, which was launched in 2021 and allowed users to lend crypto to Genesis in exchange for interest rates of more than 7%; prosecutors claim that Gemini was aware that Genesis had shaky financials from the start of the programme, and risks were exacerbated when Genesis was hit by more than US$ 1 billion in losses from the collapse of another crypto firm. To make matters worse, it is alleged that Genesis and DCG tried to hide the situation with financial manoeuvring and false reports, including to Gemini, while claiming publicly that its balance sheet was strong. It is thought that up to 232k investors have been victims of the alleged fraud.
No wonder that James Gorman, chairman and chief executive of Morgan Stanley, has already announced his intention to step down, as Morgan Stanley posted disappointing Q3 results – with net income 8.5% lower at US$ 2.4 billion, despite a 2.2% hike in revenue to US$ 13.3 billion; its share value dropped by more than 8.0% when the news was released on Wednesday. The bank’s institutional securities division reported a revenue of US$ 5.7 billion, down US$ 0.1 billion compared to the same period last year, whilst the investment banking revenues dropped 27% on the year to US$ 938 million, driven by a slump in advisory revenues due to fewer completed merger and acquisition transactions. The bank, one of the biggest in the US, expects a surge in its earnings in the upcoming quarters. Last May, the bank announced that it would be cutting its global payroll by 3.0k to cut expenses ahead of a possible recession.
With Netflix posting a 20% increase in Q3 net income, to US$ 1.7 billion, with its operating income and revenue 7.7% higher at US$ 8.5 billion, its share value surged over 12% in after-hours trading to US$ 388, as earnings per share rose 20.3% on a yearly basis to $3.73. YTD its share value is 17.0% to the good. The number of paid subscribers jumped 10.8% on the year to 247 million in Q3, adding nearly 8.8 million new subscribers – its fastest quarterly increase since Q1 2022.
The planned merger between Vodafone and Three still needs approval by the UK regulator, the Competition and Markets Authority. With the two telecoms telling MPs, that their planned merger would not increase prices, despite it reducing the number of competitors in the mobile market, from four to three, with the other two being EE (which is part of BT), and Virgin Media O2. Unions, against the merger, argue that the merger would be bad for consumers, and “we’re going to see price rises, we’re going to see profits go up.” If the merger were to go ahead, both firms say will lead to US$ 7.3 billion of investment in its first five years, and US$ 13.4 billion in total. Vodafone reckons that with the merger, monthly bills could be US$ 18 lower, and that the new company would be able to invest more in the UK and drive down the price of internet access.
Another week and another high-profile Chinese executive has been arrested – this time, it is Liu Liange, the former chairman of the Bank of China. Having resigned his position, after four years at the top, the sixty-two-year-old has been arrested over suspicions of bribery and giving illegal loans, and will be facing corruption charges. The regulator accused Mr Liu of a range of illicit activities which led to significant financial risks, including accusations of illegally granting loans, bringing banned publications into the country and using his position in the bank to accept bribes and other perks such as invitations to private clubs and ski resorts. The Chinese administration seem to be ramping up their efforts to erase corruption from the country’s US$ 60 trillion financial sector and has warned that the crackdown was far from over. Last week, the ex-chairman of the Bank of China was expelled from China’s ruling Communist Party following accusations of wrongdoing by the country’s top anti-graft watchdog China’s Central Commission for Discipline Inspection.
At the beginning of the week, Mojang Studios revealed it had now sold more than three hundred million copies worldwide of Minecraft, the best-selling video game in the world, and far surpassing the one hundred and eight-five million copies of its closest rival, Grand Theft Auto V. However, Super Mario is way ahead as the best-selling franchise; having sold more than eight hundred million games across its entire multi-game series, with Tetris a distant second, with four hundred and twenty-five million sold on mobile devices. According to Google, YouTube videos related to Minecraft have been viewed more than one trillion times.
Many Australians will be dismayed by the news that one of its more famous names in the food business has gone into voluntary administration. Sara Lee, a company well-known for its frozen desserts, such as cheesecakes, pies and ice cream, was actually founded in the US, with an Australia factory set up in Lisarow, NSW, fifty-two years ago. Before it was acquired by New Zealand private equity firm South Island Office in 2021, it had been owned by McCain Foods — a Canadian company known primarily for their frozen chips. The administrators confirmed that the company still employed two hundred, and that “we are working with Sara Lee’s management team and staff to continue operations while we secure the future of the business,” and that “we are immediately commencing a process to sell or restructure the business and continue its long history of manufacturing in Australia.” (A US baker called Charles Lubinnamed the company after his dughter, Sara Lee, in 1949 before selling out seven years later to Consolidated Foods Inc in 1956. The brand became well known and provided the US bicentennial birthday cake, which reportedly weighed more than 22 tonnes, “approximately four stories tall and filled the Freedom Hall in Philadelphia” in 1976).
With the tax leak scandal still impacting on the Australian financial platform, consulting giant PwC seem to have scored another own goal, having been accused of misleading the Senate for planning to sell its consultancy business at the same time it told a 2019 inquiry that separating its auditing and consulting divisions would make it impossible to operate. Late last week, PwC’s current and former CEOs appeared in front of a Senate inquiry, examining the management and integrity of consulting firms in Australia, established in the wake of PwC’s tax leak scandal. Its newly installed Australia boss Kevin Burrowes has blamed former PwC bosses for “a failure of leadership” that led to the tax leak scandal. The inquiry was established in March after PwC’s former head of international tax, Peter-John Collins, shared confidential tax information from Treasury and the Australian Tax Office in 2014 to reverse-engineer a scheme to help big multinational companies avoid paying their fair share of tax in Australia.
At the hearing on Thursday former PwC CEO Luke Sayers, who ran the firm from 2012 to 2020, faced questions from the inquiry about his involvement in the tax leak scandal. He was also interrogated about an earlier plan to sell PwC’s consulting business, which he himself devised. At the end of his questioning, a 2019 submission from PwC was reproduced to a Senate inquiry at the time that was examining audits and consulting firms. In the document, PwC pushed back on the idea of “structurally separating” auditing and consulting businesses because it would negatively impact their operations — but the Senate heard on Thursday that PwC was actively planning to separate its auditing and consulting businesses when it made that submission. This led to one of the Senators involved in the enquiry addressing the ex-CEO. “Mr Sayers, that makes me very much question the interactions of PwC with the Senate under your leadership, that this was going on in one part of the business, and the public documentation to the Senate was a denial that such a thing should ever occur, because it would make the business unable to basically operate,” and “that makes me question everything that you’ve been telling me today, because those two things are completely at odds.”
The enquiry also addressed a damning internal review of PwC, conducted by former Telstra CEO Ziggy Switkowski, highlighting significant cultural problems within the firm. It noted “Switkowski’s main finding is that the PwC scandal arose because of the firm’s pursuit of revenue at any cost, a ‘whatever-it-takes’ culture, and a system in relation to revenue putting profit above ethics,” and “while a small number of bad apples have been sacrificed or suffered a penalty of some form, the system persists.” Even the firm’s new head of human resources, Catherine Walsh confirmed the firm’s problems were not isolated to a few “bad apples” behaving badly, and that “we do need to hold ourselves to account … but it goes to leadership, it goes to culture. We do need to change the whole firm, not just a few bad apples.” The inquiry’s final report examining the management and integrity of consulting services is set to be delivered by 30 November and will prove interesting reading. To date, not one person has been in any Australian court for what some may think to be corruption.
Peter John Collins, the former PwC Australia partner, at the heart of the controversial tax leaks scandal. has been banned from providing financial services for eight years. Today, the Australian Securities and Investments Commission said he was “not a fit and proper person to provide financial services”. It found that the disgraced financier disclosed confidential information he obtained in his roles as a tax advisor to the Commonwealth Treasury and the Australian Board of Taxation.
People, moaning about high inflation rates, should spare a thought for Argentinians where latest figures for September see prices 12.7% higher on the month and 138.0% on an annual basis. Unsurprisingly, the central bank lifted rates by a further 14% to 133%, with many analysts expecting to see this figure topping an incredulous 180% by year-end. The inflation rate has worsened since the 18% devaluation of the peso in August. Since then, the currency has spiralled downwards, with the official rate around 350 pesos to the greenback. However, on the black market the rate is over 1k pesos, as there is a rush to buy dollars ahead of presidential elections next week. Voters will be choosing who to succeed outgoing leftist President Alberto Fernandez, with Javier Milei an early favourite; the radical libertarian is seeking to shut the central bank and dollarise the economy to tame inflation. It is estimated that 40% of the population now live below the poverty line.
In the US, mortgage rates have gone through the roof as they touch twenty-year highs, with the typical thirty-year, fixed rate home loan jumping to over 8% for the first time since 2000. Borrowing costs have risen over the past fortnight, with rates 50bp higher. The housing market had already been impacted by the rise in mortgage rates, which hovered around 3% just two years ago. In August, sales of existing homes were down 15% on the year, as buyers dropped out of the market as many homeowners, enjoying low rates, preferred to stay put rather than move on. Strangely, house prices have yet to fall, up nearly 4% in the month, as demand outpaces supply. The Federal Reserve’s target for its key rate – which helps set borrowing costs for mortgages – now stands at a range of 5.25%-5.5%, up from near zero in March 2022. It is unlikely to see the central bank raise interest rates much higher, pointing to price increases that have slowed significantly since last year.
It does seem that some of the cash required to finance the increase in retail spending has to be sourced from either household savings and/or credit cards. If the latest retail sales report, which reflects the sixth consecutive monthly gain is anything, it shows that the average US consumer is going ahead with their spending, and it is consumer spending that drives the US economy. It is this spending that shows that rates hikes have failed to cool spending and hiring, and points to a possible rate hike this year. There are some who think that consumers will eventually buckle under the regime of high rates and cut back on their spending. Healthy consumer spending is expected to lift the economy’s growth rate to about 3.5% or possibly even higher in Q3. September’s strong sales also suggests the economy may not slow as much in Q4, as previously expected. It also appears that businesses across the US economy ramped up hiring in September, defying surging interest rates.
For the first time in two years, average pay, at 7.8%, grew at a faster rate than the UK inflation rate of 6.7% – although more than triple the BoE target of 2.0% and a possible indicator that the squeeze on living costs may be starting to ease; this inflation figure for August was higher than the three month average The average pay rises for private sector employees, at 8.0%, was higher than the 6.8% recorded for the public sector, which, in turn, was the biggest increase since comparable records began in 2001. In the private sector, the biggest increases were seen in finance and business services, followed by those in the manufacturing sector. Chancellor Jeremy Hunt, said: “It’s good news that inflation is falling, and real wages are growing, so people have more money in their pockets.” It seems likely that rates will now remain the same for the rest of 2023 and though inflation will continue to dip and wage growth slow, the BoE will probably maintain the current rate of 5.25% well into the new year.
In Q3, the number of UK job vacancies continued to dip by 43k to 988k – this number is still 187k higher than posted in pre-Covid Q1 2020. The sector worst hit was real estate where vacancies were 30% lower on the quarter. In an era of relatively high interest rates, it is expected that wage rises to slow. The Office for National Statistics has noted that while some sectors had seen average pay growth rise sharply, at 5.7%, others, such as construction did not fare as well. Furthermore, the Institute for Fiscal Studies has warned that by 2028, with pay packets being depleted by personal allowances being pared back and higher tax brackets, will see a cumulative US$ 60.8 billion tax rise over that period.
UK September retail sales dipped 0.9%, following a 0.4% rise a month earlier – an indicator that a combination of cost-of-living pressures and fourteen consecutive months of interest rate rises had finally taken their toll on the UK consumer. The retail sector blamed the unseasonal warm weather, (which stalled the start of autumn clothing sales), and the ongoing cost of living crisis for the disappointing sales. In non-store retailing, which is mostly online, sales volumes fell by 2.2%, following a drop of 0.9% in August. There is no doubt that spending on discretionary items, non-food categories and big-ticket items like furniture and jewellery – all down – were drivers behind dipping September sales. There is concern that retail sales may continue to fall in the “golden quarter” because consumer spending will be badly hit by the cost-of-living crisis and that may weigh heavily on sales during a period that includes Black Friday, Christmas and End of Year Sales. One thing is certain – if inflation remains in an economic quagmire, remaining stuck around the 7.0% level, then consumer confidence, (which declined by nine to minus thirty, according to research company, GfK), will be dented and there will be decreases in monthly retail sales.
Although still relatively high, UK government borrowing was lower than market expectations, (which ranged from US$ 22.2 billion to US$ 24.9 billion), in September at US$ 17.4 billion – it was US$ 1.9 billion lower compared to September 2022 but the sixth highest September return since records stated in 1993. With a general election due before January 2025, there are some analysts who see this a good opportunity for Chancellor Jeremy Hunt to introduce some tax cuts in next month’s Autumn Statement. This is highly unlikely since it would appear that a short-term gain would almost guarantee long-term pain particularly if interest rates remain high, as many now expect. It has to be remembered that the country’s national debt stands at nearly US$ 31.6 trillion – up by almost 2.0% on the year – and every time that gets higher, the interest payment heads in the same direction. The government has not helped itself in as much that most of its debt is index linked and goes up in tandem with inflation.
Comments made by Federal Reserve Chairman seem to indicate that the central bank may well put further rate rises on hold unless policymakers see further signs of resilient economic growth; rates were also unchanged at the Fed’s last meeting, remaining in the range of 5.25% – 5.50%. The Fed chief also said a recent run-up in long-term Treasury yields, if it persists, could lessen the need for further rate increases “at the margin”. It seems that he expects the economy to cool down in Q4, helped by recent declines in yields on two-year Treasury bonds, and ten-year bonds falling back before hitting the 5.0% level; two-year Treasury yields rose to a seventeen-year high on Tuesday, while ten-year notes are near their peak for the year. The Fed chief said there were signs the labour market was cooling, although he repeated that a “sustainable” return to 2.0% inflation would probably “require a period of below-trend growth and some further softening in labour market conditions”.
In the US, September sales continued their upward trajectory, and despite continuing high interest rates and inflation, Americans kept spending online, (1.1% higher), at restaurants, (up 0,9%), and other outlets. Retail sales jumped 0.7% – almost double that of market expectations – and 0.1% lower than the revised 0.8% August return which had been inflated more by a spike in energy prices. There was a 0.6% rise in a category of retail sales that excludes auto dealers, gas stations and building materials. The fact that prices remained almost flat in September points to the increased spending is not caused by higher prices but increased consumer demand. The figures show the conundrum facing the Federal Reserve that had assumed higher rates would dampen retail demand which has patently not happened. Do they hold rates or do they go Let’s Twist Again!
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