We’re Caught In A Trap! 11 August 2023
The 3,103 real estate and properties transactions totalled US$ 2.64 billion, during the week, ending 11 August 2023. The sum of transactions was 235 plots, sold for US$ 608 million, and 2,302 apartments and villas, selling for US$ 1.57 billion. The top three transactions were all for plots of land, one in Al Wasl, sold for US$ 100 million, Trade Centre Second for US$ 75 million and in Palm Jumeirah, for US$ 49 million. Madinat Hind 4 recorded the most transactions, with seventy-two sales, worth US$ 28 million, followed by fifty-eight sales in Al Hebiah Fifth for US$ 63 million, and twenty-four sales in Wadi Al Safa 3, valued at US$ 25 million. The top three transfers for apartments and villas had World Island 2 villas in the first two places – valued at US$ 22 million and US$ 20 million – and the other for an apartment in Zabeel First for US$ 16 million. The mortgaged properties for the week reached US$ 387 million, with the highest being for land in Al Barshaa South Second, mortgaged for US$ 71 million. whilst ninety-three properties were granted between first-degree relatives worth US$ 92 million.
Last Saturday, Danube Properties launched Elitz 3, part of its US$ 218 million development in Jumeirah Village Circle; upon completion, by Q4 2026, the forty and forty-six floor twin towers will deliver 750 residential units, including studio, 1, 2, and 3-B/R apartments, and several retail stores. Prices of residential units start from US$ 199k for a studio apartment, with a 1% monthly payment plan, following the initial deposit. This is Danube Properties’ twenty-fourth residential project and the ninth tower to be launched in the past eighteen months, and with the latest announcement, the developer’s project portfolio, valued at over US$ 2.7 billion, consists of 11.5k units. The private developer has a policy of launching one project at a time, selling it out, and then appointing a contractor to build it, before launching the next one. It has delivered eleven of them, while the rest are currently under various stages of construction and expects to deliver three more by the end of 2023 – Wavez, Jewelz, and Olivz.
The Natural Resources and Energy Agency of Japan’s Ministry of Economy, Trade and Industry confirmed that the country’s oil imports, from the UAE, amounted to 25.63 million barrels in June 2023, equating to 37.4% of total imports; with Saudi Arabia’s contribution at 41.4%, this means that the two countries are responsible for 78.8% of Japan’s oil imports. Along with Kuwait, Qatar, and Oman, the five Gulf countries provided 97.3% of Japan’s 66.7 million June total.
Earlier in the week, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai. posted that the Q1 Dubai economy grew by 2.8% to US$ 30.33 billion. The transportation and storage sector is the biggest contributor to overall growth accounting for 48% of output, followed by the financial/insurance sector with 15%. He commented that “the continued high growth in the first quarter of the year is yet another testament to Dubai’s strong fundamentals, sustainability and resilience and its capacity to constantly create fresh pathways for enterprise and innovation to flourish,” and that “supported by its outstanding investment environment, robust infrastructure and business-enabling ecosystem, Dubai continues to outpace some of the world’s leading economies.”
OPEC’s Monthly Oil Market Report for August forecast that the UAE’s economy will continue its robust performance for the rest of 2023, after recording a growth of 7.9%, year-on-year, in 2022, driven mainly from the non-oil sector, specifically tourism, leisure and real estate. It also noted that the country’s Global PMI was almost unchanged last month standing at 56, and the housing market continues to surge.
July’s S&P Global Dubai PMI posted a monthly 0.8 fall to 55.7 from June’s ten month high 56.9; Dubai’s non-oil economy’s growth moderated but was still well in positive territory; Factors behind the figures include a marked improvement in output and new businesses. There were strong gains in business activity and demand, with growth in new order intakes, successful marketing, and project wins drove a considerable upturn in output. 32% of businesses surveyed recorded monthly expansion. A weaker rise in new business was noted in all three monitored sectors – construction, wholesale and retail/travel/tourism. However, firms were more confident, about the future, as supply conditions continued to improve, and price pressures were stable.
With a major international recruitment campaign in several countries, Emirates will see its cabin crew numbers jump above 20k; of that number, 4.9k have been with the airline for more than ten years, and 4k between five to nine years. The world’s largest airline will be holding open days to hire cabin crew in many cities, including Zurich, Vienna, Vancouver, Toulouse, Glasgow, Cyprus, Milan, Athens, London, Baku, and Antwerp. Emirates’ cabin crew, which consist of 200 nationalities, are offered a competitive, tax-free salary and flying pay, eligibility for profit share, hotel stay, layover expenses, concessional travel and cargo, annual leave, annual leave ticket, furnished accommodation, transportation to and from work, medical, life and dental insurance coverage, laundry services, and other benefits. The staff is offered discounted tickets for friends and family.
In H1, Dubai’s taxi sector in Dubai posted a 10% growth in the number of journeys to a record fifty-five million compared to H1 2022. Furthermore, ridership reached ninety-six million, 11.6% higher on the year. Its Hala Taxi service grew by 35%, (up from H1 2022’s 28%), with the number of drivers rising by 7k, (36.8%), to 26k.
DXB Live posted a 20% growth in H1 that included hosting one hundred events, encompassing thirty-five exhibitions, twenty-one entertainment events, along with a range of concerts and graduation ceremonies. The experiential agency of Dubai World Trade Centre also saw its overseas expansion, organising fifteen events and designing and constructing one hundred and twenty exhibition stands. Locations included St. Petersburg Riyadh, Marrakech, Istanbul, Düsseldorf, Barcelona and Amsterdam. Major local events in H1 included Gulfood, GISEC, CABSAT, Dubai International Boat Show, Intersec, Jewellery Show and the Middle East Lighting Expo. H1 also saw a 50% increase in the number of wedding receptions held at DWTC.
A lease agreement, between Jebel Ali Free Zone and Neweast General Trading, will result in the automotive spare parts business investing US$ 136 million to establish the largest spare parts hub, covering 165k sq mt, in the MEA. The new facility will support the company’s seven regional branches that employ some five hundred staff who manage the regional fulfilment and delivery for more than one hundred and sixty premium aftermarket brands. Completion date is expected by Q4 2024.
The Central Bank of the UAE has revoked the licence of Dirham Exchange, (as well as having its name struck off the Register) and revoked the registration of RMB Commercial Brokers Co, a Hawaladar operating in the UAE. The administrative sanctions followed an appeals procedure, pursuant to Article 137 of the Decretal Federal Law No.14 of 2018 regarding the Central Bank and Organisation of Financial Institutions and Activities and article 14 of the Federal Decree Law No. 20 of 2018 on Combating Money Laundering Crimes, the Financing of Terrorism and the Financing of Illegal Organisations. The findings found that the exchange had a weak compliance framework regarding the required risk analysis- and (enhanced) due diligence policies and procedures to prevent money laundering and the financing of terrorism. Following an appeal by a local exchange house, the Central Bank of the UAE imposed a US$ 1.3 million financial sanction.
In a note to investors this week, EFG Hermes noted that Emaar Properties could generate over US$ 132 billion, from the sale of its development portfolio, by 2040; it estimates that over the next five years, more than US$ 4.2 billion, (about 32%), will be sold, indicating that “Emaar’s communities in Dubai are premium and attract demand from a wide buyer base; hence, we expect it to maintain its market leadership.” It sees the developer’s group contracted sales at US$ 9.6 billion, US$ 10.2 billion and US$ 10.7 billion over the next three years to 2025. The Egyptian consultancy estimated that Emaar has an estimated land bank of 340 million sq ft in Dubai. Although the Group comprises six business segments, including malls and hospitality, and sixty active companies, in thirty-six international markets, EFG Hermes expects property development will remain Emaar’s core business, especially its operations in Dubai, where it currently has a reported 25% market share. In June, S&P Global Ratings upgraded the developer’s long-term issuer credit rating, based on expectations of a more robust business performance amid the strength of Dubai’s property market. On Monday, EFG Hermes maintained its “Buy” rating on Emaar stock and increased its target price to US$ 2.59, offering a 35% upside potential., with Monday’s price of US$ 1.92.
Dubai’s largest listed developer also released H1 figures this week, posting a 15% hike in profit to US$ 1.34 billion, although revenue fell 10% to US$ 3.32 billion; other income jumped 89% to US$ 250 million. The cost of revenue declined by 18% annually to US$ 1.5 billion, with selling, marketing, general and administration and other expenses dipping 6% to US$ 354 million. Emaar saw H1 group property sales 14% higher at US$ 5.50 billion, whilst its revenue backlog from property sales topped US$ 17.17 billion as at 30 June.
All its divisions posted positive H1 returns. Emaar Development, UAE’s build-to-sell operation, reported property sales of US$ 5.18 billion, growing 25%, on revenues of .US$ 1.72 billion; it launched sixteen new projects in the UAE. Its shopping mall, retail, and commercial leasing operations returned an 8% hike in revenue to US$ 845 million. Property sales from its international real estate operations’ property sales touched US$ 327 million, driven by operations in Egypt and India. An 18% increase saw Emaar’s hospitality, leisure, and entertainment divisions generate US$ 436 million in revenue, helped by the steady recovery in the tourism industry and strong domestic spending. This sector’s recurring revenue from leasing rose 11% annually to US$ 1.28 billion during H1.
This week, two mainly government-owned entities, listed on the DFM, posted their H1 results. DEWA came in with Q1 and H1 revenue and profit figures at US$ 2.0 billion/US$ 540k and US$ 3.46 billion/US$ 736k. Over the six-month period, the utility’s net cash from operating activities increased by 18.2% to a record US$ 1.47 billion. The improved revenue figures were mainly attributable to increase in demand for electricity, water, cooling services and an increase in the revenues of DEWA’s other portfolio of assets. Revenue growth for electricity, water and cooling increased by 5.7%, 3.8% and 4.9% respectively, with its other portfolio of assets growing by 7.8%. Demand for both power and water increased in Q2, on the year, up 0.3 TWh to 14.3 TWh and by 4.6% to 35.3 billion imperial gallons. Q2 also saw an increase in customer accounts – up 15k to 1.185 million accounts. Profit was impacted by a US$ 71 million increase in finance costs (because of rising interest rates over the period), and US$ 52 million increase in depreciation due to new IPP projects that were commissioned.
Despite posting a 13% hike in Q2 revenue, to a record US$ 1.41 billion, Salk saw its profit sink 31.7% to US$ 74 million because of a marked rise in expenses; toll usage revenue climbed about 14% to reach an all-time high of US$ 124 million, equating to 88% of total revenue. Dubai toll operator saw a tenfold increase in depreciation/amortisation to US$ 6 million, with employee and benefits expenses more than doubling to almost US$ 2 million; it also incurred a concession fee expense of nearly US$ 31 million for the period, with an increase in Impairment loss on trade receivables. Over the six-month period, profits were 31% lower, at US$ 149 million, with revenue heading north – up 10% to US$ 272 million.
Shuaa Capital posted a H1 net profit of over US$ 5 million, following a, US$ 45 million loss in H1 2022, as net operating income rose tenfold to US$ 9 million; revenue was 68% higher at US$ 27 million mainly due to recurring income from all business segments, The investment and asset management firm reported an 11% increase in revenue to US$ 24 million. Last month, the firm sold a plot of land in Business Bay to developer, Danube Properties, for a reported US$ 52 million, in a deal arranged on behalf of its subsidiaries and other investors. Its investment banking business contributed nearly US$ 3 million to group revenue – 25% higher than a year earlier. Shuaa noted that its debt-to-equity ratio improved to 88%, from 123% a year earlier, having made debt repayments of US$ 47 million since December 2022.
Amanat Holdings PJSC posted marked H1 growth in both its revenue and profit – up 44% to US$ 1.01 billion and by 52% to US$ 26 million – with EBITDA also heading north, up 53% to US$ 41 million. Its acting Chief Executive Officer, John Ireland, also commented that “further growth is expected in 2023 and beyond, as we deliver our growth strategy and convert our deployment pipeline”. The company also noted that its Healthcare platform is on line to progress plans to increase bed capacity from c.400 to c.1,000 post-acute care beds by 2026, whilst expansion plans for its Education division will witness expansion of its special education needs, increasing its higher education enrolments and actively pursuing K-12 opportunities in the UAE and Saudi Arabia.
Aramex posted a 57% decline in Q2 net income, to US$ 5 million, attributable to weak market conditions and foreign exchange headwinds, as revenue dipped 8% to US$ 381 million, (or only 5%), excluding the impact of currency movements. Another reason was that the holy month of Ramadan fell in the period resulting in fewer working days. H1 profit and revenue also fell – by 53% to US$ 12 million and 5% to US$ 817 million due to increased financial expenses, a drop in its international express unit’s top line and currency devaluation in certain markets. Other factors involved in the disappointing figures include the whole industry hit by a decline in shipments since Covid, lower demand for their services as consumers returned to in-store shopping, and higher financial costs.
The DFM opened on Monday, 07 August 2023, 604 points (17.4%) higher the previous eight weeks, shed 19 points (0.5%) to close the week on 4,064, by 11 August 2023. Emaar Properties, US$ 0.24 higher the previous four weeks, lost US$ 0.05 to close on US$ 1.88 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.72, US$ 4.63, US$ 1.57, and US$ 0.45 and closed on US$ 0.71, US$ 4.58, US$ 1.57 and US$ 0.45. On 11 August, trading was at 180 million shares, with a value of US$ 90 million, compared to 170 million shares, with a value of US$ 94 million, on 04 August 2023.
By Friday, 11 August 2023, Brent, US$ 11.81 higher (15.9%) the previous five weeks, gained US$ 0.38 (0.4%) to close on US$ 86.62. Gold, US$ 19 (1.0%) higher the previous week, shed US$ 32 (1.2%) to US$ 1,946 on 11 August 2023.
Saudi Arabia’s Aramco posted yet another set of impressive financial figures for Q2 and H1, attributable to several factors, including low-cost production and high supply reliability. Q2 and H1 saw net income at US$ 30.1 billion and US$ 62.0 billion, while its cash flow from operating activities rose to US$ 33.6 billion and US$ 73.3 billion. The energy giant reported free cash flow of US$ 23.2 billion and US$ 54.1 billion respectively.
More than helped by government subsidies, there was a H1 34% surge, to 750k, in deliveries from many Chinese new-energy vehicle (NEV) manufacturers, with this figure expected to escalate in the coming months. Of that total, nearly 35%, (261.5k vehicles), was sold by BYD, followed by Tesla, Aions and Geely with 64.3k, 45.0k and 41.0k respectively. Interestingly, and worryingly, for international EV manufacturers is the input from emerging players that will cause concern, as the likes of Li Auto, (227% higher on the year), NIO – 20.5k, up 104% – and XPENG’s 11k.
Market data platform Newzoo has estimated that revenue in the global gaming market will rise 13.2% to US$ 212.4 billion by 2026, with mobile platforms continuing to lead the growth, and accounting for US$ 92.6 billion equating for 43.6% of the total. Console games generated US$ 56.1 billion, or 26.4% of the total, and is expected to grow by 7.4%, on an annual basis, over the next three years. PC games accounted for 17.5% of the total, (at US$ 27.2 billion – up 1.6% year-on-year). Regionally, going forward, Asia-Pacific will continue to lead revenue generation, with an estimated US$ 85.8 billion, in 2023, followed by North America, (with US$ 51.6 billion), Europe (US$ 34.4 billion), Latin America, (US$ 8.8 billion) and MEA (US$ 7.2 billion). Although the MEA accounts for only 3.39%, it is expected that it will post the biggest jump in revenue with nearly 7%, whilst the four regions are to record growth of 1.2%, 3.8%, 3.2% and 4.3% respectively. Newzoo projects that the gamer population will grow a further 6.3% to 3.381 billion players which in turn will see a similar hike in revenue streams. The leading five video gaming companies are China’s Tencent, remaining the biggest video gaming company by revenue, with US$ 7.56 billion, followed by Sony, Apple, Microsoft and NetEase with totals of US$ 4.38 billion, US$ 3.68 billion, US$ 3.15 billion and US$ 2.71 billion. Google, Activision Blizzard, Electronic Arts, Nintendo and Take-Two Interactive make up the top ten sellers.
In May, the UK antitrust watchdog agreed a deal, signed last November, that saw France’s ESF acquire the US company’s GE’s nuclear turbine business; the agreement included the manufacture of equipment for new nuclear power plants and maintenance of existing sites in all regions, other than the Americas. However, this week the UK Cabinet Office issued a statement expressing concern over the contract and outlining a list of conditions. Oliver Dowden, the Deputy PM, has issued a final order on EDF’s deal to buy the unit, via a subsidiary called GEAST UK, saying all parties must meet certain criteria including to “implement governance arrangements to protect sensitive information” and that there was a possibility that “national security will arise because of the critical national security and defence capabilities relating to naval propulsion systems which are delivered through (the GE unit).” All parties will have to meet security requirements, set up a system to protect sensitive data, and “maintain capacity and capability in respect of critical MoD’s programmes in the UK,” and that a government-appointed board observer must be placed on the board of GEAST UK, and a steering committee set up to provide oversight of compliance with security standards.
WeWork has announced that it requires additional financing over the next twelve months to remain in business, with it raising “substantial doubt” about its future; on Tuesday, its share value slumped nearly 24%, to US$ 0.21 on the news; last year it tanked 95% of its market value. The global space-sharing company, backed by Japanese tech giant Softbank, has yet to fully recover from the financial pandemic of Covid. Since then, it has not turned in a profit and the outlook is grim, with the company saying that its “ability to continue as a going concern is contingent upon successful execution of management’s plan to improve liquidity and profitability over the next twelve months.” Accordingly, it has plans to introduce additional capital, through the issuance of stocks or bonds, or asset sales, as well as to move to reduce rental costs and limit capital expenditure.
Its founder Warren Buffet prefers to focus on operating earnings to see how the more than ninety companies Berkshire owns are actually performing because of the big swings in the paper value of its investments from quarter to quarter when few of Berkshire’s investments are actually bought or sold. Using that measure, operating earnings grew 6.6%, to US$ 10.043 billion, or US$ 6,928 per Class A share – up from US$ 9.417 billion, or $6,404 per Class A share, a year ago. Profits moved higher, along with the value of its US$ 353 billion stock portfolio in Q2, to hit $35.9 billion, and Berkshire Hathaway’s assorted businesses also performed well, led by strong results in its core insurance businesses, particularly Geico. Dubbed the Oracle of Omaha, Warren Buffett still lives in the same modest home in Omaha that he purchased in 1958 for just US$ 31.5k, and adjusted for inflation, that amount today would be approximately US$ 329k, a mere 0.000279% of his total net worth.
According to reports, in June, before being sued by the US Securities and Exchange Commission, Coinbase was requested to stop trading in all cryptocurrencies except Bitcoin. Chief executive, Brian Armstrong, noted that “we really didn’t have a choice at that point. Delisting every asset other than Bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US” and “it kind of made it an easy choice … let’s go to court and find out what the court says.” The watchdog had accused Coinbase of operating illegally because it failed to register as an exchange, and also alleged that it traded at least thirteen crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon.
Husband and wife, Heather Morgan and Ilya Lichtenstein, have pleaded guilty to trying to launder US$ 4.5 billion of Bitcoin that had been stolen in a 2016 hack from the crypto firm Bitfinex, (whilst Morgan also pleaded guilty to an additional count of conspiracy to defraud the United States). Last year, they were arrested in New York, after police traced their riches back to the crypto heist, and as part of a plea deal, the husband admitted he was behind the hack. Since the 2016 heist, Morgan published dozens of expletive-filled music videos and rap songs filmed in locations around New York, under the name Razzlekhan. At the time of their arrest in February 2022, the stash of 119k Bitcoins was worth about US$ 4.5 billion – a lot higher than the estimated US$ 71 million value seven years earlier.
On 26 July, the Welsh firm, founded by fashion designer Julien Macdonald, went into liquidation – after being in financial trouble since the pandemic., as well as a significant decline in revenue following the collapse of Debenhams at the end of 2020. The world-famous designer, who designed Wales 2022 Commonwealth Games outfit and uniforms for BA flight attendants, dressed stars including Beyoncé, Kylie Minogue, Gwyneth Paltrow, Naomi Campbell and Jennifer Lopez. Alan Coleman, of liquidation company FTS Recovery, commented that “due to the loss and under-performance of several key contracts, including its main UK retail licensee, along with a previously growing licensee based in the United States, which severely impacted cashflow, the company is now in liquidation.”
It could prove to be third time unlucky for Clintons, as the greeting cards retailer has announced it is set to shut 21.2%, (38), of its 179 shops in an effort to keep the company afloat; it is reported that if it cannot find a suitable backer, it faces insolvency. It had faced similar financial difficulties, in both 2012 and 2019, and has appointed restructuring experts FRP Advisory. In its halcyon days, the retailer had eight hundred shops, employing over 8k, but following the 2012 rescue by American Greetings, it had to close 350 outlets and make 3k redundant. The US-based Weiss family, owners of American Greetings, came to the rescue again in 2019, resulting in more closures and redundancies. The business, established in 1968, made its founder, Don Lewin, a multi-millionaire.
The Barbie film has manged to pull in over US$ 1.0 billion in box office sales – and did it within just seventeen days of its opening; distributor Warner Bros confirmed it had drawn in US$ 459 million so far in the US and US$ 572 million internationally. Many cinemagoers have paired a viewing of Barbie, with Christopher Nolan’s Oppenheimer – a story about the development of the first atomic bomb. UK-based cinema chain Vue recently said both films had led to their seeing its busiest weekend since the onset of Covid. Toy-maker Mattel is hoping to repeat the same success with other films, using some of its other brands including Barney, Hot Wheels and Polly Pocket; it has also released a soundtrack album and entered into more than 165 consumer product partnerships for the Barbie film.
The Food and Agriculture Organisation recorded July global food prices were almost 12% lower on the year and 22% below March 2022’s record peak, but slightly higher, at 123.9, than May 2023’s two-year low. Although there was a significant decline in sugar prices, and small decreases in the price of cereals, dairy and meat, it was largely offset by a marked rise in the price of vegetable oils; This increase in July was driven by higher world prices across sunflower, palm, soy and rapeseed oils. The FAO’s cereal price index dropped by about 0.5% last month, from June, and was 14.5% below its value a year ago, attributable to a decline in international coarse grain prices. International prices of maize and sorghum declined in July due to increased seasonal supplies, with barley prices stable, whilst wheat prices rose 1.5% due to the uncertainty over Ukraine’s exports. Rice prices rose 2.8% to their highest level since September 2011, driven mostly by price rises in India, but prices of sugar, global meat and global dairy fell 3.9%, 0.3% and 0.4%.
There are local reports that once the government-owned Sri Lankan Airlines has been privatised, it could go up for sale. This year, it made its first profit since 2008, (when it made US$ 30 million), the year that the government bought out its then 40% partner Emirates. In the seven years to 2015, things turned badly wrong under government ownership and management, and it lost a total of US$ 875 million. In recent years, it has been badly impacted by the quadruple whammy of Covid, the 2019 Isis-co-ordinated Easter suicide bombings, the cost-of-living crisis and inflation, as well as government corruption. This year, the good news is that it made a US$ 100 million profit on a US$ 1.0 billion turnover – the bad news being that most of the profit went on finance charges. The airline is planning to almost double its current fleet from twenty-three to forty planes. The main reason that other airlines would be interested in buying Sri Lankan Airlines is as an entrée into India, and that despite being the world’s most populous nation of 1.4 billion, India has just 0.5 commercial aircraft per million people whereas China has three and American thirty.
Dismal July Chinese trade figures showed that both exports and imports slumped more than expected, by 14.5% and 12.4% respectively. It is obvious that a marked slowdown in global growth has impacted on the world’s second largest economy and that the trend could continue until the end of 2023. 2022 was a year to forget for the economy which grew by only 3% which, notwithstanding the Covid-induced slowdown, was the weakest since 1976. Last year, Shanghai was in full lockdown in March and April and although restrictions were lifted towards the end of the year, recovery has been slow and disappointing. The domestic problems – including high youth unemployment and a continuing crisis in the housing sector – have just added to the country’s problems arising from weaker global growth which has a negative knock-on effect on manufacturing and exports. The fact that exports to the US and EU slumped 23.1% and 20.6%, on the year, just indicates the problems facing China – and whilst the world suffers from high inflation and soaring living costs, this will be more than a drag on its economy for the next eighteen months. A Catch 22 scenario will result in a weaker China importing less which will see global demand suffering.
With its July CPI dipping 0.3%, China’s economy has slipped into deflation, attributable to weak import and export data, a declining property market and ballooning local government debt; this leads the government with little option but to revive demand. Analysts expect that the stop-gap strategy to lift inflation would be a mix of more government spending and lower taxes, alongside easier monetary policy. However, the Chinese government has been sending the message that everything is under control but has so far avoided any major measures to encourage economic growth. Building confidence among investors and consumers will be key to China’s recovery. The real issue is whether the government can get confidence back in the private sector, so households will go out and spend rather than save, and businesses will start investing, which it has not accomplished so far.
In a surprise move to help mortgage holders and to cut taxes, Prime Minister Giorgia Meloni’s Italy passed a one-off 40% tax, (that could have brought in some US$ 2.2 billion), on the profits banks earn from higher interest rates: because of recent rate hike, Italian Banks, (and obviously many others all over the world), have been posting record profits. There was no surprise to see that banks retorting the tax on their profits will be “substantially negative” for the sector, and that shares took a nosedive. The tax was to apply to the net interest income that comes from the gap between the banks’ lending and deposit rates. On the news, shares in the country’s two largest banks, Intesa Sanpaolo and UniCredit, sank 8.0% and 6.5%, whilst shares in Banco BPM, the country’s third-largest bank dropped 8.2%, and the state-owned Monte dei Paschi di Siena dipped by 7.4%. Most bank shares in Europe dipped, with concerns that other EU members could follow Italy’s example. To date, Hungary (who else?) and Spain have done likewise. However, the very next day, Meloni watered down her windfall tax plans that was to hit its banks and this led to a rebound in the share prices of the country’s lenders. Late on Tuesday evening, the finance ministry said the tax would be capped at 0.1% of assets, and the tax will apply to the income that comes from the gap between the banks’ lending and deposit rates.
From today, Halifax has reduced rates by up to 0.71%, with a five-year fixed deal priced at 5.39% from 6.10%. Other major lenders – including HSBC, Nationwide and TSB – have also cut rates which will offer a little help to beleaguered mortgage lenders, as well as an indicator that high inflation could be easing. HSBC has cut some homebuyer, first-time buyer and re-mortgage rates on offer by up to 0.35%, as well as adding a US$ 635 (GBP 500), cash back incentive to some deals, with Nationwide also reducing the rates on offer for those re-mortgaging by up to 0.35% across two, three and five-year fixed deals. It was only last week that the BoE pushed rates higher for the fourteenth consecutive month to 5.25% and although it could plateau to 5.75%, one factor is certain – rates will never return to less than the 2% which had been the norm for the ten years to December 2021. This trend may continue as lenders see the housing market slowing down and that will impact their business.
In keeping July rates unchanged at 4.1%, the Reserve Bank of Australia has moved into a holding pattern, as it weighs up an economy where risks are “broadly balanced” between a stubborn inflation breakout and a recession, with the hope of engineering a soft landing in between those extremes. It still considers that inflation will continue in the remaining months of 2023 to end the year at 4.1%, and the 2025 fiscal year, (30 June 2025), at 2.9%. The central bank noted that “the board’s current assessment is that the risks around the inflation outlook are broadly balanced. But it recognises that the crystallisation of upside risks would increase the likelihood of inflation staying high for longer and a rise in medium-term inflation expectations.” There is no doubt that rents will continue to be a persistent major contributor to inflation, at least until December 2024, with rent inflation continuing to head north. To exacerbate the problem, in 2022, the country’s population grew 1.9% – its highest rate since 2010 – as the year ended with an extra 497k people. A mix of a shortage in housing supply and increasing demand is stoking rental inflation, which can only worsen if the RBA keeps raising interest (mortgage) rates. To make matters even worse, the RBA notes that “construction activity for new dwellings continues to be limited by capacity constraints because of labour shortages and a tightening in financial conditions.” No doubt that there is an increasing number of Australians saying We’re Caught In A Trap!
howesdubai.com 