June 2024 Investment & Economic Update

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Our latest monthly investment update for June 2024 examines how the global investment markets, economy, and commodities are performing.

The FTSE 100 index of leading UK company shares closed at the end of May at 8,231.05, up 85.3 points or 1.05% during the month.

Chip maker surge

Nvidia’s market value now surpasses the entire FTSE 100, driven by the AI boom. In the last five days, Nvidia shares have risen over 13% following the announcement that sales tripled over the past year. This surge has increased Nvidia’s market valuation to over $2.8 trillion (£2.2 trillion), exceeding the total value of £2.15 trillion of all FTSE 100 companies.

Nvidia’s advanced chips, crucial for AI systems like ChatGPT, have seen immense demand. This sharp valuation rise positions Nvidia close to Apple, which has a market cap of $2.9 trillion, making it the world’s second most valuable company after Microsoft.

Robust house prices

UK house prices grew by 0.4% in May, with the average price reaching £264,249, up from £261,962 in April, according to Nationwide. This growth reflects increased buyer confidence due to wage growth and lower inflation, reversing the 0.4% decline seen in the previous month.

The market has shown surprising resilience despite high mortgage rates, influenced by the Bank of England’s slower-than-expected interest rate cuts.

Nationwide’s senior economist, Andrew Harvey, noted the market’s unexpected robustness despite significant affordability pressures.

Stagnant living standards

A new report suggests living standards have stagnated, with the Institute for Fiscal Studies (IFS) calling for the next government to boost productivity. The independent think tank IFS highlighted slow income growth across all demographics. While the pandemic and rising energy prices have played a role, the UK has lagged behind other countries.

The IFS emphasised the importance of government action to enhance productivity and improve incomes. Citizens Advice urged politicians to clarify their plans for addressing living standards, stating, “Right now, whether you can make your household budget add up is the only thing that matters.”

Green energy plans

Labour’s leader, Sir Keir Starmer, asserts that the party’s green energy plans will prevent the mistakes made during the coal phase-out as the UK transitions from oil and gas.

Critics argue that Labour’s promise to halt new oil and gas licences if it wins the July general election endangers jobs. The SNP contends that these proposals and Labour’s plan to increase company profits taxes threaten thousands of Scottish jobs.

However, Starmer insists that Labour’s new green investment firm will secure long-term replacement jobs. Labour plans to establish Great British Energy, a public company based in Scotland.

Production cuts extended

OPEC+ has extended its production cuts to support a fragile market while also scheduling a gradual increase in oil production later this year.

The agreement in Riyadh on Sunday surpasses market expectations by prolonging “voluntary” cuts from prominent members like Saudi Arabia and Russia well into next year. However, it will start easing these reductions in October, earlier than anticipated by some OPEC analysts.

Declining corporate profits

As excitement over artificial intelligence and China’s stimulus wanes, equity investors in emerging markets face a familiar challenge: declining corporate profits.

With 96% of companies in the MSCI Emerging Markets Index reporting quarterly results, the earnings season is nearly complete, revealing a troubling trend. Almost half of the companies missed analyst estimates, with average profits down 10% from last year’s period.

Companies are earning only 86 cents for every dollar of predicted earnings. This contrasts sharply with two years ago, when an 18% profit increase allowed emerging market companies to exceed projections.

Santander hack

Following their recent claim of hacking Ticketmaster, hackers are attempting to sell confidential information from millions of Santander staff and customers.

Santander, employing 200,000 people globally, including 20,000 in the UK, confirmed the breach and apologised for the concern caused. They contacted affected customers and employees directly and assured them that UK customer data was not compromised.

The breach affected customers in Chile, Spain, and Uruguay, as well as current and some former employees. No transactional data or credentials enabling transactions were compromised. Santander assured that banking systems remain secure for transactions.

Steel maker decarbonisation

India’s Tata Steel aims to accelerate its decarbonisation efforts in Britain despite trade unions voting to strike over job cuts. CEO T.V. Narendran told Reuters that the company wants to expedite the construction of a new electric arc furnace, emphasising clear timelines.

Tata Steel plans to close its two blast furnaces in Britain, resulting in up to 2,800 job losses at its Port Talbot steelworks in Wales. The British trade union has voted for strike action in response to these job cuts but has not set a date for the strike.

Narendran stated, “We will deal with it when it comes to that,” as the union seeks a better deal for the workforce.

Bank merger review

The Competition and Markets Authority has initiated a merger inquiry into Nationwide’s proposed acquisition of Virgin Money. The investigation will assess whether the acquisition could significantly reduce competition in any UK market.

New greenwashing rules

The Financial Conduct Authority’s anti-greenwashing rules took effect at the end of May and are expected to significantly impact the industry, according to experts.

The regulator aims to protect consumers from misleading sustainability claims. Consultation on the scheme began in October 2022, and the outcomes were published in November 2023 after some delays.

Market Data

£1 buys $1.27411 or €1.1740. Gold is $2,348.25 an ounce, and UK natural gas futures are 83.09p/therm, up from 75.40p/therm at the start of May. The UK 10-year gilt yield is 4.321%, up from 4.291% at the start of May.

Kellands will continue to keep you updated on market developments on a regular basis. However, if you have any questions or need some financial advice in the meantime, please do not hesitate to get in touch.

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