Low interest rates and the impact on your savings

UK Investor Magazine
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Low interest rates and the impact on your savings
The Bank of England hasn’t increased interest rates since July 2007 when rates were increased to 5.75% from 5.5%. Since then rates have plummeted to record lows and there is no sign of a rate hike anytime soon given the backdrop of Brexit uncertainty.

During the period of record low rates, borrowers have able to secure capital at low a cost and pump it back into the wider economy. This has been central in helping the UK recover from one of the worst recessions in history.

Record low rates have undoubtedly been great for the economy as UK GDP growth has outperformed many developed economies. The lower rates have supported borrowing in the housing market and retail sales have remained resilient, even in the face of Brexit.

However, market theory dictates that where there are winners, there will always be losers. The winners of low interest rates have clearly been borrowers. The losers have been savers.

At the time of writing the Cash ISA interest for major UK banks are as follows; HSBC Advance Standard Rate 0.5%, Lloyds 0.35% and Barclays 18 month flexible 0.8%. Pitiful to say the least.

This is why many investors are turning to companies such as Moneyfarm who operate low-cost and fully-managed Stocks & Shares ISAs.

Moneyfarm allows investors to invest up to £10,000 free of a management charge and choose between a general investment account or an ISA. Clients of Moneyfarm benefit from easy set-up, low fees and full transparency from their funds.

Moneyfarm portfolios are managed around the clock by their investment committee who are striving to provide returns in excess of the pathetic offerings of Cash ISAs currently.

If you invest with Moneyfarm, like with any investing, your capital is at risk and you may get back more or less than your original investment.

Mcdonald’s to move non-tax base to London

Nicole Jeary
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Mcdonald’s to move non-tax base to London

McDonald’s has announced its intention to move its non-tax base to London from Luxembourg.

The fast-food giant will create a new holding company in the UK, and will pay UK taxes on any profits earned outside of the U.S. It said it came to the decision after taking into consideration the vast amount of employees it has within the UK.

In a statement, the company said that the new holding would have the “responsibility for the majority of the royalties received from licensing the company’s global intellectual property rights outside the US”.

“This unified structure will be administratively simpler and will reduce expenses and enhance flexibility,” the firm said.

On Brexit

“The reasons for changing the location of the corporate structure to the U.K. were sound before Brexit and remain so beyond it,” the company remarked.

“These strengths are unlikely to change as the U.K. negotiates leaving the European Union.”

The company emphasised that their “significant number of staff based in London working on our international business, language, and connections to other markets.”

The move has attracted speculation that the company were most likely motivated by UK’s corporate tax rate. The UK rate currently rests at 20 percent, with government plans to reduce it further to 17 percent by 2020, which would make it the lowest within the G20.

Under Investigation

Mcdonald’s remains entangled in an EU investigation on the company’s tax activities, centred on whether it utilized Luxembourg to facilitate the taking of large corporation tax breaks.

Amid the criticism, the brand stated that it continues to pay “a significant amount of corporate taxes.” In addition, they noted that from 2011 to 2015, “we paid more than $2.5 billion in corporate taxes in the EU, with an average tax rate approaching 27 percent,”.

The company receives about two-thirds of its income from its operations outside the U.S, with France making up its second largest market.

Russia sells $11 billion stake in Rosneft

Nicole Jeary
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Russia sells $11 billion stake in Rosneft

The Russian government has agreed to sell its largest oil stake in Rosneft, in a bid to rescue its ailing economy.

London-listed company Glencore and the Qatar Investment Authority (QIA) have agreed to acquire a 19.5 percent stake in the company for €10.5bn (£8.9bn). According to the deal, Glencore will supply €300 million in funding, with the rest made up by the QIA and through bank financing.

Rosneft been struggling in recent years, as the over-saturation in the oil market has continued to impact oil prices and thus its access to revenue. However, following OPEC’s agreement of their first output cut in 8 years last week, oil prices have since rebounded to $50 a barrel which has since revitalized the sector.

“The transaction was made on an upward trend in oil prices and reflects on the value of the company,” Russia’s president Vladimir Putin commented during a televised meeting with Rosneft boss Igor Sechin. “In that sense this is a good time.” He added.

The deal will mean that investor Glencore will acquire around 20 percent stake in the company in return for receiving 220,000 barrels of oil daily from the producer. It is already the biggest trader in Russian oil, and thus the agreement will prove a boost to its commodity shipping business. Glencore and QIA will join British-held BP to become a shareholder in the oil company. As of 2011, BP has retained an 18.5 percent stake in the Russian oil firm.

This comes amid Glencore made the move towards reinstating dividends just last week, following a challenging few years. In an announcement, Glencore stated that it had completed sales of assets in order to bring in debt targets in line with $17 billion for the end of the year. Glencore had previously racked up a debt that at its peak had reached $30bn (£23.7bn), as it continued to struggle in a depleting commodities market.

Italian Banks show recovery, amid bailout hopes

Nicole Jeary
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Italian Banks show recovery, amid bailout hopes

Italian banks have showed signs of recovery on Wednesday, after a heavy referendum defeat led to the resignation of Prime Minister Matteo Renzi.

Following the Italian people’s overwhelming “No” response to proposed constitutional reforms, Italian banking shares plummeted amidst concern over the country’s political instability.

However, shares in the world’s oldest bank – Monte dei Paschi – rose by almost 9 percent as the prospect of a government bailout looked increasingly likely. The bank performed the worst in Europe in stress tests over the summer, as its sizeable amount of debt continues to take its toll.

Both Italian and international newspapers have speculated that a government bailout may be on the horizon, prompting the rise in share value for the troubled banks. A deal with a private investor looks increasingly unlikely, now the country has been left without a leader.

Italian daily La Stampa reported that the Italian government may look to the European Stability Mechanism (ESM) for funds of around €15 billionn (£12.7 billion) to help with the financial rescue.

Additionally, Reuters stated that various unnamed sources anticipate the government taking as much as a €2 billion stake in Monte dei Paschi, following the collapse of a potential private rescue bid from external investors.

Italy however, has already been warned by the EU commission that it may violate rules regarding excessive debts of member countries. The EU Economics Affairs Commissioner, Pierre Moscovici, noted that the strain on Italian finances arose from the recent devastating earthquakes that struck central Italy, and that he expected that the commission would take this factor into consideration.

The ESM, which deals with European bailout funding, has stated that the Italian government has yet to initiate discussions. A spokesperson stated:

“There is no request and there are no discussions with the Italian authorities on an ESM loan.”

Amid the speculation other banks’ shares are rallying, seeing a 3 percent rise for the Italian banking sector.

Markets bracing for Fed rate hike – but is it too soon?

Miranda Wadham
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Markets bracing for Fed rate hike – but is it too soon?

Global financial markets are bracing themselves for the Federal Reserve to hike rates, after Friday’s positive jobs figures left the way clear for a December rate rise.

At last month’s meeting the Federal Reserve gave their strongest hints yet that a rate hike was on the cards. Despite the uncertainty prompted by the resignation of Italian Prime Minister Matteo Renzi, most analysts now believe that the Fed will use their December meeting to make their second policy rate increase in 10 years

The markets are already pricing this in but according to deVere Group international investment strategist Tom Elliott, it may be premature.

“Financial markets are pricing in as a certainty a 25bp rate hike at the forthcoming FOMC meeting. This will take the key Fed funds rate up to a range of 50bp-75bps. Supporting the market’s view is the strength of the U.S. economy, with some strong data emerging last week that suggests inflation pressures are building.

“This data includes that third quarter GDP growth has been revised upwards from 2.9 per cent annualised, to 3.2 per cent; a key housing statistic (the Carelogic Cas Schiller National Price Index) passed its previous July 2006 high; November payroll data was strong at 178,000 new jobs created, while the unemployment rate fell to 4.6 per cent; and CPI inflation is at 1.6 per cent, which is in spitting distance of the Fed’s 2 per cent target.” Mr Elliott continues: “However, the markets’ pricing in of a rate rise at this stage could be premature. Indeed, we have seen similar market certainty of a rate hike several times before this year, notably in May. “The prime cause of uncertainty this time is not fear of a rash of weak economic data, but how the dollar behaves over the coming week. “If it continues to strengthen, in anticipation of higher Fed rates, the Fed may actually hold off. A strong dollar exerts its own form of monetary tightening because exports weaken, import prices fall and so put a downward pressure on domestic competitor prices. “The Fed may prefer to delay a rate hike, than impose a double-dose of higher borrowing costs on corporate America as well as a still- stronger dollar.” The next Federal Reserve meeting takes place on the 13th – 14th December.  

Drax soars 15% by midday after confirming plans to buy Opus Energy

UK Investor Magazine
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Drax soars 15% by midday after confirming plans to buy Opus Energy
Drax (LON:DRAX) shares were being snapped up by investors this morning after confirming to the market the proposed acquisition of Opus Energy Group Limited (Opus Energy) for £340m and an agreement to purchase four Open Cycle Gas Turbine (OCGT) development projects. Drax outlined in their half year results this morning that the company has been exploring options to improve earnings and longer term growth after announcing full year EBITDA to be around the bottom of the range of market forecasts. A key aspect of this is looking to improve diversification across the markets in which it operates; pellet supply, generation and retail. Dorothy Thomson, Chief Executive Office of Drax Group said “Drax is already playing a vital role in helping change the way energy is generated, supplied and used as the UK moves to a low carbon future. Today we are pleased to announce the proposed acquisition of Opus Energy, the UK’s leading challenger retail supplier in the SME market, creating a strong and competitive presence complementing our existing Haven Power offer.” Thomson went on to say “With the right conditions, we can do even more, converting further units at Drax to use sustainable biomass in place of coal. This is the fastest and most reliable way to support the UK’s decarbonisation targets, whilst minimising the cost to households and businesses. These initiatives mark an important step in delivering our strategy, contributing to stronger, more predictable, long-term, financial performance, through greater diversification of the businesses, delivering more opportunities right across the markets in which we operate.”

At the beginning of 2014 Drax shares were trading north of 800p a piece and were trading at lows ot 205 in January of this year, whilst confirming fully tear earnings to be below market forecasts the announcement of the Opus deal has seen the shares rally to 320p up over 15% on the day.

 

Revenue surge of 159% at online Estate Agency Purplebricks sees shares soar over 20%

UK Investor Magazine
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Revenue surge of 159% at online Estate Agency Purplebricks sees shares soar over 20%
Online Estate Agency Purplebricks (LON:PURP) reported UK revenues increased from £7.2m to £18.3m over 6 months to the 31st October, an increase of almost 160%. In the update released earlier today Purplebricks also confirmed the launch into Australia was better than any of the regional UK launches to date with gross profits of £0.2m on revenues of £0.4m. Purplebricks has shrugged off the Brexit blues stating “Current trading is showing similar year-on-year instruction growth with no material slow-down from Brexit”. The fears across the property sector have been stated loud and clear by many market participants however newcomer Purplebricks, which was only founded in 2014, says it hasn’t been affected and has seen revenues soar. “Our strong results are testament to the seismic shift that is underway in the estate agency market. I am especially proud that currently we are agreeing a sale every 16 minutes, 24 hours a day and the number of properties sold in the first half is similar to the total number of properties sold during the whole of the previous year” says chief executive Michael Bruce. “These results demonstrate that the business model is working, with the UK generating a maiden half-year adjusted EBITDA profit whilst growing market share” he continues. The maiden profit Bruce refers to is a modest £300,000, which by itself might not sound great however compares favourably to the loss of £6m over the same period in 2015. Whilst instructions rose strongly the average revenue per customer also increased 21% to £1,000.    

Uk service sector defies projections

Nicole Jeary
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Uk service sector defies projections

The UK service sector has seen its fastest growth since January, despite continued anxiety over Brexit uncertainties.

Despite an initial slowdown, British hotels and banks look to cap off the year with solid performances suggesting a resilient UK economy.

According to the Markit/CIPS, UK services PMI rose to 55.2 in November up from 54.5 the previous month. This proved a better-than-expected performance, with Reuters forecasts anticipating the sector to experience slowdown to 54.0. The index has now been above the 50-mark which indicates growth, as opposed to contraction for four consecutive months.

Chris Williamson, the chief economist for business at IHS Markit, stated:

“The further upturn in the vast services sector shows that the pace of UK economic growth remains resiliently robust in the fourth quarter, despite ongoing uncertainty caused by Brexit.

“The three PMI surveys collectively indicate that the economy will grow by 0.5% in the fourth quarter.”

The sector has benefited from a weaker pound, pushing up overseas demand and led to growth in employment levels. Nevertheless, sterling weakness also meant higher import costs and greater pressure as a result of higher food and fuel costs for British businesses within the services sector.

In addition, it was noted that the pressure from inflation and as political uncertainty starts to weigh upon business outlook, this may impact performance into the new year. Similar concerned were raised last week in respect to the UK’s manufacturing and construction industry.

“Rising prices – often linked to the weaker pound – are a big concern, however, and suggest that inflation is set to lift higher,” Williamson continued.

“The past two months have seen the steepest rise in businesses’ costs for over five-and-a-half years. These higher costs will inevitably feed through to consumers in the form of higher prices.”

The services sector remains a dominant contributor to the UK economy, making up over 75 percent.

Markets take Italy No vote to referendum in their stride, Renzi resigns

UK Investor Magazine
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Markets take Italy No vote to referendum in their stride, Renzi resigns
In what many had tipped as being a volatile outcome for the struggling Euro nation financial markets after an initial bout of volatility have taken in their stride Italy’s resounding “No” to constitutional reforms. With Italian Prime Minister Matteo Renzi putting his head on the line on the outcome it will mean Italy is due to elect their 6th Prime Minister in 10 years. The reforms were broadly looking to assist in preventing the stalemate which can often occur in Italian politics with the two levels of Government having the same powers. The No vote was championed by populist party Five Star Movement (5SM) Francesco Oggiano, author of “Beppo Grillo Parlant” was quoted as saying “According to the 5SM, people won’t be able to choose their own representatives in the parliament and this is the most important point,” Oggiano explained. “The result (of a ‘yes’ victory) would be a parliament full of bureaucrats chosen from their parties that, once elected, will just get to satisfy their leader instead of people’s needs,” he added. Whilst the Euro initially saw heavy selling the negativity was short lived, shortly after the vote EURUSD was down over 1.5% however by midday had recovered those losses, with equity markets following a similar pattern.

Shares in Banco Monte dei Paschi di Siena, regarded as Europe’s most troubled large bank, recovered to only mild losses by midday. Jeroen Dijsselbloem, Eurogroup President said “If this is the market reaction, it doesn’t seem to require any emergency steps,” in response to a question about whether the European Central Bank should intervene ahead of a eurogroup meeting in Brussels.

“The process of dealing with some of the banks that have problems need to continue and will continue,” he added. “[Italy] is a strong economy, is one of the largest economies in the eurozone, it’s a country with strong institutions.”

Trading Indices vs Trading Individual Stocks

UK Investor Magazine
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Trading Indices vs Trading Individual Stocks

Key Topics:

      • Index Value Influences

      • How Different Indices Are Correlated

      • Index Trading Strategies

        This report explores the benefits and risks of trading indices and lays out the strategies professional traders use to enhance their returns.

        You will discover the methodology of how different indices such as the FTSE 100, S&P 500 and Dow Jones are calculated, how your individuals shares impact them and what it means for your investments.

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This offer has been issued and approved by Windsor Brokers Ltd UK Branch, which is EEA authorised & registered by the Financial Conduct Authority (FCA) and maintains a branch in the UK, FCA Reference Number: 463727. The FCA is an independent non-governmental body that regulates the financial firms within the UK. Financial firms authorized/regulated in their home country, within the European Economic Area (EEA), can offer certain products or services in other EEA countries through pass-porting the activities or through a branch. Windsor Brokers Ltd is authorized and regulated by the Cyprus Securities & Exchange Commission (License Number 030/04).
Trading with financial instruments on margin carries a high level of risk, and may not be suitable for all investors. Trading with financial instruments is not suitable for an investor seeking an income since profits are not guaranteed. It is recommended to seek independent investment advice if necessary .
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