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David Cowell: Investment Overview etc

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Each quarter I pen a newsletter to clients entitled Investment Overview and the July edition is now being sent. You may wish to glance at it so it is attached. If by any chance it has become detached you can view it on our website: www.myddletoncroft.co.uk


THE UK economy grew by 0.6% last quarter, increasing at a slightly-faster rate than at the start of the year. It will be interesting to see what happens in this quarter as the doom mongers are in the ascendancy.


The UK Government has sold a 50-year inflation-linked bond at a record low rate. The UK Debt Management Office offered £2.5bn of inflation-linked bonds, maturing in 2065, at a negative real yield of -1.3245 per cent. The debt issue was massively oversubscribed, attracting offers of £10.1bn, with 93 per cent of buyers coming from the domestic UK market. Coupons on the 0.25 per cent Index-linked Treasury Gilt 2065 are linked to the retail price index. The bond was priced at £201.335 per £100 nominal, leading to the negative gross redemption yield. I must admit that it beats me why the DMO doesn’t just borrow shedloads of both conventional and linkers. At these rates they wouldn’t need Chinese money to fund infrastructure projects and they could stop the BoE from fighting this century’s growth battles with last century’s weapons. It is obvious that they can’t stimulate the economy using pathetic Keynesian mantras such as QE.


Japan’s prime minister unveiled a surprisingly large $265 billion (£202 billion) stimulus package on Wednesday to reflate the world’s third-largest economy, adding pressure on the central bank to match the measures with monetary stimulus later this week. The size of the package, at more than 28 trillion yen, will consist of 13 trillion yen in “fiscal measures,” which is likely to include spending by national and local governments, as well as loan programmes. The market expects the Bank of Japan to produce some fire power of its own at its rate review ending on Friday.

The Bank of Japan expanded its purchases of exchange-traded funds and doubled the size of a U.S. dollar lending program, while refraining from boosting the pace of government-bond purchases that have formed the main part of its monetary stimulus. Interestingly, the governor ordered a review of the efficacy of its policies to be completed for the September meeting.


We now know that the US Presidential contest will be between two of the most disliked and mistrusted people in US politics. This quote was sent to me as a comment on US politics but it struck me that the comment could apply to other countries also:


Reuters reports that the US is also evaluating how the UK’s exit from the EU will affect negotiations over TTIP, the EU-US free trade deal. US Trade Representative Michael Froman recently expressed concerns that the offers must be readjusted to factor in the departure of the UK, which accounts for 25% of US exports to the EU. S & P’s global chief economist Paul Sheard warns that “the EU, as it’s currently constructed and operates, doesn’t embody a coherent ‘pooling’ of the various dimensions of nation-state sovereignty, and therefore it is unsustainable in its current form.”  The EU must either be a looser [as in ‘slacker’, not ‘coming last’] form of political and economic federation or a stronger form, in which aspects of sovereignty that are not currently shared are ceded to the EU. It adds that “the time has come for Europe to ‘think big’ and to convene a constitutional convention”. Or think smaller and go back to a trade body?


MPs in the Treasury Select Committee are calling for the FCA to separate out its enforcement division following a damning report in the collapse of HBOS. In a report just published, the committee said an “independent enforcement function” should sit between the FCA and PRA. Do they mean like a court?


GlaxoSmithKline plans £275 million of new investments at three drug manufacturing sites in Britain, signalling its confidence in the country despite last month’s vote to leave the European Union. Britain’s biggest drug maker had argued against Brexit before the referendum but in a Damascene conversion, now believes the UK remains an attractive place for making medicines, thanks to a skilled workforce and relatively low tax rate.


The ECB balance sheet now stands at €3.2 trillion; 131% of Eurozone GDP. With the markets expecting more monetary stimulus (QE – see above) in September, it appears that the ECB’s job of doing “whatever it takes” is still not over. Sisyphus comes to mind.


A lorry driver was driving along a trunk road and noticed a sign that read: Low Bridge Ahead. Before he knows it, the bridge is right in front of him and his truck gets wedged under it. Cars are backed up for miles. Finally, a police car comes up. The officer gets out of his car and walks to the truck driver, puts his hands on his hips and says, ‘Got stuck, huh?’

The truck driver says, ‘No, I was delivering this bridge and I ran out of diesel.’

Have a good weekend.

David Cowell, Director, Myddleton Croft Investment Managers, Leeds

0113 274 7700, www.myddletoncroft.co.uk