Last week the energy price crisis is back in the news after OPEC decided to cut output to bank profits while they can. The move has reversed some of the recent decline in the oil price. However, it will probably be a short term move because a higher oil price contributes to inflation which means more interest rates hikes and an increasing likelihood of a recession, which would drive down the demand for oil.
Meanwhile, in Eastern Ukraine the Russian army appears to be collapsing as Ukrainian forces reclaim and increasing amount of the territory only last week annexed by President Putin is a rather bizarre display in Moscow’s Red Square. Following Moscow’s embarrassing losses, on Thursday US President Joe Biden warned the risk of nuclear weapons being used was at its highest level since the 1962 Cuban Missile Crisis, as Russia hinted at the possibility of using tactical nuclear weapons to defend its “territories” after suffering the major setbacks.
GLOBAL: OPEC CUTS PRODUCTION TO MAINTAIN OIL PRICE
Oil cartel OPEC surprised markets by announcing a big cut in its production target. Oil producers are under pressure to increase output to offset rising oil prices but OPEC announced a reduction of 2 million barrels a day as it tries to keep prices high. The threat of a global recession has helped the price fall from $120 a barrel in mid-summer to around $85 but the price jumped after the cut was announced pushing the price of Brent back to $95 a barrel. The decision was strongly criticised by the US which accused OPEC and Saudi Arabia of supporting Russia’s aim of keeping prices high to fund their war in Ukraine.
The cut is around 2% of global production but is as much symbolic as it is practical. OPEC members account for around 40% of total global production and many members are falling short of current production targets. Meanwhile, many European countries are stepping up efforts to curb energy usage and in the UK the National Grid warned of potential blackouts if people do not take steps to use less energy this winter.
We are pleased to report that over the past 2 weeks we invested in Brent Crude for those clients who agreed the short term strategy play, and we successfully sold the holding to consolidate a short term gain of +2.47% net after fees.
UK: MARKETS CALMER AFTER INITIAL REACTION TO MINI-BUDGET
UK markets have partially recovered from their plunge following the mini-budget after Chancellor Kwasi Kwarteng abandoned plans to get rid of the additional 5% income tax of for high earners (i.e. 45% v 40% for earnings above £150,000 per annum). Sterling has recovered from its low of $1.035 and briefly rose above $1.13 this week. The FTSE All Share has also staged a recovery, although it remains below its pre-mini-budget level. Gilts have also seen something of a recovery as yields have fallen from their recent highs, but their recovery has not been a strong as markets assess the outlook for inflation and interest rates.
The outlook for UK government borrowing remains unclear. Chancellor Kwarteng has agreed to bring forward the publication of his detailed spending plan, while reversing the proposed 45p tax cut which only reduces the estimated £45bn cost of the reforms by £2bn. Ratings agency Fitch joined S&P by lowering the UK’s credit outlook from stable to negative due to uncertainty about how the government will pay for tax cuts and the rising cost of borrowing. However, they appear to overlooked the effect of the stealth taxes as personal allowances have been frozen whilst inflation means earnings are rising faster than they have for quite a while. Therefore, it is likely the tax reversals and tax cuts will not reduce HMRC’s tax revenue as much as feared.
Meanwhile, retailers are continuing to feel the impact of rapidly rising inflation. Tesco said its annual profits will be at the lower end of its predicted range and its sales volumes are holding up but customers are spending more on lower cost items. Inflation is also driving up its costs, including staff wages. However, high street bakery Greggs said inflation is affecting sales positively and that despite increasing its prices it reported an increase in sales as it picks up customers who are trying to make their money go further by abandoning the more expensive takeaway outlets. If you’re looking for financial advice or executive stockbroking services amidst the recent fluctuation in the market, contact us today.
According to the British Retail Consortium retail inflation is at a record high of 5.7%. High street fashion retailer Next warned that a weaker pound will continue to drive up its costs as imports have become increasingly expensive. It said weaker demand means full priced sales have fallen slightly and it warned that without a recovery in sterling, clothing prices are likely to be considerably higher next year. Businesses that are able to pass on rising costs to customers continue to fare much better than those who are price-sensitive.
PRIVATE OFFICE ASSET MANAGEMENT – NEWS
New Starter – Imogen Simmonds LL.B(Hons)
Marketing & Business Development Manager | Paraplanner
We are delighted to welcome Imogen to the Private Office Asset Management team, who joined us in September 2022 as Marketing & Business Development Manager, and Paraplanner.
Imogen joined us from Berkeley Rowe International Law firm in Mayfair, London, – where she was a Trainee Solicitor. She completed her seats in the Real Estate team and the Litigation team, – with experience in Company & Commercial matters too. Prior to that Imogen commenced her Training Contract with Simmonds Austin Ryder Solicitors in London & Waltham Cross before the firm was taken over by Fentiman Legal Limited, where she carried on working as a Trainee Solicitor before her move to Berkeley Rowe. Prior to that, during work experience at Carter Ruck the top media law firm, Imogen assisted in securing a super-injunction for a public client.
During her first year of studies for her Law Degree at Kingston University Law School, Imogen was the youngest ever participant to compete in the ESA Manfred Lachs Space Moot Court Competition, which was held in the senior Courts in Lisbon, Portugal. Imogen has now completed her 2-year Training Contract to qualify as a solicitor, and once she has completed her current studies with the University of Law for her Legal Practice Course, she will be admitted to the Roll of Solicitors and will take on the role of in-house solicitor at Private Office Asset Management, alongside her current role.
Imogen is also currently studying for her Level 4 Paraplanner and investment professional exams with the Chartered Institute for Securities & Investment (CISI).
Outside of work Imogen is an accomplished horse rider and competes at unaffiliated dressage shows. She enjoys skiing, tennis and has captained her local hockey and netball teams. Imogen also enjoys attending classic car shows with her pristine condition 1968 MG Midget. Impressively, Imogen is an accomplished artist, and accepts commissions for pets (mainly horses!), whilst sponsoring “horse shows online”.
Imogen sorted out all of the logistics for us to attend the recent Brighton Business Expo which was very successful, and we now look forward to attending The Business Show at the London Excel Centre on 16th and 17th November. Come and meet the team at the biggest such event in the UK where we will have a stand for both days. Please visit the following site for details: Welcome – The Business Show 2022 (greatbritishbusinessshow.co.uk) . We hope to see you there!
Please note that nothing written here by the author should be construed as giving advice, it merely outlines our thinking. Any advice will be discussed and proposed on an individual basis with each client when any advice that is given should be fully discussed with us before proceeding with any proposals made.
If you enjoy reading this weekly update, please feel free to share it with your friends and / or family who may also find the contents of interest, and do not hesitate to contact us if you need any help, information or advice yourself about any of the areas covered this week.
Philip A. Simmonds MBA, LL.B(Hons), FPFS, Chartered MCSI
Chartered Wealth Manager | Chartered Financial Planner
Solicitor (company in-house solicitor)
Chief Investment Officer | Head of Strategy
firstname.lastname@example.org (for legal matters)
This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not
contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether
this is a suitable investment you should speak to your financial adviser. You may get back less than you originally invested.
Private Office Asset Management is authorised and regulated by the Financial Conduct Authority