Conference season
Theresa May’s Chequers plan got a shredding in Salzburg, with EU leaders taking turns to dismiss each part in turn.
In fairness, they simply reiterated the concerns and problems that they had highlighted months ago when the plan was first unveiled. The UK government – and the public – were so focused on whether the Cabinet could agree to it that it sort of forgot that the EU would have to agree to it too. The meeting smelled a bit like an ambush, to be sure. Conciliatory notes had floated across the Channel over past weeks and it had seemed like Mrs May might actually get some of the more complex compromises she had designed. But then the EU heads all trashed the plan, giving the UK Prime Minister only the slightest of warnings. Mrs May was furious and fell back to her reserve line: hard Brexit is better than a bad deal. Sterling sank about 1% or so, as it tends to do when the hard-line rhetoric starts back up.
So, jilted and angry, Mrs May and her government shuffle into the week of the Conservative conference. Starting this Sunday in Birmingham, the gathering will either be the most boring AGM ever held (which is saying something) or a true firecracker as the Brexiteers launch a fusillade at the moderates who in turn try to assuage rebels who may be eying up the Labour party’s mooted referendum on a final deal. Either way, it seems unlikely to stray far from the Continental conundrum.
More than simply Brexit came from Labour’s conference, which started at the weekend. The party unveiled plans to force firms with more than 250 people to create a pool of equity, worth 10% of the firm, which would deliver its dividends to workers. The workers wouldn’t actually own the shares, they would receive up to £500 a year in dividends paid from the shares. Anything more would be paid to the state as taxation. On the face of it, you could see this distorting the market by encouraging companies to reduce dividends and increasing buy-backs instead. And then there’s the issue of how it would work for private companies. The other blockbuster policy plank released last week was that large companies would be forced to appoint a third of board seats to employee representatives.
Many business leaders have stridently listed all the problems these measures would have for the UK economy. And for the most part, they are right. However, the party of business is losing the public. The Conservative Party received more money from the estates of the dead than from living subscriptions last year – more than double in fact. Even £34m in donations couldn’t help it overcome the much broader support of the Labour Party, which took in £55.8m in 2017. Thought to be the largest amount ever raised by a UK political party, it was £10m more than the Conservatives got. Most damning, Conservative membership stands at 70,000, down from 290,000 a decade ago. Labour sports around 550,000 paid-up supporters.
The Conservative Party has an image problem that is difficult to improve when it’s tying itself in knots over Brexit. Arguably, the same reputational damage has hit British business more generally. People’s wages have stagnated while investors have done well, chief executives are doing better than ever before (in pay at least), while the NHS begins to seize up and housing shoots out of reach of many. Labour’s policies are not the answer, in our opinion, and could indeed be actively unhelpful. But if business and the Conservatives – who tend to represent their interests – can’t resurrect their brand, Britain could be pushed toward a divergent future, with all its attendant effects on investments.
Source: FE Analytics, data sterling total return to 21 September
Sustainable surge
Waves of tariffs weren’t the only thing to hit the shores of the US and China last week. Gale force winds, unfathomable rainfall and storm surges arrived virtually simultaneously in both countries. Like the new tariffs will, Hurricane Florence and Super-Typhoon Mangkhut hurt the surrounding countries as well, although the Earth’s fury was much more visible and concentrated in its harm.
Storms, both in the East and in the West, are getting more frequent and more intense. Global warming doesn’t create these weather systems, but irrefutable evidence that pollution is making these disasters angrier by the year is rapidly piling up. The cost of these storms is immense. Florence is estimated to have destroyed about $20bn; Mangkhut’s damage is anyone’s guess. Around the world, extraordinary storms are becoming ordinary.
A floating island of plastic detritus, about three times larger than France, is floating between Hawaii and the West Coast of America. Another floating rubbish-heap has been spotted in a different ocean, off the coast of Honduras. The Pacific Ocean plastic drift was first discovered in 1997. Whether these discoveries are driving change more today than 20 years ago is difficult to determine. In today’s digital world, everything feels more urgent, more epoch-shattering and more sensitive than in the past. All we know for sure is that Captain Planet failed in his bid to save the world from pollution. His cartoon show was cancelled the year before we found the first floating mess of plastic.
Whether we will be more vigorous in cleaning up the planet (or at least, trashing it less than we are), is yet to be seen. But we think there could be a real change this time. The Earth seems angry and the number of people who believe it seems to be greater than ever before. In our industry, this has led to heightened debate about ESG (ethical, social and governance) investing. Some dismiss this a fad or a compromised effort. We think it’s actually a more holistic way of looking at risk, and something we’ve been doing for many years.
It’s assessing companies on more than simply today’s profits. Businesses with principled managers, which are always looking to improve themselves, tend to be the ones that stick around and grow. For instance, using less water in production is better for business and the environment, keeping your staff happy saves you money in recruitment and improves your customer service. Being seen as a decent company is increasingly an essential marketing asset.
These effects have simply become much more important in a world where anyone can call a company out on Twitter or a review site. That’s why we recently launched a global ESG equity fund, as an addition to our well-known ethical bond fund. We believe our clients want the option to do good with their investments while also getting a good return.
Bonds
UK 10-Year yield @ 1.55%
US 10-Year yield @ 3.06%
Germany 10-Year yield @ 0.46%
Italy 10-Year yield @ 2.83%
Spain 10-Year yield @ 1.49%
Economic data and companies reporting for week commencing 24 September
Monday 24 September
UK: CBI Trends
US: Chicago Fed National Activity Index, Dallas Fed Manufacturing Activity
EU: ECB's Draghi Speaks in Brussels; GER: IFO Business Climate
Trading update: Pennon Group
Tuesday 25 September
US: House Price Index, S&P/Case-Shiller US Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence Index, Conference Board Present Situation
EU: GER: Wholesale Price Index
Final results: Close Brothers, Hotel Chocolat
Interim results: Moss Bros Group, Next
Trading update: United Utilities
Wednesday 26 September
UK: BBA Loans for House Purchase, CBI Reported Sales
US: MBA Mortgage Applications, New Home Sales, FOMC Rate Decision
Final results: Accrol Group
Interim results: AA, Boohoo Group, Crawshaw Group, Destiny Pharma
Trading update: Halma, Mitie Group, NCC Group, PZ Cussons, SSP Group
Thursday 27 September
UK: BOE's Carney speaks in Frankfurt, GfK Consumer Confidence, Lloyds Business Barometer
US: Advance Goods Trade Balance, Retail Inventories, Wholesale Inventories, GDP (Q2), Personal Consumption, Durable Goods Orders, Cap Goods Orders, Initial Jobless Claims, Continuing Claims, Pending Home Sales, Kansas City Fed Manufacturing Activity, Fed’s Powell speaks at the Senate
EU: ECB President Draghi speaks in Frankfurt, M3 Money Supply, ECB Publishes Economic Bulletin, Economic Confidence, Business Climate Indicator, Industrial Confidence, Services Confidence, Consumer Confidence; GER: GfK Consumer Confidence, Consumer Price Index
Final results: Clinigen Group, CVS Group, Hansrad Global
Interim results: Saga
Trading updates: CMC Markets, RPC Group
Friday 28 September
UK: Nationwide House Price Change, Current Account Balance, GDP (Q2), Total Business Investment
US: Personal Spending, Personal Income, Chicago Purchasing Manager Index, University of Michigan Sentiment and Inflation Expectations
EU: GER: Unemployment Rate, CPI