Below Kathleen Brook, Research Director at City Index, talks Finance Monthly through the current markets environment, referencing US stock, bonds, tech, crypto and oil.
As we reach the middle of the week, there are a few signs that stocks could have a harder climb from here. After reaching record highs earlier on Tuesday, the S&P 500 closed the day lower. Advancers vs. decliners were pretty even on the day, with 243 advancers compared with 255 declining stocks, the biggest loser was Tripadvisor, which sunk on the back of growth concerns. The most striking thing about the US stock market today is not the individual movers, but instead the lead indicators and the bond market.
Lead indicators head lower
The two classic lead indicators for US stocks include the Dow Jones Transport Average and the small cap Russell 2000. The Dow Jones Transport index peaked on 13th October and has been falling since then, it fell through its 50-day moving average on Tuesday, which is a bearish sign and could signal further losses ahead. The decline in the Russell 2000 hasn’t been as steep, but it peaked on October 5th and sold off sharply on Tuesday as investors seemed to rush to ditch small cap stocks after yet another record high was reached.
These two lead indicators have not been able to muster enough strength to recoup recent losses, which could be a sign of investor fatigue further down the pipeline. If the selloff in these two indices continues then it is hard to see how the blue chip indices can sustain momentum as we move through November.
The bond market: a health check for stocks
The other warning sign could be coming from the 10-year bond yield. It has fallen more than 15 basis points since peaking towards the end of October. This is in contrast with the 2-year yield, which has been climbing over the same period and is up some 5 basis ponts so far this month. This has pushed the 2-10-year yield curve up to its highest level since 2007, which is typical in a market where the Fed has embarked on a rate hiking cycle, even this mild one that Janet Yellen started in 2015. Rising yields tends to mean woe for stocks, hence investors may now try to book profit instead of instigating fresh long positions as we move to the end of the year.
However, we believe that it is not as simple as rising yields spooking the market. The decline in the 10-year yield could also be relevant for stock investors, especially if it is a sign that the bond market has lowered its expectations for Trump’s tax plan and thus reduced long term growth expectations. If 10-year yields keep falling – and they are testing key support at 2.31% which is the 200-day sma – then it is hard to see how the stock market won’t follow suit and sell off on the back of tax reform stalemate in Congress. Thus, the Trump tax premium could come and bite markets on the proverbial.
Is tech the canary in the coalmine?
Tech is worth watching at this junction after massive gains so far this year. Already bond prices have started to fall for some of the major tech players including Apple, as more supply has weighed on bond yields. Is this a sign that the market could, finally, be falling out of love with tech?
What can the Vix and Bitcoin tell us about markets?
Before predicting market Armageddon, the Vix still remains below 10. Although it doesn’t usually stay low indefinitely, we want to see it move higher before confirming our fears about global risk appetite. Bitcoin is also worth watching. Before anyone can call it a safe haven we need to see how it performs in a sharp market sell off. So far this week it is down nearly $550, so if you are looking for volatility, bitcoin is the place to find it. It is hard to pinpoint the reason for the decline, maybe the market is getting nervous ahead of the upcoming fork later this month? Or maybe the market sees Bitcoin becoming mass market, both the CME and the CBOE are readying themselves for the arrival of Bitcoin futures, as a threat to its price gains? Who knows, but if traditional stock markets sell off, I will be watching to see how Bitcoin reacts and if it has any traits of a safe haven (recent price performance suggests not.)
What next for the oil price?
This week appears to be oil’s chance to steal the limelight. After surging to a high of $64.65 at one point on Tuesday, Brent crude lost $1 by session close as the market re-assessed the geopolitical risks that have propelled the oil price higher, while the fundamental picture remains unchanged. While we acknowledge that the price of oil cannot simply rise on the back of the Saudi anti-corruption crackdown, we still think that there could be some gas in the tank that could send Brent towards $70 – a key technical level - after all, the sharp increase in the price of Brent crude actually began in early October, well before talk of Opec production cut extensions and Saudi corruption purges.
Ahead today, economic data is thin on the ground, so we expect price action to take centre stage. On Thursday Brexit talks resume, this could lend some volatility to GBP, which has been one of the top performers in the G10 FX space so far this week.
Here John Milliken, Chief Operating Officer at Infomedia, delves into the statistics and facts of online, mobile and digital payments, how they differ between regions, and why.
According to a report by UNCTAD - the United Nations body on international trade and development - online, mobile and digital currency payment systems are set to overtake credit and debit cards as the most popular ways to pay in e-commerce worldwide by 2019. The research suggests that the share of credit and debit cards in global payments will drop to 46% by 2019 from the 51% forecasted three years ago.
Last year, China’s mobile revenue hit $5.5 trillion, a figure that is 50 times more than the size of America’s $112 billion market, according to consulting firm iResearch. Similarly, in the last year alone, Japan’s e-commerce market was valued at $89 billion, with half of that coming from mobile.
By comparison, in the UK and US, many brands, from retailers to publishers, continue to struggle to deliver a mobile experience that enables a convenient and simple payment method and encourages consumers to spend. As a result, despite the fact that mobile devices have consistently driven the highest levels of engagement compared to any other platform, it continues to experience the lowest conversion rates.
So, what is it the East is doing differently to the West that has caused mobile revenue to sky rocket?
The Asian Mobile Market
The Asian technology industry - particularly mobile - has pulled ahead of what we’ve seen in the West. China and Japan, like many other developing markets, have not followed the pattern of the West in going from physical shops to PC to laptop to smartphone. Instead many consumers are going straight to smartphones without previously owning a fixed internet connection.
According to Zenith’s Mobile Advertising Forecasts for 2017, mobile accounts for 73% of time spent using the internet globally, however in the UK this figure is just 57%. By comparison, in China, internet users reached 668 million in June 2015, and 549 million of those users (almost 90%) access the internet primarily via their mobile devices. In other words, the number of internet users in China is more than twice the population of the US and almost the population of Europe, and most of those individuals are walking around with a smartphone.
With these figures in mind, it’s clear that mobile is prevalent in China - it’s a way of life, not just a medium of communication. On mobile, consumers talk, text, shop, order food, hail taxis, book travel, pay for products and services, deposit money into their bank or transfer money, amongst other things. Most Chinese companies have recognised this, and build their advertising and marketing, customer communication, shopping, purchasing, and even their payment programmes around mobile. In fact, about half of all e-commerce in China happens on mobile, compared to just over a fifth in the US and around a third in the UK.
As a result, rather than focusing on card payments, merchants and mobile operators in China and Japan have worked together to develop truly frictionless mobile payment processes. In China in particular, much of this is driven by mobile payment services via social messaging service WeChat and AliPay, its paypal equivalent. In fact, Alipay recently signed with Starbucks to enable e-payment at all 2,800 Starbucks locations, while at a KFC, diners can pay via Alipay using facial recognition technology. In Japan however, DCB is the most popular payment method accounting for more than 50% of all ‘online’ transactions - a number that has risen consistently over the past five years as more consumers move away from card payments.
It is clear there is an opportunity for brands to deliver the same conversion rates on mobile seen in Japan and China if they are able to adapt to behavioural change. And although the Chinese market appears to be different to the West, it has actually just reached the predicted next stage for all markets quicker. By acknowledging that consumers want the quickest and easiest payment processes, we can also deliver an experience that is frictionless and encourages customers to convert from browsing to spending on mobile. In summary, it is only when brands begin to deliver and offer a mobile first experience that they too, will be able to maximise on the mobile opportunity.
Grandstanding politicians are misinformed, hypocritical and “demonstrate monumental naivety” on the Paradise Papers debate, affirms the boss of one of the world’s largest independent financial services organisations.
The comments from Nigel Green, the Founder and CEO of deVere Group, come as the British leader of the opposition party, Corbyn, and the veteran US Senator and former presidential hopeful, Sanders, amongst others, speak out publicly in the wake of the leak of more than 13.4 million documents, dubbed the Paradise Papers.
Nigel Green explains: “The heightened level of sensationalism is out of control, masking the reality of the situation, and is being fuelled by misinformed, politicians out to score cynical political points.
“Corbyn implies the Queen, rock stars, and multinational firms, amongst others, must apologise for benefitting from legal, tax-efficient schemes. Meanwhile, Sanders maintains that money in offshore accounts illustrates the movement towards an ‘international oligarchy’.
“This hyperbole is unhelpful, misleading and demonstrates their monumental naivety.
“It’s time to set the record straight.”
He continues: “The murky world that these and other politicians and others are inaccurately describing is not one that I recognise.
“In the vast majority of international financial centres are now transparent and appropriately regulated. They provide a sought-after service for individuals – and not just the uber rich ones– and organisations across the globe.
“Indeed, they are an important, legitimate and beneficial cog in the global economy.”
Mr Green goes on to say: “Internationally-mobile individuals and firms typically find that offshore accounts are a sensible option because of their convenience. They offer centralised, safe, flexible and worldwide access to their funds no matter where they live and no matter to which country the person or firm might relocate in the future. Also, they provide a greater selection of multi-currency savings and investment options.
“Other, often ignored, benefits also include that they can assist firms from to avoid double taxation on the same income, and that they offer legitimate financial refuge for those in countries where there is economic, social and political turmoil.”
Mr Green adds: “For high-profile politicians to complain - and to take the moral high ground – on this, when it is they who have the powers to change tax laws and regimes, smacks of political opportunism and hypocrisy.
“The notion that the majority of individuals and firms in these allegations are ‘getting away’ with mitigating their taxes liabilities legally is absurd. It is akin to someone ‘getting away’ with driving at 50mph in a 50mph zone.”
“Tax is a legal impost and it is individuals and corporations duty to comply within the laws and organise their financial affairs in order to pay what they are required legally.”
The deVere CEO concludes: “Whilst the ‘Paradise Papers’ do indeed highlight that more needs to be done to increase efficiency and cooperation in some regards and jurisdictions, the current furore is distracting attention and resources away from the serious global issue of tax evasion.”
(Source: deVere Group)
Since 1968, there have been 1,516,863 gun-related deaths on US territory compared to 1,396,733 war deaths since the founding of the United States[i]. This means that up to 2015, according to data collected by Politifact, the death toll for citizens and visitors of the United States from domestic gun violence exceeds that of all the deaths from all the wars the US has participated in since its inception.
The statistics on US gun violence remain mind-boggling to many. A study by Health Affairs states that more than 100,000 people are shot each year in the US. 350 people are estimated to have been killed in American mass shootings[ii] this year, according to data gathered by GunsAreCool - a sarcastically named community that tracks gun violence in the country. In comparison, 432 people were killed in mass shootings in 2016 and 369 in 2015, which means that on average, more than one person is killed in a mass shooting for every day of the year. According to the Small Arms Survey via the Guardian, America has 4.4% of the world’s population, but almost half of the civilian-owned guns around the world.
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For both individuals and society as a whole, gun violence imposes heavy psychological burdens. The media regularly highlight the emotional cost, and rightly so. But what is the economic cost of US gun violence? What is the financial cost to society from all that carnage?
The price tag
Back in 2012, Mother Jones, the liberal magazine, launched a three-year investigation, following the Colorado cinema shooting rampage in July, when James Holmes killed 12 people and injured 70. The magazine went through the combined annual impact of a total of about 11,000 murders, approximately 22,000 suicides and 75,000 injuries that are the result of gunfire. The findings of the investigation showed that the annual cost of fatal and non-fatal gun violence to the US was $229 billion, representing 1.4% of total gross domestic product. In comparison, obesity in the US costs the country $224bn, which makes the economic impact of gun violence higher than that of obesity. These $229bn are also the equivalent of the size of Portugal’s economy or the equivalent of $700 for every American citizen.
The study notes that about $8.6bn is direct cost, including emergency care and hospital charges, the expense of police investigations, the price of court proceedings, as well as jail costs. According to the investigation, $169bn goes to the estimated impact of victims’ quality of life, based on jury awards for pain and suffering in cases of wrongful injury and death, and the rest $49bn account for lost wages and spending.
It is of course worth mentioning the positive economic impact that the gun and ammunition manufacturing industry has on the country, which according to IBIS World was $13.5 billion in 2015, with a $1.5 billion profit. However, it is also worth pointing out the distinction between the profit from manufacturing the very products used in shootings, in comparison to the financial loss seen due to gun violence.
The impact on US firearm manufacturers
In recent years, firearms sales tend to increase and gun stocks tend to rally in the immediate aftermath of mass shootings in particular. Shares on gun manufacturers such as Sturm, Ruger & Co. (RGR, +1.91%) and Smith & Wesson maker American Outdoor Brands (AOBC, +0.74%) rose sharply right after the mass shooting in Las Vegas from earlier this month, when 59 people were killed and hundreds were injured. Only a few hours after the deadliest mass shooting in modern US history, shares of Sturm, Ruger & Co. rose 3%, American Outdoor Brands jumped 5%, while Vista Outdoor (VSTO, -0.67%) popped 2%. The explanation behind this is quite simple - investors predict a rise in sales as people buy firearms to defend themselves and their families in the event of another potential attack. Sales are also likely to spike due to the fear that an attack may result in law changes and guns becoming harder to buy.
Despite the fact that mass shootings lead to increased firearm sales, research by Anandasivam Gopal and Brad N. Greenwood published on 28th May 2017, points out that when mass shootings occur, investors appear to be reducing their valuations of publicly traded firearms manufacturers – an effect driven by the threat of impending regulation. However, these tendencies were most prevalent in 2009 and 2010, but seem to disappear in later events, indicating the possible markets’ acceptance of mass shootings as the ‘new normal’.
How do local economies respond to increased gun violence?
A report by the Urban Institute, published on 1st June 2017, found that surges in gun violence in the US can ‘significantly reduce the growth of new retail and service businesses and slow home value appreciation’. According to the study, higher levels of neighbourhood gun violence drives depopulation, discourages business and decreases property values, resulting in fewer retail and service establishments, fewer new jobs, lower home values, credit scores and homeownership rates. The report features interviews with local stakeholders (homeowners, renters, business owners, non-profits, etc.), who confirm the findings, which state that ‘Business owners in neighbourhoods that experience heightened gun violence reported additional challenges and costs, and residents and business owners alike asserted that gun violence hurts housing prices and drives people to relocate from or avoid moving to affected neighbourhoods’. In Minneapolis for example, the report finds that each additional gun homicide in a census tract in a given year was associated with 80 fewer jobs the next year, while average home values in Minneapolis census tracts dropped by $22,000.
Is gun violence really the ‘new normal’?
It seems as if the US lawmakers, and indeed large swathes of the US population, are now willing to accept gun violence as a part of their daily lives in a manner that may shock others. But what is more surprising is that a country founded on capitalism permits this as the status quo in the knowledge that gun violence is having a severe and negative impact on the US economy. From hospital fees through to deterring business investment, mass shootings and gun crime are the cause of considerable financial losses to the United States. These acts of violence cost the country a great deal of money, but most importantly – they cost lives. And although markets have seemed to accept mass shootings as ‘the new normal’, should this be the case for the rest of us too?
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[i] That figure includes American lives lost in the revolutionary war, the Mexican war, the civil war (Union and Confederate, estimate), the Spanish-American war, the first world war, the second world war, the Korean war, the Vietnam war, the Gulf war, the Afghanistan war, the Iraq war, as well as other conflicts, including in Lebanon, Grenada, Panama, Somalia and Haiti.
[ii] Mass shooting being defined by the FBI as any incident where at least four persons are killed with a firearm in a random act with little or no premeditation.
Donald Trump is set to make a decision on the Chair of the Federal Reserve by Thursday this week. This decision will shape a big part of the US President’s economic legacy in the job.
The current chair of the Federal Reserve was appointed by President Obama in 2014 and is the first woman to hold the position.
Below Finance Monthly hears from a few expert sources on their thoughts surrounding the future prospects and overall impact of the appointment of a new US Fed Chief.
Joel Kruger, Currency Strategist, LMAX Exchange:
We worry investors could be setting themselves up for a letdown on this expectation the appointment of Jerome Powell as the next Fed Chair will generate a sustainable rally in risk assets. There is a danger associated with what has become a fixation on 'one dimensional role designation.' Central bankers should be neither inherently hawkish or dovish. The Fed's responsibility is to ensure it works in the best way possible to achieve its goals of maximum employment and price stability.
Considering where we're at in the cycle, there's simply little room for dovish central banking into 2018, much in the same way there was little room for hawkish central banking back in 2008, at the onset of the financial markets crisis. We believe we've reached the point where dovish leanings will no longer pair well with effective monetary policy, given an economic outlook contending with the very nasty combination of full employment, financial stability risk (from overinflated stocks), and the threat of rising inflation. We would also add that the prospect of Powell as the next Fed Chair is one that has been played out ad nauseam. This alone leaves risk assets vulnerable and exposed to a sell the fact reaction, albeit after what is likely to be an initial wave of euphoria.
Mihir Kapadia CEO and Founder, Sun Global Investments:
After months of speculation, President Donald Trump’s nominee for the Federal Reserve chairman seems likely to be Federal Reserve governor Jerome Powell. A former investment banker with Treasury experience during the Bush administration, Powell looks to be a reliable choice for the role. The markets have reacted positively to the suggestion that Powell is the frontrunner in recent weeks following the President’s interviews with each of the candidates.
However, Powell’s succession to the Fed chair is not necessarily secure. Other candidates include former Fed governor Kevin Warsh, seen as a more hawkish alternative to the polices of Yellen ad Stanford Professor John Taylor who would definitely be seen as more hawkish. Gary Cohn, Trump’s economic adviser, was also touted for the job, although the President has indicated his preference for Cohn to remain in the White House. Furthermore, current Fed chair Janet Yellen still remains a viable possibility.
Trump’s relationship with Yellen has been tricky to define. On the campaign trail, Trump was highly critical of Yellen and her tenure, and accusing her of being political. However, his stance has softened considerably since becoming President, praising her both personally and professionally, leading some to believe that he could yet choose her for another term. Of all the candidates, Jerome Powell represents a pragmatic compromise for the President – he represents a break from the past and a shift towards Trump’s administration whilst representing continuity as his policies are unlikely to differ substantially from Yellen’s. Whatever the President’s decision, the Fed chair will play a powerful role in shaping the economic identity of Trump’s America.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Business travel has its own set of wonderful perks. An opportunity to get out of the office and see the world, corporate exploration allows you to do business in a brand-new city, as well as having some fun while you’re out there. But where are the best destinations in which to do business? Here, Irma Hunkeler at BlueGlass, brings you ten places for your consideration.
10. Instanbul
Instanbul, Turkey. Photo: Moyan Brenn/Flickr
It’s a cliche but it’s true: east meets west in Istanbul, and this is particularly true when it comes to business. The city has acted as a central connection point for companies from different ends of the globe, making it one of the world’s most diverse and thriving corporate destinations. It’s also a place full of beautiful ruins, amazing street food and fantastic people. Put your negotiation skills to the test with a haggle at a street market.
Main industries: Textile production, food, oil, electronics
Where to go: Hagia Sophia, Basilica Cistern, Aya Sofya
9. Frankfurt
Frankfurt, Germany Photo: Pixabay.com
Long known as a major city for aviation - it has one the largest airports in Europe - Frankfurt is also establishing itself as a place for a number of other industries. With Frankfurt the seat of the European Central Bank, the German city is of international importance when it comes to the European financial services industry. It’s also a fantastic place to come and do business in.
Main industries: Financial services, telecommunications, IT, biotech, creative services
Where to go: Stadel Museum, Kaiserdom, Frankfurt Stock Exchange
8. Hong Kong
Hong Kong Photo: Pixabay.com
Alongside London and New York, city-state Hong Kong is one the globe’s leading business destinations. A combination of the free flow of information and free market policies make it a place conducive to running successful businesses, so it’s not hard to see why so many companies have activities here. What’s more, Asia’s most popular city for international business is one of the least corrupt economies in the world.
Main industries: Financial services, trading, tourism, professional services
Where to go: Victoria PEak, Hong Kong Museum of History, street markets
7. Mexico City
Mexico City, Mexico Photo: Pixabay.com
The heart of the Americas is one of the most thriving corporate destinations in south America. Named as one of the world’s best start-up hubs, Mexico is known as a great place to do business, chiefly because of the city’s sociability. It’s an easy city in which to set up shop and get to know people, so it’s no surprise that companies from the US are starting to call Mexico home.
Main industries: Pharmaceuticals, technology, financial services, manufacturing
Where to go: National Museum of Anthropology, Chichen Itza, Palacio de Bellas Artes.
6. New York
New York City, US Photo: Pixabay.com
Where to start when it comes to the Big Apple? This metropolis is home to companies from every part of the globe. Almost every big name has a presence here, in some form or another. As well as established players, the city also has an emerging start-up scene. After a day spent hustling in Manhattan, head to one of New York’s world-class museums before seeing a Broadway show.
Main industries: Financial services, media, technology
Where to go: Central Park, Empire State Building, Museum of Modern Art
Click next to see our top 5 business destinations
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While Apple reportedly struggles to get the iPhone X off its feet and into the market, stumbling on obstacles it knew would come about, such as developing proper facial recognition and delivering on its aggressive production schedule, global stock markets are fluctuating on the back of several factors, from the disastrous hurricanes to bad European weather and Brexit talk. Black Friday, Cyber Monday and Christmas are still ahead of us however.
Here Lee Wild, Head of Equity Strategy at Interactive Investor, provides an overview of the current global stock economy, as US markets and Japan’s Nikkei put London into perspective:
“The mood on many global stock markets might well be described as exuberant, but not irrational. Yes, it took less than six weeks for the Dow Jones to add the last 1,000 points to top 23,000, but latest US company quarterly earnings are beating expectations - look at IBM's fightback overnight - and president Trump's tax plans could still deliver a boost to the bottom line.
“Japan's Nikkei has just hit a two-decade high, but exports there have risen for a tenth straight month amid demand for Japanese technology.
“That puts what's happening in London into perspective. Investors are right to be concerned about a recent spate of high-profile profit warnings, and Brexit presents its own set of special circumstances, but many companies are delivering strong results and valuations are not excessive.
“Of course, the market will correct at some point. Chatter has picked up in recent weeks following profit warnings from blue-chips GKN, Mondi, ConvaTec and Merlin, but this bunch are not a fair indicator of the market as a whole.
“Unilever's highly-rated shares have come off the boil as bad weather affected sales of its Magnum and Ben & Jerry's ice creams in Europe during the third-quarter, while hurricanes in Florida and Texas held back the Americas. However, underlying sales in emerging markets still grew 6.3% and volumes were up. With just a few months of the financial year left, annual group underlying sales are still expected to grow 3-5% and profit margins improve.
“Don't be surprised to see a pullback between now and Christmas in some markets which have raced ahead this year, but it's unlikely to be the crash everyone is predicting. While inflation is currently outstripping wages growth, the UK unemployment rate is at its lowest since 1975 and any small rise in interest rates will not pull the rug from under this market.”
Here Lee Wild, Head of Equity Strategy at Interactive Investor discusses corporate American investment ahead of third quarter reports.
Decent economic data has kept records tumbling on Wall Street, and who’s to say this run will unwind any time soon. Overnight, it’s talk Donald Trump could name Fed governor and market’s choice Jerome Powell as Fed chair Janet Yellen’s replacement that’s driving sentiment.
Winning streaks like this are always difficult for investors, as the head keeps asking how much higher? It requires calm and nerve to hold stocks in these situations, even more to continue buying.
Valuations are toppy in areas of the market both in the US and over here, but history is littered with examples where investors tried to call the market peak and failed. The experts who’ve predicted a crash for more than a year have been wrong, and investors who’d followed their lead will have missed out on substantial profits.
So, there are still plenty of good quality stocks to buy, which are growing profits, pay decent dividends, and have great prospects. That said, corporate America begins reporting third-quarter results in a couple of weeks, and the numbers had better be good, given the size of earnings beats already baked into stock prices.
It’s a big day for ex-dividends in London, among them the third of Next’s 45p special payouts and WPP’s generous interim, which lands highly-paid boss Martin Sorrell another huge windfall.
Even with the impact of ex-divs, the FTSE 100 has significant momentum right now and there’s a great chance it will break above 7,500 soon, putting it within 100 points of a new record. Miners and supermarkets are flavour of the month Thursday.
With little of interest coming out of the European Central Bank’s September policy meeting, it’ll be interesting to see if today’s minutes give any clues as to tapering plans or thoughts about how to handle the strong euro.
After that there’s a jumble of data out of the US, although the chance of any major upset is slim. Many traders could be tempted to keep their powder dry ahead of tomorrow’s US non-farm payrolls.
Following the recent disasters that hit the US mainland, Finance Monthly reached out to Nalanda Matia, Lead Economist at Dun & Bradstreet, to gather thoughts on the overall impact felt by supply chains throughout the various industries, regions and markets.
Mother Nature hasn’t been kind to the United States in the past month or so; Hurricane Harvey left a trail of destruction on several counties in Texas, while Hurricane Irma devastated parts of the Sunshine State, most notably The Keys. The stormy season doesn’t look like it will abate anytime soon. The market impacts of these natural disasters are significant, particularly on densely populated and urban cities.
While the financial repercussions of Irma are still being counted, let’s take a closer look at the impact of Harvey, including affected industries, the supply chain and the future outlook of the affected areas.
Impacted industries
Early estimates have placed the impact of Category 4 Hurricane Harvey at around $75 billion, with losses from insured and uninsured residential and commercial properties making up the majority. With the addition of other costs associated with business interruptions, lapses in employment gains, and additional flooding or damage to contents of the properties, the toll could be much higher.
The top industries in the state with the largest number of jobs that have been potentially impacted by the hurricane are services; manufacturing; wholesale and retail trade; mining; construction; finance, insurance, & real estate and agriculture, forestry & fishing.
Supply chain concerns
The disruption in energy exports and other supply chain activities as ports in the state remained closed to vessel traffic until floodwater damage was assessed affected consumers and trade, creating build-ups and delays.
Many industry supply chains will take a hit as the transportation industry looks to get business back to normal. The Houston area in particular accommodates several major airports with flights to more than 70 international destinations. With some of these airports closed for a few days, the air transportation sector faced considerable backlog that they’re still coping with today.
Waterborne transportation is also in crisis due to the closure for several days of all major ports in the Houston and Corpus Christi areas. Large container ships headed to Houston to load cargo were stranded or diverted to nearby ports to wait out the storm and port closures. This caused severe supply chain disruptions in both parts of the United States and internationally. Based on the diverse nature of cargo that goes through the Houston area ports, the supply chain interruptions were not just limited to energy or chemicals, but extended to other commodities, such as agricultural products.
Business and economic impact
The parts of the United States affected by Hurricane Harvey have relatively high populations and are economically developed areas, which has contributed to high economic losses, perhaps one of the highest economic costs incurred due to a natural disaster in the US. With thousands of businesses and their employees stricken, the economic outlook for the region as a whole is expected to be lacklustre, but this prognosis may be true only in the short term.
Looking more closely at what businesses were affected, the vast majority were micro and small businesses with fewer than 10 and fewer than 100 employees, respectively. Also, close to 40% of the affected businesses are fairly young – within the first five years of their life cycles.
According to our estimates, the county of Harris, TX seems to have undergone the maximum disruption as far as the number of affected businesses are concerned. The county contains more than 60% of the businesses that have been declared at risk.
What to expect from Irma
While Irma seems to have been a slightly stronger storm in terms of wind, its financial impacts – without diminishing its severity – might be slightly less than Hurricane Harvey’s. Dun & Bradstreet estimates over two million businesses to have been in the monster hurricane’s path. This includes 49 counties in FL, three in Georgia, four in PR and two in Virginia that have been declared as disaster regions by FEMA.
Early estimates regarding these businesses are that nearly 60% of the jobs affected are in Services and Retail – with the affected regions in scenic and tourist-frequented areas. Pre-Irma, about 12% of the businesses located in the path of the storm were in the riskiest class of the Dun & Bradstreet Delinquency Predictor score. Because of the hurricane, these businesses, which were already at risk of becoming severely delinquent, will have an increasingly difficult time meeting their obligations.
Early estimates put the damage from Hurricane Irma in Florida and the surrounding areas at closer to $50bn, but the exact number is hard to predict exactly at this stage. As the southern coastal states count the cost of these disasters, we envisage a number of months until all services, transportation systems, supply chains and the economy are back to normal.
Although these current disasters are not expected to leave a permanent imprint on the economy of the United States, the immediate consequences of these increasingly frequent events cannot be ignored.
In a new white paper, Vodafone – supported by Bernard Vrijens, Professor in public health at the University of Liege, Belgium – claims that new connected solutions based around the Internet of Things (IoT) will help people to follow their medical treatment programmes more closely. This latest development could improve millions of lives and save billions of dollars.
The World Health Organisation has said that adherence – the action of complying with a medical treatment regime – for long term conditions such as hypertension, cancer and HIV stands at only around 50%, meaning half of patients do not follow their doctor’s instructions. As a result, patients’ chances of recovery and relief are reduced. Better approaches to adherence have been estimated to bring 50% of the non-adherent population onside1.
Bringing together smart devices, connectivity and the cloud, the Internet of Things (IoT) can lead to more effective healthcare, according to the white paper. It will encourage patients to follow their treatment programme more accurately by providing them with individualised information on their therapy. By encouraging them to continue with their full course of treatment, this approach could potentially save up to an estimated $290 billion in otherwise avoidable medical spending, in the US alone each year[i].
The data-driven and IoT enabled adherence management outlined in the white paper would offer benefits to patients, clinicians, medical device companies and those that pay for the provision of medical services. It could lead to more independence for patients, better treatment, more effective drug development and ultimately lower healthcare costs.
University of Liege Professor of public health Bernard Vrijens said, “Healthcare providers currently monitor four main vital signs: body temperature, pulse rate, respiration rate and blood pressure. The IoT means they’ll soon be able to accurately measure a fifth – adherence. I believe that that the importance of connectivity in the both medical devices and in patient engagement cannot be under estimated. This is a pivotal moment on the road to more individualised healthcare.”
Vodafone IoT Director Erik Brenneis added, “This is a great example of how the internet of things has the potential to help people live healthier lives and access more effective medical treatment. We hope that the vision and creativity of people like Professor Vrijens will quickly become a reality with the IoT. We believe that we are on the threshold of a significant change in the way chronic diseases are managed.”
(Source: Vodafone)
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Following this week’s news on a two year high for the Brent crude oil, Richard King, Trading Manager for Inprova Energy, discusses the current impact of oil price volatility on company energy bills worldwide.
Brent crude oil prices hit a two-year high of more than $58 a barrel on Monday 25 September. Although prices have since reduced slightly, analysts don't expect prices to fall back.
Outlook for oil prices
Oil price increases have been largely driven by cutbacks in supply from the oil exporting cartel OPEC. Market experts predict that OPEC will continue its deal to cut production beyond March 2018 as part of its strategy to rebalance oversupply in the global oil market. Market analysts expect the oil price to be within the range of $55 to $60 a barrel for the remainder of the year, with potential for higher levels in 2018.
In a further boost to recovering oil prices, US producers are struggling to fill the supply gap, and the independence referendum in Kurdistan has the potential to disrupt Middle East oil supplies due to the Iraqi government's call to boycott Kurdish supplies. Mounting political tensions between North Korea and the USA could also be a bullish force.
Impact on energy prices
This is having a knock-on effect on UK business energy market prices. Both gas and electricity contracts for delivery in the next few months have posted significant gains of 2-3%. This has reversed recent decreases in energy prices, linked to the currency improvements for Sterling against both the US dollar and the Euro.
Energy market volatility
Oil prices are firmly linked to wholesale energy prices, which will, undoubtedly, increase energy market volatility in future months. In addition, as we head into winter and uncertain weather conditions, and continue to face energy supply reliability problems from continental Europe, further price swings are inevitable.
Such volatility is becoming the new norm. During the past 12 months there was a 45% price swing in the wholesale power market, which was more than twice as volatile as the average movement of the five years prior.
Smarter energy purchasing
While overall electricity and gas commodity prices remain well below the levels reached in 2014, the sizeable commodity price movements underline the imperative of getting timing right when purchasing energy.
Flexible procurement strategies can be less risky than fixed purchasing because there is the facility to buy energy little and often when wholesale prices are favourable, rather than gambling that the prices are best on the day that you fix your purchase. There is also the facility to take advantage of forward prices, which are currently very attractive beyond 2018.
Above all, it is imperative for energy buyers to manage their energy purchasing within a robust risk management strategy, which will set price limits and guard against buying at the top of the market - helping to counter market uncertainty.
