World Economic Highlights & Lowlights
The position in China resulted in a surprise currency devaluation in September. This combined with fears of a Greek default and a US interest rate rise are just some of the factors making it difficult for investors. Most of the world’s major markets fell, but by far less than they’d fallen in August with Japan suffering one the biggest losses - down by 8% in the month.
Key world news included the worsening situation in Syria and the resulting well documented refugee crisis. Differences of views on how to tackle the crisis within the EU were exposed at an emergency summit. David Cameron committed to spend another £100m supporting refugees in camps bordering Syria. In Brussels he said £40m of the additional cash would be used to support the World Food Programme.
The FTSE 100 index of leading shares closed September at 6,062 - a fall of 3%. The market was down by 7% in the third quarter, and is down 8% since the start of the year.
Good Business News - Bad Business News
September started with the announcement that Nissan are investing £100m in the Sunderland plant to build the new Juke car. The aim is to safeguard thousands of jobs. This good news was offset at the end of September by SSI saying they are going to mothball the Redcar steel plant with the loss of 1,700 jobs in Teesside
The UK service sector is also showing signs of a slowdown as the rate of growth in August fell to its lowest level for two years.
Business Links with China
Chancellor George Osborne announced that China will be investing in the Hinkley Point nuclear power station, with the UK government guaranteeing the £2bn deal. In Beijing at a joint news conference with China's Vice-Premier Ma Kai, Mr Osborne said: "We want the UK to be China's best partner in the West. [This guarantee] paves the way for Chinese investment in UK nuclear [to help provide] secure, reliable, low carbon electricity for decades to come." He also announced a new £50m joint research centre for nuclear energy.
It was also announced that the Chancellor will deliver this year’s Autumn Statement (combined with the Annual Spending Review) on Wednesday November 25th.
Interest Rates - Mixed Messages
There were mixed messages regarding UK interest rates during September. At the start of the month the BBC reported that rates were still likely to rise by the end of the year, despite the slowdown in China. Two weeks later it suggested that the Bank of England might have to cut rates (from their present 0.5%) in a bid to combat low inflation…
VW Shares Fall Sharply
Volkswagen have said that 11 million vehicles worldwide are involved in the scandal over its cheating with US car emissions tests. VW said it was setting aside €6.5bn to cover costs of the scandal. The VW Chief Executive issued a fresh apology for the test-rigging, saying he was "endlessly sorry" for the "manipulation". In the UK, the Department of Transport has called for an EU-wide investigation into the affair.
The European Central Bank (ECB) has slightly reduced growth and inflation forecasts for this year and for the next two years. The ECB is now forecasting growth in the Eurozone at 1.4% for 2015 (down from 1.5%) and 1.7% for 2016, down from 1.9%.
The Bank expected inflation to be 0.1% for 2015, rising to 1.5% in 2016 and 1.7% in 2017, with lower energy prices helping to maintain inflation.
September started with relatively good news for the US economy with confirmation that the trade deficit was the lowest for five months, down to $41.9bn in July from $45.2bn the previous month.
In the USA, 173,000 jobs were added in August, well below the 217,000 expected. And good news regarding unemployment - a fall from 5.3% to 5.1% (the lowest level since April 2008).
The oil industry reported disappointing news as US oil output with its ‘sharpest fall since 1992’ due to falling oil prices. A year ago US crude was around $90 a barrel - it is now down to $45 a barrel.
The US Federal Reserve voted to keep interest rates at their current level of 0.25% (where they have been since December 2008) due to worries about the situation in China and the global economic slowdown. However Janet Yellen, Federal Reserve Chair, still believes that the US is on course for a rate rise later in 2015.
Far East & Emerging Markets
The economic situation in China has been mentioned already but growth in India is also slowing down. The economy grew at an annual rate of 7% from April to June, down from 7.5% in the previous quarter and lower than expected. With interest rates in India still high there are hopes that the Reserve Bank will shortly reduce rates in a bid to boost growth.
Brazil has lost its investment-grade credit rating following a downgrade by Standard & Poor's to "junk" status - the Brazilian market fell by 3% in September. The government has introduced a $7bn package of spending cuts and is looking to raise an extra $8bn by re-introducing a financial transactions tax that was abolished eight years ago.Also, Russia’s stock market fell by 5%.