Weekly Client Update – 16th June 2023

Market Overview

S&P 500 futures inched higher Friday as Wall Street closes out a huge week after investors got the pause in rate hikes from the Federal Reserve they were hoping for and encouraging inflation data.

S&P 500 futures rose about 0.2%. Futures tied to the Dow Jones Industrial Average added 43 points, or 0.1%. Nasdaq 100 futures added 0.3%.

Here are the major market milestones on the week:

        • The S&P 500 is up nearly 3% on the week, its best performance since March.
        • It’s the S&P 500′s fifth positive week in a row, the first such streak since November 2021.
        • The benchmark is now up more than 26% from its bear market low.
        • The Nasdaq Composite is up nearly 4% on the week, its best week since March.
        • The Nasdaq is up 8 weeks in a row, its best winning streak since 2019.
        • Both the Nasdaq and S&P 500 were up 6 days in a row through Thursday.
        • The Dow Jones Industrial average was up 1.6% for the week, its third positive week in a row.
        • The S&P 500 and Nasdaq are at their highest levels since April 2022.

     

    European markets opened mixed this morning with The pan-European Stoxx 600 index up 0.8%, The U.K.’s FTSE 100 saw a 3.7-point uptick to 7,634.6, while Germany’s DAX 40 index went up 9 points to 16,302.9. France’s CAC 40 index dropped 0.9 points to 7,288.2.

    Asia-Pacific markets are higher Friday, as the Bank of Japan again left its benchmark interest rate unchanged at -0.1%.

    In Japan, stocks reversed earlier losses to end the day higher, with the Nikkei 225 closing up 0.66% at 33,706.08.

    Hong Kong’s Hang Seng index climbed 0.82%, extending its rally after gaining over 2% on Thursday, while mainland Chinese stocks also were all higher. The Shanghai Composite was up 0.63% to end at 3,272.33 and the Shenzhen Component rose 1.11% to record its seventh-straight day of gains.

    Federal Reserve holds key rate at 5% as it evaluates state of the economy following lower inflation reading

    The Federal Reserve said on Wednesday it was keeping its key interest rate at about 5% — the first time it has kept the rate steady in more than a year. The reason for the hold: Inflation appears to be finally easing, and the Fed wants to assess whether it has already raised rates high enough to tame price increases. Yet the Fed also signalled rates could still go higher if inflation proves sticky. “Inflation remains elevated,” the Fed’s Open Market Committee said Wednesday in a statement, adding it was prepared to adjust rates “if risks emerge that could impede the attainment of the Committee’s goal” of reaching a 2% inflation rate. At the same time, the Fed also lowered its unemployment projections from 4.5% to 4.1%. The rate currently stands at 3.7%. that the 12-month inflation rate had fallen to 4% — the lowest reading in more than two years.

    That means the Fed thinks it can continue to hike rates without causing mass job losses. Amid prior soaring inflation readings, the Open Market Committee raised interest rates 10 consecutive times from March 2022 to this May. But on Tuesday, the Bureau of Labor Statistics announced that the 12-month inflation rate had fallen to 4% — the lowest reading in more than two years. The impact of higher interest rates has been substantial, causing lending rates across the economy, from credit cards to corporate lending, to touch their highest levels in decades.

    Productivity must rise to support ageing population’

    Workers in Jersey will have to increase their productivity by at least 7.5% over the next 17 years if the Island is to support its increasing number of pensioners without significant population growth. Economic Development Minister Kirsten Morel said that employees needed to increase their economic value, not by working more hours but by making the output of hours worked more valuable. Giving his first speech as a minister to the Chamber of Commerce, Deputy Morel trailed his Future Economy Programme a document due in September which will set out the government’s strategy for economic development between now and 2040. Over the past two decades, productivity in Jersey, including in financial services, has flat-lined at best.

    Setting out the significant challenges facing the Island – not least of which is that, without migration, the number of over-65s will increase by 50%, while the working-age population will fall by 10% by 2040 – Deputy Morel said: ‘The EU has seen productivity grow at an average of 2.1% per year whereas Jersey’s productivity has fallen. ‘Had Jersey’s productivity grown at the EU average, our economy would be £200m bigger. ‘Between now and 2040, we need each worker to produce at least 7.5% more value in real terms. The further we are away from this productivity growth of at least 7.5%, the more population growth will be required. Our challenge is to get as close to that minimum 7.5% as possible.’ He added that he believed the Island’s economy needed to be ‘rich and diverse’ and for ‘life to be about more than just work’. ‘For growth to be sustainable, we need to provide a diverse economy with career opportunities that excite young and ambitious minds,’ Deputy Morel said. ‘It means we have to provide a resilient economy that can withstand unexpected shocks and we have to deliver an economy that minimises its environmental impact. In turn, this means minimising population growth.

    ‘The Future Economy Programme is designed to deliver exactly this.’ Deputy Morel also highlighted the challenges the Island faced to achieve this. Over the past 20 years, Jersey’s economy has grown by just 0.1% a year on average. Jersey currently has just over 1.9 working people for every single non-working person but, by 2040, that will fall by half a person to 1.4 working people. Giving a taste of what is likely to be included in the strategy document, Deputy Morel told the audience of business representatives that the Island had begun to attract investment into plant-based pharmaceuticals. He added that by harnessing wind power, the Island could produce and sell on renewable energy, which could generate millions of pounds of revenue for the local economy.

    Potential loss of Jersey’s mail plane would have ‘very little impact’ on online shopping delivery times

    Jersey Post has sought to reassure Islanders that the potential loss of Jersey’s mail plane would have ‘very little impact’ on online shopping delivery times. Alan Merry, chair of the States-owned entity, stressed that the majority of parcels bought from websites such as Amazon arrived by boat and would therefore be unaffected by any change. He spoke out after Islanders raised concerns about Royal Mail’s plans to replace Jersey’s daily mail flight with a ferry service amid a wider review of its postal schemes for 2023. A consultation on the potential changes – which have sparked fears of an extra working day being added to delivery times – closed at the start of this month. Mr Merry said: ‘The perception is that it will impact on people. What you see in the press and the blogs is: “This is going to impact me getting that parcel”. ‘Almost all of the parcels, if not all of them, come in by ferry and have done for ages. But people have the perception that the immediate and quick delivery they get from the retailer or Amazon is because it comes on the plane – and it’s not the case.’

    He explained that the biggest impact would be on local businesses ‘trying to get things off-Island’. ‘The key thing is that we are working with those businesses to try to provide them with suitable alternatives,’ he added. Jersey Post chief executive Mark Siviter said that the full details of the responses to the consultation might never be revealed. ‘We probably won’t get sight of all the feedback, because when you respond to a public consultation you have the right for it to remain confidential. ‘So anyone who responds can say they want all, or some of it, to remain confidential. Having said that, Royal Mail have now collated the responses and we’re in dialogue at the minute with them to talk through what sort of responses they’ve got.’ He added: ‘So how soon could it go? Well, I’m not sure there’s a date on it because there’s so many moving parts, in terms of government discussions, commercial discussions – but I think it could be this year.’ Jersey Post this week announced that it recorded a loss of £6.6 million for 2022, after supply-chain disruption, workforce shortages, the war in Ukraine, the cost-of-living crisis and industrial unrest led to increased operating costs and a 46% gross-margin reduction. The company also saw a 10% drop in the volume of inward mail and a 9% decline in parcels.

    Islanders advised not to swim in St Aubin’s Bay

    Islanders are being advised not to swim at St Aubin’s Bay following reports of low-quality water entering the sea. The Infrastructure and Environment Department have issued the warning as a temporary precaution because of ‘environmental and biological issues’ at the Sewage Treatment Works (STW), which have meant the quality of the discharge into the sea ‘is not at its usual quality’. Environmental factors which have contributed to the poor water quality include warm weather and little rainfall, according to the government. Chief officer at Infrastructure and Environment, Andy Scate, said: ‘We believe it’s a series of factors, all happening at the same time, that have contributed to the discharge not being at the standard we’d like.’ Mr Scate said that ‘higher than normal’ levels of ammonia were entering the STW facility at Bellozanne.

    Infrastructure Minister Tom Binet has confirmed that raw sewage is not being sent out to sea. Deputy Binet said: ‘It has been through the system and treated, but the output isn’t at the levels we’d want to see. ‘Officers at the STW are working on a number of potential solutions, and are speaking frequently with the Environmental and Consumer Protection team in the Regulation Directorate.’ Environment Minister Jonathan Renouf announced that the advice is a precautionary measure and that seawater tests were being conducted to monitor bacteria levels in the bay. Deputy Renouf said: ‘Further testing is going on today. We aren’t necessarily declaring that it’s dangerous to swim in the area, but we also cannot guarantee that there’s not an increased risk to swimming there. ‘Until we can give that assurance, we ask that you please don’t swim in St Aubin’s Bay.’This weekend the Jersey Triathlon is due to be held at St Aubin’s Bay. Deputy Lucy Stephenson has confirmed that the government are awaiting further test results in order to provide updates on the event. Islanders who have swam in the area and become unwell should speak to their GP.

    150,000 people needed to maintain living standards’ in Jersey

    Jersey will need a population of around 150,000 people by 2040 to maintain living standards unless ‘concerted action’ is taken across the Island’s economy, a new report has suggested. Chief Minister Kristina Moore said the figure was ‘not acceptable’ and that the government would be developing policies to ‘prevent this scenario’. Associate director of population and housing at Social Security Sue Duhamel said that the overarching aim was to ‘broadly’ maintain the population at current levels, with the focus on three strategic aims rather than an obsession about numbers. Those aims, she said, were ensuring that the Island had sufficient digital skills, that older people were welcomed back into the economy so that their skills were used effectively and a focus on building a diverse and inclusive community in which those moving to Jersey helped create the Island’s identity. The figures were included within the government’s first annual report regarding common population policy published this week. The 36-page document sets out the findings of the Population and Skills Ministerial Group established by Deputy Moore in September and represents the current position of the Council of Ministers regarding population.

    On census day in March 2021, the resident population of Jersey was 103,267, which was significantly lower than the previously estimated figure of 107,800 at 31 December 2019.Today’s report notes that Jersey has an ageing population, with a ‘significant number’ of Islanders currently of working-age expected to retire between now and 2040, and fewer younger Islanders in the workforce to support the economy. Deputy Moore noted that without ‘concerted action across the whole economy’, indicative modelling points to a 2040 scenario in which Jersey would require a population of around 150,000 just to maintain current standards of living. The model was calculated using GVA (gross added value), which is a measure of the value of goods and services produced in an economy. Deputy Moore said: ‘This is a figure that is not acceptable to me or to ministers, and we have already initiated actions to prevent this scenario. Jersey faces long-term economic challenges and concerted action against a future that overly relies on inward migration is already being planned by the Minister for Economic Development, Tourism, Sport & Culture [Deputy Kirsten Morel]. She noted that Deputy Morel was leading a ‘Future Economy Programme’, which will see a strategy presented later this year.‘It will set out our need for economic growth but, as far as possible, make proposals for this to be achieved without reliance on unrestrained population growth, so that we can maintain and protect our environment, our heritage, and our community spirit – all of that which make our Island so special,’ Deputy Moore added. At the end of the day it is about how we can make Jersey a happy, healthy and vibrant place to live,’ she added.

    75% of e-bike vouchers not used by public

    Less than a quarter of e-bike vouchers issued by the government have been used since the scheme was launched in January. This figure is ‘less than we would have liked’, according to Assistant Environment Minister Hilary Jeune, and the Environment Department is planning to survey recipients to find out why they did, or did not, use their vouchers. Under the scheme, Islanders can apply for vouchers worth £300 (for regular e-bikes) or £600 (for e-cargo bikes or adapted e-cycles), which they can spend at a range of bike shops across the Island. The scheme’s aim is for Islanders to move away from using petrol and diesel vehicles. So far, there have been two rounds of grants awarded. During each round, the total value of the vouchers was £74,400 – totalling £148,800 for the year so far. In January, there were 1,800 applications and 210 grants were awarded, while in April, 165 grants were awarded out of 1,300 applications. But only 85 vouchers have been redeemed so far.

    The vouchers are valid for three months. Deputy Jeune said: ‘Any that are not used before they expire, after three months, go back into the pot to be reallocated during a future quarterly release. ‘It’s therefore anticipated that all vouchers will ultimately be redeemed, and the full allocation of funding will be distributed to support Islanders in making the switch to low-carbon methods of transport. ’She added: ‘We’ll soon be sending a survey to those who’ve used their vouchers, to get a sense of their usage and behavioural change. We’ll also be contacting those who were successful in the ballot but decided not to take advantage of the voucher, to establish what the barriers were for them. ‘We need to better understand the behaviour, and then use that information to evolve the scheme, closing the gap between the excellent number of applicants and the number of e-bikes being purchased, which is lower than we’d have liked. ‘The scheme received over 1,800 applications in January and over 1,300 in April, and we expect similarly high levels of applications will be received next month in the next window. ’The next round of applications is expected to open in July.