Weekly Client Update – 23rd June 2023

Market Overview

Stock futures were lower Friday as Wall Street headed for a losing week.

Futures tied to the S&P 500 slid by 0.5%, while Nasdaq-100 futures lost 0.7%. Futures connected to the Dow Jones Industrial Average fell 116 points, or 0.3%. All three major averages are set to break multiweek win streaks. The Dow and S&P 500 have lost 1% and 0.6%, respectively, since the start of the week. The Nasdaq is down 0.4%, on pace to snap an eight-week win streak and post its worst weekly stretch since April.

Friday’s open indicated there would be no respite from the week’s sell-off, with the Stoxx 600 index lower by 0.2%. Germany’s DAX shed 0.55%, as the U.K.’s FTSE 100 and France’s CAC 40 both declined by around 0.3%.

Asia-Pacific markets were lower Friday as investors look to inflation data out of Japan and Singapore, as well as flash estimates from the au Jibun bank on Japan’s manufacturing and services activity. Hong Kong’s Hang Seng index slid 1.61% in its final hour of trade, leading losses in the region as it comes back from a public holiday, dragged by health-care and tech stocks. Mainland Chinese markets are closed for a public holiday Friday.

In Japan, the Nikkei 225 pared some losses, but still fell 1.45% to 32,781.54, ending an eight-day run above the 33,000 mark.

The Bank of England has raised interest rates for a 13th consecutive time as it tries to stop prices rising so quickly.

The Bank rate, set by the Monetary Policy Committee, has gone up to 5% from 4.5%. The change means further pain for some homeowners, but it could benefit savers. The Bank rate is at its highest level for 15 years, as the Bank tries to slow the rise in the cost of living.

But the rate seems likely to go higher. Bank governor Andrew Bailey has said that if prices continue to rise rapidly then further rate increases will be needed. The financial markets expect rates to peak at about 6% early next year. The theory is that raising interest rates makes it more expensive to borrow money, meaning people have less to spend, and so bringing down demand and slowing price rises.

There has been a series of Bank rate increases since December 2021 attempting to control inflation – which charts rising prices. The inflation rate target is 2%. But, so far, the impact has been limited and is likely to take more time to feed through. Prices rose by 8.7% in the year to May, according to the Office for National Statistics (ONS). This is the same as the previous month but down from its peak of 11.1%.

£50,000 investor protection threshold could be increased for first time

The level of investor protection in Jersey could increase, it was suggested at the latest meeting of the Economic and International Affairs Scrutiny Panel. Investors are protected by the Depositors Compensation Scheme – introduced by the States in 2009 – which guarantees up to £50,000 per Jersey banking group, for local and international depositors.

But the limit has not increased since the protection was introduced and Deputy Elaine Millar, Assistant Chief Minister with responsibility for financial services, said that she was aware that the chair of the independent board which administers the scheme ‘wanted to consider’ making recommendations to increase that sum. ‘The board may wish to bring proposals forward.

‘It was set at the time at a similar level to Guernsey and the Isle of Man… and a level appropriate to the jurisdiction. The new chairman has told me it is something he wanted to consider,’ Deputy Millar told the panel. According to panel chair Deputy Moz Scott, the level of protection would have had to have risen to just under £80,000 to keep pace with inflation. She said she would now write formally to Deputy Millar about the issue because the level of protection was ultimately for ministers to decide to act upon.

The DCS is funded primarily through levies on Jersey banks, based on the proportion of protected deposits they hold. However, these levies are capped for each banking group over a five-year period and the States would make up any shortfall.

According to the government website, in the event that the full £100 million liability of the DCS was called upon, banks would contribute about two thirds of the funding, with the States paying the remainder. In ‘nearly all circumstances’, this would eventually be repaid from the recoveries from the failed bank, the government says on its website.

Islanders to pay 5% GST on ALL goods bought from Amazon from next month

Islanders will be charged GST on all goods bought from Amazon from the start of next month. From 1 July, the ‘de minimis’ threshold at which Islanders pay GST on imported products will drop from £120 to £60. But larger retailers (those which have an annual turnover of at least £300,000) will be subject to the same rules as the Island’s high-street retailers.

This means that online orders of any value from retailers such as Amazon will be subjected to the 5% sales tax GST, which the chair of Jersey’s Consumer Council, Carl Walker, said was not ‘spelt out’ to himself or Islanders and therefore was an ‘unwanted surprise’ and ‘unexpected increase in the cost of living for Islanders’.

Treasury Minister Ian Gorst said: ‘This is ultimately an issue of fairness and it has been the policy of successive governments since 2007, when GST was introduced, to remove this discrimination when it became administratively practical to do so. That time came when the EU and the UK had implemented similar rules, during 2022. ‘It cannot be right, for example, that a £25 item bought in our high street is taxed, while the same item from a large offshore retailer is supplied tax-free.

‘The government has already taken significant actions to help Islanders with the cost of living and will keep those under review.’ Deputy Gorst added that there had been ‘a good deal of information’ provided to the public in advance of the changes using various media channels, including, he said, in the JEP.

Mr Walker, however, said the fact that GST would be charged on items below the de minimis level from larger retailers ‘could have been better communicated’. He said: ‘It’s difficult to argue against the principle of introducing GST to online shopping, but I don’t think consumers were aware that this latest reduction would result in certain online retailers charging GST on everything, no matter if it fell below the de minimis.

‘We knew that the government were in negotiations with larger retailers to charge the GST at source rather than at Customs. The Consumer Council was consulted when the government was first considering this, but we do not recall it being spelt out that Amazon and the like will be applying GST to items below the de minimis.’

Titanic Submirsable: What went wrong

After the grim discovery of debris from the Titan submersible on the ocean floor, the focus of the rescue efforts will now be turned towards understanding what caused the accident. According to Rear Admiral John Mauger, what they found was consistent with a “catastrophic implosion”. This is because they found two patches of debris, one containing Titan’s tail cone and the other its landing frame, suggesting that the vessel blew apart. To answer the question of why this happened and what could have been done to prevent it, the authorities will be gathering every piece of the debris they can find, according to Ryan Ramsey, former submarine captain in Britain’s Royal Navy. “There is no black box, so you are not going to be able to track the last movements of the vessel itself,” he says, but otherwise the process of investigation is not dissimilar to that of an airplane crash.

Once investigators bring the pieces back up to the surface, they will look for the break structure in the carbon fibre structure, which is key to helping them understand what happened in those last moments, he says. Each piece will be closely examined under a microscope to examine the direction of the carbon fibre filaments, looking for tears which suggest the exact place where the rupture happened. The big question investigators will be trying to answer is whether the cause was a structural failure. If it was, then the submersible would have been subjected to incredibly high pressures, equivalent to the weight of the Eiffel Tower, says Professor Blair Thornton from the University of Southampton.

“We’re talking about a very powerful implosion of the main housing,” he says. If this is what happened, the critical question is whether it was because of a lack of proper testing, as some experts have suggested.”Carbon fibre fails from internal defects in its construction,” says Professor Roderick A Smith of Imperial Imperial College London. The joints between the carbon fibre and the titanium need very careful inspection, he says.

The violence of the implosion means that it may be very difficult to determine the sequence of events, he adds. “Hence the need for retrieval and painstaking examination if possible.”It is unclear at this stage which agency will lead the investigation as there is no protocol for such incidents with a submersible. Admiral Mauger said that it was particularly complex because the incident took place in a remote part of the ocean involving people of many different nationalities.But since the US coastguard has played a leading role in the operation so far, it is likely to continue to play an important part.

More rights may be given to zero-hours contract workers

Workers on zero-hours contracts may gain better employment rights before the end of the year. Social Security Minister Elaine Millar said she was seeking to amend the Employment Law to enable workers to request a contract that better reflected the reality of their working life. She made the announcement this week in response to a report from the Jersey Employment Forum, published in May, which found that some employees on a zero-hours contract were working hours akin to regular part-time or full-time work.

Deputy Millar has also agreed to carry out a consultation on the rates of compensation – which have been in place ‘for many years’ – available for employees if their rights are found to have been breached. The minister has now agreed that there is a suitable case for additional legislation and she will ask for law drafting to be undertaken. It is hoped that the legislative change will be approved during this year. Deputy Millar said she was ‘grateful’ to the forum for its report and she has accepted each of its recommendations.

She added: ‘Jersey’s employment legislation must achieve the right balance between employer and employee. As the forum reports, work needs to be done to improve understanding among employees and employers about their rights and responsibilities. I make it clear in my response to the forum’s report that there are many ways we can achieve this and we’ll be working within government and with other partners to make sure we make positive progress during 2023.’

Commenting on the level of compensation available to workers if their rights have been breached, she said: ‘The current award levels have been in place for many years and I’ve asked the forum to consider whether they’re still adequate.

‘I look forward to receiving its recommendations in due course.’

On other matters – such as the definition of zero-hours contracts and right to compensation for shift cancellation or curtailment without reasonable notice – she agreed with the recommendations and that no action needed to be taken because there was ‘little evidence of a problem in Jersey that would require additional legislation to rectify it’. She further endorsed that education and awareness-raising of employment rights for employers and employees was a crucial factor when it came to the rights and responsibilities of both parties to an employment contract and to facilitating good employment relations.

Refurbished Odeon Cinema to become new Jersey event space

The former Odeon cinema in St Helier is to become an events space following a lengthy refurbishment project. Freedom Church Jersey, which bought the 70-year-old building for £1 million in 2012, has been awarded a licence which will enable alcoholic drinks and canapés to be served to attendees at events.

A spokesperson for the owner addressed the Licensing Assembly at the Royal Court yesterday, explaining that the Freedom Church had been unable to progress plans for the building as a result of ‘fiscal constraints’, but was now able to do so, with work on a new roof having been completed. The ground-floor auditorium would have a proposed capacity of 450, the spokesperson added, staging events around once per month on average and providing a different-sized alternative to existing venues in St Helier such as the larger Opera House and smaller Arts Centre.

The court heard that the application had been supported by 14 votes to one at a recent St Helier parish assembly, with Constable Simon Crowcroft confirming to the panel that he was supportive of the application. The Odeon cinema opened in 1952, but closed in October 2004. It was subsequently operated as a cinema for four more years by former Deputy Kevin Lewis, who is now the Constable of St Saviour.

The cinema showed its final film in January 2009.

Jersey set for another blast of hot weather this weekend

JERSEY is set for another blast of hot weather – with temperatures expected to hit the high 20s this weekend. The forecast of dry and sunny conditions comes following a torrential downpour on Monday night which saw 10.2mm of rain fall in just a few hours – almost three times the total recorded during the previous 35 days.

Temperatures are expected to slowly increase from today, with a plume of hot air from the continent pushing up over the Channel Islands during the weekend. The UK Met Office, which issues longer-range forecasts on its website, says the generally dry conditions could last into July.

The forecast for the period of 24 June to 3 July states: ‘Temperatures are likely to be above average for many, and very warm to hot in central, southern and eastern areas.

‘Further into this period, it may generally turn slightly more unsettled. However, the north-west is likely to continue to see the most unsettled conditions, with rain and stronger winds at times, while the south-east is most likely to see the driest conditions, although the chance of heavy showers or thunderstorms cannot be ruled out here. Temperatures are most likely to remain above average for many.’