Credence Independent Advisors: Why interest rates won’t rise anytime soon?
Economists expect Bank of England’s quarterly health check of the UK economy to rubber stamp expectations that interest rates will remain low for longer.
Interest rates will remain on hold beyond next year’s general election; the Bank of England is expected to signal this week, in an environment of lower inflation, weak wage growth and increasing eurozone headwinds.
Economists expect the Bank’s latest Inflation Report to highlight a risk that price rises, as measured by the consumer prices index (CPI) could fall below 1pc at the beginning of 2015, from September’s five-year low of 1.2pc.
According to the Centre for Economics and Business Research (CEBR), the recent decline in oil prices to $83 a barrel from $115 in June will push CPI inflation down to 0.5pc by next June. Douglas McWilliams, chief executive of the CEBR, said if prices fell to $60 a barrel, headline inflation could turn negative.
If inflation dips below 1pc, Mark Carney, the Governor of the Bank of England, will have to write an open letter to the Chancellor explaining the fall and how policymakers will ensure that inflation returns to the Bank’s 2pc target.
Alan Clarke, a strategist at Scotiabank, said it was very likely this could happen before the end of this year. “Last December, we had a 6.5pc increase in gas and electricity prices, that’s not being repeated this year, so that will push inflation down by 0.3 percentage points.
Coupled with that you’ve got Sainsbury’s recent decision to cut 1,200 prices and mild autumn weather pushing down on clothing prices. All in all, if they forecast sub-1pc inflation they’re conceding that Carney’s going to have to write a letter and the market will push back the first hike even more than it already has done.”
In June, Mr. Carney said the decision surrounding the timing of the first rate increase “could happen sooner than markets expect”, prompting traders to price in a November rate hike. However, an oil glut, the slowdown in the eurozone and falling inflation means markets now expect the Bank to raise rates in August 2015, well after May’s election.
Andrew Haldane, the Bank of England’s chief economist, said in a speech last month that a “gloomier” global outlook and lower inflation suggested that policymakers could afford to keep interest rates lower for longer.
Official data show pay growth still catching up with price rises
The Deputy Governor, Sir Jon Cunliffe, said in a separate speech that with interest rates already at a record low of 0.5pc, dealing with an inflation spike would be “more manageable” than raising rates too early and having to change course.
However, Martin Weale, an external rate setter who has voted to tighten monetary policy for the past three months, has argued that the Bank should “look through” the current drop in inflation because it is driven by forces that are beyond the Bank’s control, as the Monetary Policy Committee did in 2008, when price rises spiked to 5.2pc.
Simon Wells, chief UK economist at HSBC and a former Bank economist, said pay growth would remain in focus for the nine rate-setters. “The first quarter of 2015 is an important time for pay settlements, and if pay surveys continue to suggest starting salaries for new recruits and vacancies are rising and we start to see wages pick up, that would be the signal for me that this economy can withstand a rate rise”.
The Confederation of Business Industry expects the UK economy to expand this year at the fastest pace since before the financial crisis. Britain’s biggest business lobby group expects growth of 3pc in 2014, which would match the expansion in 2006. Growth is then expected to slow to 2.5pc in 2015.
The forecasts were unchanged from its September forecasts, despite renewed fears of a triple dip recession in the eurozone. “The recovery is on firm ground and is becoming more ingrained,” said John Cridland, the CBI’s director general.
Credence Independent Advisors are always on the lookout for top quality professionals that want a long term career in financial services. Whether from Investment banking, Wealth Management or financial planning background if you would like to be with a firm with a compelling client and advisor proposition.
Credence Independent Advisors: A look in to the pension changes
After the end of the budget consultation on 11th June, the Treasury issued its response on the 21st July on pension shake-up, explaining pension changes, which offer a greater deal of freedom for both pension holders and providers.
These pension changes are generally all positive and the biggest for more than 100 years. Some of the changes are discussed here.
In order to ensure that all defined contribution schemes are able to offer greater flexibility to their members a permissive statutory override shall be introduced. The benefit of permissive statutory override is that it allows schemes to ignore their scheme rules and follow the tax rules instead; in order to make payments flexibly or to provide a drawdown facility.
According to the government mandating these schemes provide flexible payments, which would be disproportionate. Even though some schemes would like to offer flexibility to their members but due to the legal and administrative costs involved, they would prefer not to amend their schemes. The government under these situations would prefer that the schemes were in a position to provide flexibility without amending their rules.
On the other hand, if the schemes do not offer flexible access, the individuals would be able to transfer between defined contributions schemes up to the point of retirement.
It is also expected that the government would make various changes to the tax laws, in order to allow more freedom to providers to create new and innovative products, which meet the needs of the consumers more closely. These include; allowing lump sums to be taken from lifetime annuities, allowing payments from guaranteed annuities to beneficiaries as a lump sum, where they are under £30,000, removing the 10-year guarantee period for guaranteed annuities and decreasing lifetime annuities.
The real intention behind the new tax rules is to provide people with a greater access to their retirement savings. However, they also ensure that individuals do not use these new flexibilities to avoid tax on their current earnings by diverting their salary into their pension with tax relief and then immediately withdrawing 25 percent tax-free.
Those who choose to draw down more than their tax-free lump sum from a defined contribution pension will be able to benefit from further tax-relieved pension saving, and make further tax-free contributions to a defined contribution pension of up to £10,000 a year.
Under the current rules, those who are currently in ‘flexible drawdown’ are not able to make further pension contributions, having an annual allowance of £0. However, from April 2015 they will be subject to a new annual allowance limit of £10,000. This would allow individuals accessing a defined contribution pension worth more than £10,000 to contribute up to £10,000 a year with tax relief to a defined contribution pension, after their first flexible withdrawal.
Without being subject to a £10,000 annual allowance on subsequent contribution, individuals can make withdrawals from three small pension pots and unlimited small occupational pots worth less than £10,000.
Other proposed changes under the new tax rules include the increasing of minimum age at which people can access their private pension from 55 to 57 in 2028 for all pension schemes. However, this change will not be applicable to those in the public sector; which includes police, armed services and firefighters.
According to the government, when the new system is established in 2015; the 55 percent tax charge on pension savings in a drawdown account at death will be too high. As a result, in this year’s autumn statement; the government has intentions to announce the changes.
The government will introduce two new safeguards to protect individuals and pension schemes, but will continue allowing transfers from private sector defined benefit to defined contribution schemes, apart from pensions that are already in payment.
Prior to accepting a transfer; an individual would be required to take advice from a professional advisor, authorized by FCA and independent from the defined benefit scheme.
Currently, if the interests of the members of the pension fund trustee or the scheme are prejudiced by making the payments within the usual period, than they can ask the regulators for a longer time to make transfer payments. However, now there will be new rules for delaying the transfer payments for trustees and the scheme funding levels when deciding on transfer levels will also be taken in to consideration.
For those defined members who wish to access their savings flexible, the government has intentions to consult on removing the requirement to transfer first to defined contribution schemes.
Since, there is no money involved in transfers from unfunded public service defined benefit schemes; therefore, the government intends to consult on removing it. However, transfers from funded defined benefit to defined contribution schemes will be allowed, and safeguards similar to those in the private sector will be introduced where appropriate.
Under the trivial communication and small-pot rules, individuals are allowed to take up to £30,000 of total pension savings as a lump sum, or a £10,000 small pot as a lump sum regardless of total pension wealth. The age at which an individual can make use of these rules will also be lowered from 60 to 55.
Credence Independent Advisors was born from compelling opportunity in the financial services world. In the ever changing dynamic world of financial services it is important for us to tailor advice and solutions to individual needs.
Contact us at:
Emaar Boulevard Plaza, Level 14,
Burj Khalifa Downtown,
P.O.Box 334155, Dubai, UAE
Email: info@credence-wealth.com
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Credence Independent Advisors Strong dollar squeezes commodities, BOJ puts onus on ECB
Source: http://credence-wealth.com/strong-dollar-squeezes-commodities-boj-puts-onus-on-ecb/
(Reuters) – The U.S. dollar powered to seven-year peaks against the yen on Monday and a two-year high on the euro, a punishing trend for commodities priced in dollars as gold, silver and oil all fell.
Disappointing surveys out of China’s manufacturing and services sectors highlighted the relative health of the U.S. economy, and piled pressure on other countries to ease monetary policy yet further.
The dollar came within a whisker of 113.00 yen in early trade, before taking a breather at 112.72. It has climbed over 3 percent since the Bank of Japan stunned markets by doubling down on its already massive stimulus programme.
The bold move has raised expectations the European Central Bank will eventually have to bite the bullet on quantitative easing, even if not at its meeting on Thursday.
“In this environment of subdued growth and long-term low-flation, we expect the ECB to announce the purchase of government bonds of euro area member states by early next year at the latest,” said Apolline Menut, an analyst at Barclays.
That outlook is one reason the euro caved to a fresh two-year trough of $1.2444, and why the dollar reached levels not seen since mid-2010 against a basket of currencies.
While Tokyo stocks were enjoying a holiday after Friday’s 4.8 percent surge in the Nikkei, shares across Asia were consolidating their gains.
MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.5 percent from a five-week high, but most regional markets were a shade firmer.
In Europe, the FTSE, DAX and CAC 40 were all seen opening with minor changes.
On Wall Street, both the Dow Jones industrial average and the S&P 500 index had notched record closing highs on Friday. The Dow gained 1.13 percent and the S&P 500 1.17 percent.
CHINA DATA UNDERWHELMS
Sentiment in Asia was somewhat tempered by a survey showing China’s services sector grew at its slowest pace in nine months in October as a cooling property sector weighed on demand.
That followed an unexpected dip in China’s factory activity to a five-month low in October, underlining the uncertain outlook for world’s second biggest economy.
Still, the prospect of further policy stimulus helped support stocks and Shanghai gained 0.5 percent.
The soft data knocked almost a full cent off the Australian dollar, which is often used by investors as a liquid proxy for bets on China.
Yet the allure of Australia’s relatively high yields has only been burnished by the BOJ’s actions and lifted the Aussie to its highest on the yen since May last year.
Indeed, by announcing it would buy more longer-dated bonds and thus push down already threadbare yields, the BOJ is clearly trying to force Japanese investors to seek higher returns in riskier assets, both at home and abroad.
The rush out of yen was given more impetus by news that Japan’s $1.2 trillion (751.54 billion pounds) Government Pension Investment Fund will raise its holdings of foreign stocks to 25 percent, well above some analysts’ expectations.
In contrast, U.S. Treasury yields ended higher last week after the Federal Reserve wound down its bond buying campaign against a generally improving economic background.
In a data-packed week, the US’s ISM index of manufacturing activity due later o Monday is expected to hold at a relatively healthy 56.2 in October. The October payrolls report on Friday is forecast to show a solid increase of around 231,000 new hires.
In commodity markets, gold was pinned near its lowest since 2010 at $1,168 an ounce, as was silver at $15.87.
Brent oil slipped another 23 cents to $85.63 a barrel, while U.S. crude lost 36 cents to $80.18.
Credence Independent Advisors was born from a compelling opportunity in the financial services world. In the ever changing dynamic world of financial services, it is important for us to tailor advice and solutions to individual needs. Our business was set up to be compelling for all its stakeholders; including clients, staff and owners of the business. Please visit us our News site at credenceadvisors-news.com and to our Blog site at credenceadvisors-blog.com
Credence Independent Advisors: The economic recovery of the United Kingdom during the first half of 2014
The economic growth of a country comprises of a large number of different factors and a combined effect of all the factors makes the final impact.
Similarly, in order to understand the economic growth of United Kingdom, it is important to identify the performance of various factors regarding the economy such as unemployment, investments, gross domestic product, inflation, productivity, consumption and many more.
Overall, it has been observed that the economic factors have been moving in a strong and positive direction for the economic conditions of the United Kingdom, with the United Kingdom economy starting to flourish once again and recovering from recession. According to a recent report from the Bank of England, the strong performance of United Kingdom’s economy has proceeded. The results for the first quarter of the year show an increase of 0.8% economic growth with production increasing drastically, unemployment falling further and inflation nearing the 2% target.
The United Kingdom’s production is assessed to have grown by 3.1% up to the first quarter of 2014, with a few pointers indicating significantly stronger growth. The Purchasing Managers Index survey has pointed out that the manufacturing sector has started to flourish with the manufacturing output increasing for continuously over a year now, according to Markit. This increase has led to the creation of jobs at a speedy rate in the manufacturing sector for over three years now.
Employment has also increased rapidly. The labour source survey shows the unemployment rate falling beneath the Marginal Propensity to Consume 7% threshold in February. This is now considered to be the lowest recorded in the period of the previous five years. As a result, Goldman Sachs has predicted a fall in unemployment from 6.8 to 6.5% for the current year.
Goldman Sachs has predicted a fall in the Consumer Price Index inflation forecast for the current year from 1.7% to 1.5 %.
Housing market restoration is in process with transactions up by a third over the previous year. Housing costs are up around 10% higher broadly underpinned by strong growth in housing investment.
Having been exceptionally frail over the last three years, private sector pay growth has started to grow, in spite of the fact that it stays well beneath the predicted standards.
Lastly, Sterling has reached its highest level against the United States dollar in the six year period at $1.7149, with 10% appreciation over the previous year.
The economy of United Kingdom has done exceptionally well in the first half of 2014. As a result of which even the analysts at Goldman Sachs have upgraded the United Kingdom economic growth forecast. Analysts have now predicted that Gross Domestic Product will grow by 3.4% this year instead of 3%.
Credence Independent Advisors: Active or passive what’s for you?
What do active investors do?
Active investors believe that markets are “inefficient”. They believe that, at any point in time, there are always some securities that are mis-priced, enabling them to buy or sell making a profit. Professional active investorsdevote unbelievable amounts of time and resource towards trying to find that extra edge. They will then trade in and out of those securities to try and generate profits above the benchmark. They pour over company financials, visit with competitors, study all the latest economic releases, and try to predict everything from corporate earnings to the direction of interest rates and currency movements.
What do passive investors do?
Passive investors believe that markets are “efficient.” They believe that, over the long run, the price of stocks and bonds reflect the true underlying value of those securities. As such, they do not seek to beat the market, but rather to “be” the market. They do this by using index funds and ETF (exchange traded funds) that mimic various components of the market. For example, rather than try to find that “next Apple or Google,” you can purchase (nearly) all large US stocks or (nearly) all small emerging market stocks in one go by buying the index in its cheapest form. Then, using the right asset allocation, they can create portfolio that has an appropriate risk exposure for the client.
Which style of investing performs better?
Passive investors outperform active investors more often than not. In the past 5 years, 75% of US Large Cap funds, 90% of US Mid Cap funds and 83% of Small Cap funds failed to beat their comparable indices. One reason for this may be the fact market surges (up or down) are unpredictable missing just the top 25 days of market performance over the last 40 years would result in you having 3.6% less per year than if you had just stayed the course.
Which style should you use?
Investing in both active and passive investments makes sense. In smaller more specialist areas of investment it can sometimes be difficult to find the right passive investment. In larger markets ETF’s and indexes can be cheaper and more efficient. There are a variety of measures to make the right decision. Consult with a professional to show you the options. If they aren’t clear then be passive with them.
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Credence Independent Advisors Eurozone needs an unconventional approach to its economic crisis
Mario Draghi, the head of ECB calls for more unconventional and growth friendly policies to end eurozone crisis. Within the Eurozone, it has been a long-time since the living standards were at peak.
For instance, the living standards were last at their peak in 1997 in Italy, 2000 in Cyprus and Portugal, 2001 in Greece, 2003 in Spain and Ireland and 2006 in France. Out of all the eurozone countries bailed out since eurozone debt crisis, Italy has been the only country to witness the worst performance and is now in the final stages of its two lost decades.
Last Friday, at his speech at the Jackson Hole symposium, Mario Draghi, the Italian in charge of the European Central Bank emphasized on the need for more growth-friendly policies. He further went on to make an unfavorable contrast between the eurozone and the US. For instance, during the great recession of 2008-2009, both the US and eurozone witnessed a rise of five percentage points in unemployment. However, unemployment has since fallen by four percentage points in the US, but is still more than four points higher for the eurozone. Furthermore, the US is witnessing an increase in the growth this year after being affected by weather in the winter season, whereas in the eurozone, the growth is at a standstill, along with growing deflationary pressures.
The most vulnerable threats to the eurozone currently are both economic and social.
The economic threat is that prolonged stagnation along with outright deflation or very low inflation puts pressure on the already stretched public finances. This is because inflation decreases the burden of debt, whereas deflation increases it. When it comes to countries like Italy, where the national debt is more than 100% of the annual national output, keeping interest rates high could eventually become unsustainable.
When it comes to social threat; high unemployment leads to social unrest in the society, such as the one seen in Ferguson, Missouri recently. Currently the inequality levels are not as high in Europe as in the US. However, they might become so over time. Therefore, stagnation in the economy, very high levels of unemployment and increased concentration of wealth are the main causes of social unrest and prevent achieving social harmony.
One of the reasons for the slower growth rate of eurozone compared to the US is that the US has a rising population whereas Europe doesn’t. Therefore, one option is to sort out Europe’s structural problems.
On the other hand, eurozone has a lot of laws, which prevent the full implementation of the single market and eventually act as a hurdle for growth. These include over-restrictive labour laws, too many protectionist tendencies and too much bureaucracy.
Austerity has been used by Germany as an important tool to force unwilling governments in Southern Europe to embrace structural reforms. Currently Germany would want to impose austerity on France. However, Draghi’s comments at Jackson Hole suggest that austerity is not helping structural reforms, instead Germany is becoming isolated. Furthermore, according to economist Vicky Pryce, austerity is turning Europe into a big debtor’s prison.
Even the ECB has now accepted that it would have been better to have followed the American approach to recover from the recession without worrying too much about how much money the Federal Reserve was printing or the size of budget deficit.
When we compare the economic recovery of the US and the eurozone, it is important to note that the eurozone is not lagging behind just because of the difference in the population size and growth, but because of tighter fiscal policy for too long, the ECB being slow and unwilling to try something different just like the Fed, Bank of England and Bank of Japan.
As seen previously, Europe won’t be taking a bolder approach; rather it will be taking small steps. Things such as state finances will be utilized for growth, such as for infrastructure building. Budget rules might be temporarily relaxed to allow countries to run deficits of more than 3% of the GDP (gross domestic product) without facing possibility of sanctions. When the Germans agree, the ECB will announce a modest quantitative easing programme; to buy bonds in exchange for money from the banks to help increase flows of credit around the eurozone economy.
We don’t know whether this will resolve the problem or not. However, this certainly won’t do any harm. For sure it is not the complete solution. The European banks are badly run and were even worse than their British and American counterparts, even years before the crisis. As a result they are slow to raise capital and repair their balance sheets.
As for QE, since it has not worked well, especially in the US or UK, where the banks are in a better shape. Therefore, an ECB QE will be less effective given the current status of the European banks.
Eric Lonergan (a London based hedge-fund manager) and Mark Blyth (economics professor at Brown University) have proposed an alternative of printing money and handing it straight to the people and cutting the middleman. To curb growing inequality, Lonergan and Blyth propose that the central banks should directly give a cheque to every household instead of pursuing policies that ramp up asset prices and make the financial system less stable. The benefit of this is that the people would spend rather than store, like the banks. As for the inflationary pressure, higher interest rates can be used to counter them.
It is important to note that Germany wouldn’t allow any such plan because Angela Merkel considers a reminiscent of the 1923 hyperinflation.
Draghi himself is aware of the need for a new different approach and is preparing more unconventional measures.
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Careers at Credence Independent Advisors
We are always on the lookout for top quality professionals that want a long term career in financial services. Whether from Investment banking, Wealth Management or financial planning background if you would like to be with a firm with a compelling client and advisor proposition please emails us at careers@credence-wealth.com.
About Us
Credence Independent Advisors was born from a compelling opportunity in the financial servicesworld. In the ever changing dynamic world of financial services, it is important for us to tailor advice and solutions to individual needs. Clients need solutions that make them money and preserve their capital and advisors need happy clients with increasing wealth under management. By harnessing the skills of top quality experienced professionalsand cutting edge technology, we are able to bring what was previously only available for multi-million dollar clients to a wider reaching client range and we have done this independently.
Why Us
Our business was set up to be compelling for all its stakeholders; including clients, staff and owners of the business. We offer a compelling experience to our clients that deliver what they desire. We strive to fully understand our clients’ financial requirements by remaining in close communication with them over the entire span of the relationship. We endeavor to provide our clients with a financial educational framework which supports them in their investment decision making process, helping them to achieve their financial goals. We align our interests along with those of our clients to ensure the development of a long and fruitful relationship.
