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24 May 2021

Global Markets Endure Turbulent Week

Global markets followed a similar path across the board last week, recovering from a sea of red in the first half to a more positive standpoint by Friday. US markets led the way with the recent Federal Open Market Committee (FOMC) minutes highlighting that the economy “remained far from the [FOMC's] maximum-employment and price-stability goals" and, as a result, "it would likely be some time until the economy had made substantial further progress needed to begin tapering those purchases." Nothing not heard before, but it appears a gentle reminder after last week’s reaction to the latest consumer price index (CPI) figures gave equity markets a much-needed lift. The Nasdaq dropped roughly 3.5% from last Monday’s opening price but recovered to 1.18% for the week. In comparison, the S&P 500 initially fell 2.61% yet rebounded close to last Monday’s opening. Although an impressive recovery from the main US indices, it will be interesting to see if bullish momentum continues over the next few weeks, with the Nasdaq just 4% from its all-time-high and the S&P 500 only 2%. If not, the well-known saying ‘Sell in May and go away’ might prove more problematic for US investors than inflation data currently is.

It was also a turbulent week for UK equities after they fell as much as 2.14% on Wednesday. A strong rebound on Thursday and Friday morning offset some of the move, with the CBOE 100 index down just 0.96% for the week. Away from the UK stock market, UK farmers and small and medium enterprises (SMEs) featured in the news last week, not in the same breath, but relating to potential implications of Brexit. Firstly, a zero-tariff, zero-quota trade deal with Australia has been proposed by the UK Government’s International Trade Secretary Liz Truss despite her departments own official analysis warning it could cost British farmers their jobs and leave Northern Ireland worse off. The trade deal would mean large Australian farms are able to export beef and lamb to the UK with ease at a much-lower cost. As UK food is often produced at a higher standard and cost, supermarkets could look to lower costs through sourcing Australian meat, putting pressure on UK farmers. Although UK farmers would receive the same access to Australian markets, the Australian Agricultural Company believe the deal would open great opportunities for it and other producers to expand beef sales in Britain with beef exports expected to double or even triple. In contrast, The National Farmers Union argued that cheap foreign imports would lead to a "slow, withering death of family farms" in the UK if the wrong deal is made. On the surface Australia appears the most obvious beneficiary, but the deal would help the UK to join a wider Asia Pacific free-trade agreement - the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - which could provide British farmers with more opportunities.

UK SMEs, on the other hand, are facing £180m in additional red-tape costs as the European Union (EU) imposes value added tax (VAT) reforms on sales from outside the bloc. The legislation was originally proposed to stop an estimated €7bn in annual VAT fraud by non-EU e-commerce sellers, mainly located in China.

However, after the UK’s departure from the EU, British companies will also need to adhere to the rules. Roughly 26,000 e-commerce sellers will be affected with small and medium-sized businesses exporting to EU customers set to face the biggest challenge due to the changes, which removes VAT exemptions for SMEs and shipments not exceeding €22. It is estimated this will cost many of these companies at least €8,000 a year each, or around €208m in total. To help UK SMEs through the transition, the Government is allowing small businesses to claim up to £2,000 from the £20m Brexit support fund, to address issues such as the above.

One Yorkshire-headquartered company whose business suffered as a result of the pandemic has recently secured a £225m re-financing agreement with its lenders. The Card Factory has agreed an important extended banking facility until 2023, as the business reported net debt of £110m, excluding deferrals of £40m. The financing is expected to be used to pay down some levels of debt, while the CEO, Darcy Willson-Rymer, has recognised the company’s online offering needs to be expanded to keep up with the ongoing e-commerce shift. As shoppers also return to high streets, the re-financing will give the business enough space to implement a growth strategy across all channels, which could be a much-needed lifeline for the Card Factory.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Global Markets Endure Turbulent Week
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