Under the Influence

Twice as many youngsters are believed to have applied to appear in ITV2 reality show Love Island as applied to attend Oxford and Cambridge Universities. A sad reflection on our country or the new reality of easy money to be made from social media?

The winners Dani Dyer and Jack Fincham, besides picking up the winner’s prize of £50,000, could potentially make millions from social media endorsements and appearances. Even the runners-up and those contestants who spent very little time in the Love Island villa stand to make six-figure sums as well. Not bad considering one of them thought Brexit was about cutting down trees while another believed a carpenter was someone who fitted carpets! The reality show’s fourth season has been a huge hit for ITV- not only in ratings terms but commercially as well.

This highlights just how much money well-known celebrities or ‘influencers’ can earn from promoting brands on social media. Top ‘influencer’ is Kylie Jenner of the Kardashians with 111 million followers who can command up to $1m a post. It is estimated that her make-up brand which she promotes on Instagram could be worth $1bn in a few years. Amongst UK stars, David Beckham is top ‘influencer’ with 49 million followers and can command $300,000 per post. He is ranked number 12 in the world and recent posts show him promoting Tudor Watches and Adidas.

Marketing companies are moving away from traditional advertising mediums like television and print as they believe they can get a bigger return on their investment. However, celebrity influencers must make clear an Instagram post is an advert if they have been paid to publish it, or have received gifts in return. In the UK, the Advertising Authority is currently undertaking a review as it has found influencers are still ‘blurring the lines’ between editorial and advertising content.

What have we been watching?

US Treasury yields moving back above 3%, President Trump proposing 25% tariffs on Chinese goods, increased talk of a ‘no deal Brexit’ and the widely expected interest rate hike from the Bank of England (BoE), all combined to produce a more challenging week for investors. However, the US market was boosted by Apple, which became the first quoted company to see its market valuation climb over $1trillion. In addition, the US Q2 earnings season has also been supportive with 80% of companies that have reported so far exceeding market expectations.

US media reported that the US and China were working on sitting down to talk through the trade issues, but then President Trump started talking about increasing the level of potential tariffs on $200bn of Chinese goods from 10% to 25% in September. All part of his negotiating technique? China’s commerce ministry responded by proposing retaliatory tariffs on $60bn of US goods should the US impose tariffs. China’s state-owned media warned that Beijing is ready for a ‘protracted trade war’ with the US and is prepared to sacrifice short-term economic interest as part of this.

Meanwhile, Trade Ministers from the EU, Canada, Mexico, Japan and South Korea have agreed to respond if Trump slaps new tariffs on cars or auto parts. Options discussed include an appeal to the World Trade Organisation and retaliatory measures. White House economic adviser Larry Kudlow warned that China ‘better not under estimate the President’ but, did suggest he expects announcements within the next 30 days on trade efforts with the EU.

Turning to Brexit, PM Theresa May cut short her holiday to meet French President Emmanuel Macron who is seen as a major obstacle to her current proposals. Sterling dropped below $1.30 after Bank of England Governor Mark Carney said ‘I think the possibility of a no deal is uncomfortably high’ but, he did add the caveat that it was ‘a relatively unlikely possibility but it is still a possibility’. He also said that there were signs that business investment in the UK is softening and that Brexit policy will have an impact on BoE monetary policy. Over the weekend, International Trade Secretary Liam Fox said the chance of failing to come to a Brexit agreement was ’60-40’, blaming the ‘intransigence’ of the European Commission.

In the UK, the BoE voted unanimously 9-0 for a 0.25% increase in interest rates to 0.75% but, the message remains that future increases will be gradual and limited so the next increase could easily be 12-months away. The BoE increased its growth outlook in 2019 and projected average annual growth over the forecast period ahead of 1.5% with inflation expected to fall to 2%. The manufacturing purchasing managers survey revealed output growth at an 18-month low in July and business confidence at a 21-month low. Companies also highlighted a strong rise in input costs which has led to the steepest rise in selling prices since February. However, construction activity expanded at its fastest rate for 14 months in July.

The Eurozone economy faces weaker external demand and trade uncertainties. Q2 economic growth came in below expectations at +0.3%, with the annualised rate at 2.1%. July’s ‘flash’ estimate of inflation saw the headline rate increase to 2.1% due to higher energy prices.

In the USA, consumer spending was solid in June with restaurants and accommodation notably strong. There were no policy signals from the Federal Reserve but re-affirmed guidance of ‘gradual’ interest rate hikes. Futures contracts are currently pricing in a 90% probability of a 0.25% US interest rate in September while there appears a reasonable chance of a further hike in December.

The Bank of Japan maintained its stimulative monetary policy stance, while pledging to introduce more flexibility into its bond-buying scheme.

India’s central bank raised interest rates by 0.25% for the second meeting in a row to 6.5%.

China’s official economic activity indicators for July remained in expansion territory but edged back slightly, possibly affected by weather and trade worries. However, import activity dipped into contraction territory offsetting a slightly improved services reading.

Concerns about global trade tariffs continued to overshadow Brent oil which hovered around $73.

Finally, our future post Brexit global trade deal safe in their hands? New Foreign Secretary Jeremy Hunt mistakenly referred to his wife as Japanese during a visit to discuss post-Brexit trade deals between the UK and China. His wife is actually Chinese!

Read Last Week’s Alpha Bites – Hotting Up

Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email info@alpha-pm.co.uk. Alternatively, you can call us on 0117 203 3460.

This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2018 Alpha Portfolio Management, All rights reserved

Full version

Site by Lookhappy

Under the Influence

Alpha publications