A Tale of Two Cities

Airports are a key part of any country’s infrastructure and a vital asset to support long-term economic growth, so it is interesting to compare London and Beijing.

The expansion of Heathrow Airport has dragged on for decades but in 2016 a new runway and terminal was approved by the Government. The new runway will add 130million passengers per year of capacity, compared to 78million currently. The £14bn runway is expected to be operational by 2026.

While the busiest airport in the world in terms of passenger numbers is Atlanta in the USA, the second busiest is in Beijing, China. Beijing already has an airport to the north-east but the new $12bn Beijing-Daxing International Airport, to the south, will include the world’s largest terminal housed in a single building and four runways. It is expected to handle 100million passengers upon completion in September. This will give Beijing a flight capacity in excess of London’s six airports.

While we might still like to think of ‘Great Britain’, it is the US and Chinese economies that are the global super-powers. Fortunately, the UK stock market is not the UK economy and despite Brexit uncertainty, courtesy of our politicians, plenty of listed companies are truly global these days and focused on serving the US and China rather than the UK. For many of them, what happens with US and China trade talks is more important than Brexit.

What have we been watching?

A quieter week in the UK due to half-term and Easter, but also a welcome break from Brexit with MPs also on holiday. When they return to Westminster will we see a soft Brexit path agreed between Labour and the PM Theresa May, our participation in the EU elections or a fresh Conservative leadership challenge? Reflecting the continued uncertainty Sterling edged back below $1.30.

Elsewhere, it was business as usual with the first quarter US earnings season underway with investors looking for any clues from management teams about the health of the global economy. US Treasury Secretary Steve Mnuchin said, once again, that progress is being made in US and China trade talks. Meanwhile, China released encouraging economic data for the first quarter of 2019. Global bond yields have been edging back up as worries about economic growth dissipate, but the US and China have yet to reach an agreement, while trade tariff tensions remain between the US and EU and European economic data is still ‘soft’. The recent spike in the oil price could be a fresh challenge.

The dogfight between the US and EU over Boeing and Airbus subsidies continues to rumble on. Following the recent US proposal to impose $11bn of tariffs on EU goods, the EU in turn, has proposed tariffs on $20bn of US goods after the World Trade Organisation said the US had failed to remove some Boeing subsidies. The proposal comes after the EU approved plans in April for talks with the US to reduce trade barriers.

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In the UK, average weekly earnings, excluding bonuses, were estimated to have increased by 3.4%, before adjusting for inflation in the three months to February. Inflation remained at 1.9% in March as the upward impact of higher petrol prices was offset by cheaper food. This continues to bode well for consumer spending if Brexit uncertainty can be removed.

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In Europe, ‘flash’ manufacturing activity indicator readings for April in Germany came in slightly below expectation, reflecting Brexit and US/China trade tariff uncertainty. HIS Markit which released the European data said it ‘pointed to rather subdued and uninspiring economic growth’. Germany cut its economic growth forecast from 1% to 0.5% for 2019, with growth of 1.5% expected in 2020.

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In the US, there was a lot of discussion about President Trump’s latest criticism of the Federal Reserve’s (Fed) interest rate policy and what it means for the central bank. Industrial production was a fraction lower in March due to a decline in the manufacture of durable goods and cars. The Fed’s Beige book suggested the US economy grew at a moderate pace in March and early April.

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In China, there are signs that earlier stimulus measures are starting to kick-in. China’s economic growth in the first quarter of 2019 was 6.4%, helped by very strong growth in industrial production. Retail sales were also ahead of expectation.

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The Trump administration announced the end of waivers from US sanctions granted to India, China, Japan, South Korea and Turkey on oil from Iran. Brent oil jumped to a six-month high despite the White House insisting it had worked with Saudi Arabia to ensure sufficient supply to offset the loss of Iranian exports.

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Finally, feeling stressed about Brexit? What about a nice cup of tea? Yorkshire Tea, part of Bettys & Taylors of Harrogate is now the nation’s second favourite after PG Tips. Last year the company produced more than 5.5 billion teabags! If only Brexit were a storm in a teacup!

 

Read Last Week’s Alpha Bites – Problems Without Passports

 

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.