Greta Thunberg’s favourite person

It was the world’s warmest February in modern times, according to the EU’s climate service, extending the run of monthly records to nine in a row. February 2024 was about 1.77C warmer than ’pre-industrial times’ according to the World Meteorological Organisation (WMO). The WMO blames heat-trapping greenhouse gases, which it believes are the main culprit. However, temperatures have also been boosted by the Pacific’s El Nino weather event. The 2023-24 El Nino has been one of the five strongest such events on record, according to the WMO, but it is gradually weakening.

The UK recorded its warmest and wettest February on record. This has had a wide range of impacts on the UK economy. For example, potato prices have soared over the last month due to challenging growing conditions, but gas prices have fallen due to the mild winter weather. After the energy shock following Russia’s invasion of Ukraine, at least the mild weather will help UK households and businesses with the energy price cap set to fall by over 12% in April. This in turn will feed into lower inflation, which should support the case for lower interest rates.

While EL Nino has had a major impact on the global climate there is another risk looming in the form of the US presidential election, and more specifically, Donald Trump. Do not forget that he withdrew the US from the Paris Agreement and has rejected the reality of climate change. He has called the Biden administration’s Inflation Reduction Act 2022 (IRA) the ‘biggest tax hike in history.’ If he wins, Trump plans to reverse Biden’s IRA. A US climate change think-tank believes this could add 4bn tonnes of carbon-dioxide to the atmosphere – equivalent to the output of the lowest 140 countries!

In the meantime, extreme weather events are continuing to affect many different industries around the world. For example, cocoa prices have surged to a record level which many of you will no doubt have noted when buying chocolate Easter eggs!

What have we been watching?

A quieter week in the UK given the Easter break, although the UK stock market touched a record high. The US PCE deflator the Federal Reserve’s (Fed) preferred inflation measure, was in line with expectations. However, stronger than expected US manufacturing price rises and cautious comments from some members of the Fed saw US interest rate cut expectations drift with market expectations of the first cut in June, now down to 50%.

The ongoing ‘tech Cold War’ between the US and China continues. China is phasing out microprocessor chips manufactured by Intel and Advanced Micro Devices in government computers and servers. Meanwhile, the Biden administration has sanctioned and criminally charged alleged Chinese hackers, while the UK government has accused China of hacking the UK’s electoral register. The West is becoming increasingly alarmed by a worldwide hacking operation attributed to Chinese intelligence agencies.  Meanwhile, China has also filed a complaint at the World Trade Organisation to protest against American requirements to exclude Chinese components from electric vehicles under the Inflation Reduction Act.

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While some European stock markets remain close to record highs, some EU manufacturers are struggling due to China’s economic woes. China is trying to rely less on the West for trade by increasing its own manufacturing. This, together with weak Chinese consumer demand, has created price deflation in some sectors, making it harder for some European manufacturers to compete. The EU Chamber of Commerce in China says the situation is like a slow train crash in EU-China relations and is calling for talks between the EU and China. The IMF has also called on China to stimulate domestic consumer demand.

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The US faces a Liz Truss-style market shock if the government ignores the country’s ballooning federal debt, Phillip Swagel, a director of the Congressional Budget Office (CBO) has warned. According to the CBO, US federal debt increased to $26.2trillion, or to 97% of gross domestic product, at the end of 2023. The drivers of the increase have been Trump’s tax cuts in 2017 and huge stimulus spending during the pandemic. Donald Trump has pledged to renew tax cuts which are due to expire next year if he wins the presidential election. Meanwhile, the PCE deflator was up 2.5% in February, up slightly from that in January. Fed Chair Jerome Powell said the data was ‘pretty much in line with our expectations.’

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The Japanese yen hit a 34-year low against the US Dollar, just over a week after the Bank of Japan announced the shift away from its negative interest rate policy. The fall came after a BoJ official said that the central bank would still pursue an accommodative policy for the time being.

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China’s property woes continue with Country Gardens suspending its shares after delaying the publication of its annual financial results.

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Brent oil climbed to $88 as events in the Middle East continue to escalate with an Israeli air strike on Iranian Revolutionary Guards in Syria.

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Finally, some bright spark has compared the property prices from the 1935 Monopoly board game with the current market value. The top two squares on the board have swapped places with property in Mayfair at £400 now worth £5.5m while Park Lane at £350 is now £7.75m. Mind you, if Monopoly was to be updated, would ‘Go to jail’ be replaced by ‘Community service with security tag’ due to prison overcrowding? Or would there be a diversion card needed for Old Kent Road due to a low traffic neighbourhood scheme? And who would want to own ‘waterworks’ with the risk of fines for sewerage river spills?

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Read Last Week’s Alpha Bites – A Taxing Problem

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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.