June 2015 Newsletter


*The Greek government has announced it will not pay a €1.6bn installment now payable to the IMF. The payment was due on the 15th June, Greece skipped that payment and is now through the 15 day “grace period”.

*The S&P rating agency lowered the Greek sovereign rating to CCC- commenting that there is a 50% chance of a “Grexit”. The outlook remains “negative”, suggesting a move to “D” meaning “default” is likely.

*Shanghai equities have been volatile on valuation/ growth concerns. The official Xinhua news agency has been remarkably quiet on the subject. The People’s Bank of China has twice lowered interest rates to calm investors.

*The Governor of Puerto Rico announced that $72bn of the country’s debt is “no longer payable” and would not be paid for years. The situation is odd as Puerto Rico is not legally able to go bankrupt and despite being a US dependent territory, the US is not obliged to help. Puerto Rican bonds are widely held both in the US and Puerto Rico.

*The tragedy in Tunisia and capital controls in Greece hit travel stocks hard. Both TUI AG and Thomas Cook have dropped c. 16% from recent highs.

*The April 27th UK 100 high of 7103.98 now seems a long time ago. Despite a positive election result, the euphoria has dissipated on concerns over growth in China, Greece and interest rates.

*The UK government completed the sale of 15% of Royal Mail Group at 500p per share. Shortly after the postal regulator Ofcom announced it was widening a review of the sector post the exit of Whistl from direct delivery.


1st July CIPS Manufacturing PMI Final2nd July Nationwide Housing Prices3rd July Halifax House Price Index

7th July UK Manufacturing Production/ NIESR GDP Estimate/ Industrial Production

9th July BoE Interest Rate Decision

10th July UK Balance of Trade/ Construction Output

14th July UK Core Inflation/ PPI Output

15th July UK Unemployment Rate/ UK average earnings



Persistent evidence of the strong UK economy, (sterling has been one of the strongest world currencies in 2015) has led inevitably to speculation about whether 0.5% “emergency” Base Rates introduced in March 2009 are still appropriate. Forecasts seem to point to a hike(s) in Base Rates in 2016, a process called “normalisation”.

Blue chips have reversed about 500 points from highs on the 27th April, a loss of 7.4%. We suspect June would have been a quiet month but for Greece.


In 2007 the US subprime crisis was belittled, it was a “fly on the butt of an elephant”. Similar sentiments are heard now, when references are made to Greece amounting to 2% of EU GDP. Still the behaviour of the Greek government beggars belief. We concur with S&P that “Grexit” is a 50% probability. Our view is the Greeks want the EU to write off their debts and are engaging in threats and chaos blackmail. Eventually they will realise that since the ECB €60bn QE programme started, there is little risk of “contagion” and their bluff has been called.


“A Tale of Two Cities”; the Dickens novel about the French revolution as viewed from London and Paris seems relevant. June saw wild swings in Shanghai stocks whilst Tokyo looked a source of stability.

Tokyo shares gained post the Bank of Japan Tankan survey showing businesses intend to increase investments at their fastest pace in a decade. Confidence improved over Q2 and is expected to maintain a buoyant mood. The mood has been helped by a weak Yen which has boosted the export sector.

Shanghai equities have seen investor concern over valuations. The government has said very little which has had a negative effect. Sometimes markets pause which is a good thing. This feels like a major pause.


US equities have moved down 4% from record levels despite strong indications that the US Federal Reserve will leave Federal Funds unchanged until past September. It reiterated that the timing of the move up would be “data dependent” and the rise would only be very gradual when it arrives, suggesting a gain of only around 0.25%. US equities are seen as a “safe harbour” and trade on a near 50% premium to EU equities.

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