How France’s Economy is Growing and Reforming

France’s economy looks to be on the up recently, following growth in several areas over the first two quarters of 2017. Developments in the country’s employment rates, as President Macron makes steps towards reformation, may also lead towards positive growth for the country.

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The second largest economy in the Eurozone, France experienced economic growth of 1.9% in the second quarter, following the upward trend that was observed in the previous two quarters. One driver of this upward growth is a high level of foreign demand for French exports. Export levels increased by 10% in the second quarter of 2017, the highest level in four years, following a rise of only 3.4% in the first quarter. The increase in exports was nearly seven times higher than that of imports, which rose by 1.5% in the second quarter. Although also up by 2.7% in the second quarter, gross fixed capital investment growth was down on the first quarter when it hit 5.4%, its highest level since 2011.

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Progress is also being made in France’s labor market. President Macron has put measures in place in the hope of tackling the country’s growing unemployment issues. In a move to make it easier for companies to negotiate agreements in-house concerning employee wages and working conditions the labor reforms will limit the power of unions to a certain degree. Further efforts have been announced to encourage companies to offer more permanent contracts than they currently do with caps being placed on the payments that can be imposed during tribunals over unfair dismissals. Previously tribunals were able to set high rates of payments in unfair dismissals claims and the hope is, with these rates capped, fewer companies will offer temporary contracts to employees. In another attempt to raise employment levels the government intents to make changes to the unemployment benefits system and reduce payroll taxes. These steps, although controversial, should stimulate higher employment.

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As Macron’s policies are put into place it awaits to be seen how they will affect the employment sector. The outlook is generally positive with levels of unemployment falling, however, unions currently still hold a high level of power, working with employers to set national wage rates. The result is that, for many companies, the wages they pay their employees are out of line with productivity levels. Overall, the country appears to be in a period of upheaval, with upward economic growth over the past three quarters and positive developments within France’s employment sector.

Market Overview – Australia’s Recent Finance and Retail Activity

Recent financial developments in Australia have signalled overall positive growth in several sectors, including areas of technology and finance, while in the retail sector recent announcements may have negative impacts on national businesses in the short term.

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A recent dip in interest rates has eased up mortgage stress, with the number of mortgage holders in Australia considered “at risk”, dropping by 1.6% in the last year, from 744,000 to 660,000, making up 16.8% of all mortgage holders compared to the previous 18.4%. While this is a move in the right direction, those with lower incomes are still at a higher mortgage risk. Of mortgage holders with a household income over $100,000 per annum only 1% were considered to be “at risk” while this jumped to 85.3% of mortgage holders with an income of under $60,000. If interest rates continue in this downward trend fewer mortgage holders may be considered “at risk” however, an appreciation in interest rates will abruptly have the opposite affect.

The Australian state of Victoria is experiencing changes in another area of the financial sector with the release of development plans by the Victorian government, announcing the establishment of a fintech center in Melbourne. According to the Victorian Premier Daniel Andrews the hope is that this will not only strengthen the Australian fintech sector by bringing together start-up companies with investors, researchers, and industry corporates in one work space, but that it will also create new jobs in the area. Technology is fast changing the way the financial sector works and the plans for this fintech hub will provide Victoria with the opportunity to win a bigger share of the industry.

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While developments with in the financial technology sector are positive, Amazon’s announcement of their $13.7 million bid for the grocery company Whole Foods has had a drastic effect on Australia’s retail sector. Supermarket company Woolworths experienced a drop in value of 3% while Metcash fell 1.7% and Wesfarmers, the operators of the supermarket chain Coles, dropped by 1% following the announcement. Companies in the electronic appliance field have also noticed depreciations as Amazon announced their bid to expand into the grocery sector. JB Hi-Fi is down 18% this year while Harvey Norman dropped 25%, and its stocks are down by 2%. Alongside the acquisition of Whole Foods, these drops are fuelled by Amazon’s intention to expand across Australia this year. Many analysts believe that this will have further negative effects on Australian companies, as Amazon eats into their earnings.

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(Please note: James O’Leary does not currently hold a position in Amazon, Whole Foods, Woolworths, Metcash, Wesfarmers, Coles, JB Hi-FI, or Harvey Norman. Henry James International does not currently own a position in Amazon, Whole Foods, Woolworths, Metcash, Wesfarmers, Coles, JB Hi-FI, or Harvey Norman. for any client portfolios).

Post-Election Economic Activity

The results of the UK general election on June 8th have left many factors in a state of uncertainty in Britain. The country has been left with a hung parliament, with the Conservatives only securing 318 seats of the 326 they needed to win a majority. This political result has had effects, both positive and negative, on areas of the economy and investment markets.

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Previous trends have shown that, when there is anticipated disturbance in the political sector, investments in commodities such as gold increase as people try to hedge their bets against economic losses. In the run up to the election, there was increase of 64% in people investing in gold for the first time, while numbers of financial professionals buying physical gold were up 49% in the week leading up to the vote.

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Following the announcement of a narrow Conservative win the sterling experienced a sudden drop of 2% in value against the dollar to $1.2683, its lowest level in two months though it regained a little ground back up to $1.27 on Friday the 9th. It is predicted that sterling will continue to experience some level of volatility in the short term.

While the election results have hit some areas of the economy negatively, others are thriving after the news. The FTSE 100 ended on the 8th of June up 1%, while the Stoxx Europe 600 experienced an increase of 0.3%. Global businesses, such as Diageo, Reckitt Benkiser, and Unilever also observed upward movement, all trading at around 1.5% higher by the 9th. Increased value of shares of exporting companies, which make up three quarters of the FTSE 100, are expected to do better as the weakened currency is likely to rise income earned abroad.

The narrowness of the Conservative win will have an impact on how the upcoming Brexit negotiations are carried out as well. Theresa May gambled the Conservative status as the ruling party in the hope of gaining an even stronger position in the negotiations however, this has backfired with no party having an overall majority in the UK parliament. The weakened Conservative position means that a more lenient Brexit deal may be agreed on as opposed to the “hard” Brexit that May hoped for, with no trade deal.

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As the Conservative party enters into discussions with the Democratic Unionist Party (DUP) about a possible coalition, economic uncertainty may continue. This coalition would see the DUP adding their 10 parliamentary seats to the Conservative seats, giving the party the majority it needs to pass legislation, and gain a stronger hold over the Brexit negotiations.

The Rise of Artificial Intelligence

Manifestations of artificial intelligence (AI) stretch back as far as Greek mythology however, it has only taken off in a huge way in recent years. As interest in this field grows more, big-name companies, such as Google, Yahoo, Apple, Intel, and IBM are competing to acquire private AI technology development companies, with nearly 140 companies having been acquired already. Market research firm Tractica has predicted that spending on AI will grow from $640 million in 2016 to $37 billion by 2025.

A front runner in the development of AI has been the UK, where London-based venture capital company Octopus Ventures first invested in the natural knowledge answer engine Evi (now the technology behind Amazon’s Echo) in 2008. The firm continues to be an active investor in AI, selling products, such as the app Swiftkey, to high profile companies like Microsoft. Octopus Venture’s Investment Director, Luke Hakes, believes that their AI successes are why the UK is now the inspiration for other countries in how AI can be commercialised, and this growing interest will have the effect of more funding being put into AI companies.

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As well as seeing the AI market itself grow exponentially, other companies are experiencing growth off the back of AI’s success. Companies who develop and make chip technology have seen a revival as the demand for new AI products had prompted the need for chips tuned to carry out very specific functions, and with the ability to store and synthesise information in novel ways. Companies such as Advanced Micro Devices, Intel, and Nvidia have all benefited from this growth, with Nvidia’s latest quarterly results stating that it has nearly tripled sales of chips to data centers involved in AI. 21% of the company’s revenue is now from computing tasks that include AI, amounting to $409 million for the last quarter.

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Growth in this sector is being spurred on as well-established companies implement AI technologies to enhance their user experience. Facebook has developed its own AI program, DeepText, that analyses posts to understand the context of them, recognises faces in photos to make it quicker to tag people, and is even able to identify people and their voices in video content. Outside of the online sector, much research is being carried out into the use of AI in the transport field. By 2035 around 76 million vehicles with some level of autonomy will be in use, comprising a market that will be worth $77 billion.

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Although much of the development into these technologies is relatively new, investment in AI seems to be strong and stable, with a predicted steady increase in the future.

(Please note: James O’Leary does not currently hold a position in Google, Twitter, Intel, IBM, Advanced Micro Devices or Nvidia. Henry James International does not currently own a position in Google, Twitter, Intel, IBM, Advanced Micro Devices or Nvidia for any client portfolios. James O’Leary does currently hold a position in Apple. Henry James International does currently own a position in Apple).

pixaAll content in this blog represents the opinion of James O’Leary

Discount December – Sales this Christmas Season

Happy New Year! 2017 is here, the holidays are over, and many of us are slowly getting back into work. The festive season may simply be a welcome break for millions of Americans, but it is a crucial time for the economy, a chance to up sales and make money in the last few weeks of the year. So how did Christmas 2016 perform financially?

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This year, the retail industry was taking no chances, with early sales and pre-Christmas deals set to catch the organised and the last-minute shopper alike. Up until the day itself, stores across America were offering discounts and promotions in a bid to prop up their bottom line and avoid, if possible, profit-margin-destroying left-over inventory post-festivities. This reflects a growing discipline among retailers, with many larger stores acting more quickly to close failing branches and only stocking as much inventory as they expect to sell.

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And it is a tactic which seems to have paid off. The National Retail Federation originally predicted an uptick in both online and in-store sales of 3.6%, but this week companies such as Customer Growth Partners estimate the holiday sales growth as being as high as 4.9% for 2016. A recent Wall Street Journal report states that 2016 may have been the best shopping year for retailers since 2005, when sales increased by 6.1%.

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This boost is credited to a combination of late-season and internet shopping, the latter of which increased by an estimated 19% over the holidays, according to a survey carried out by MasterCard. This may be good for the country’s sales overall, but department stores in particular have been badly hit by the public’s new preference for buying online. Retailers made a record $79.2bn from online sales between November 1st and December 20th, an increase of more than 10% on last year’s numbers. According to Accenture’s Annual Holiday Shopping survey, this year 84% of people said they planned to check Amazon before buying elsewhere – a trend which looks likely to grow in 2017.

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So, in spite of the more than $1 trillion spent in this year’s holiday sales, the consumer’s love for –  and often expectation of – a bargain, and the growing reliance on online stores to provide this could mean industry-defining changes for retail in 2017.

For questions about this, or any other financial matters, please reach out to us over Twitter or get in touch via telephone on 917-951-5170 or by email at info@hj-intl.com.

December Debt – The Price of Christmas in 2016

With less than a week to go until Christmas, many families and industries are going into overdrive in an effort to have everything ready for the holidays. Last week saw freezing temperatures across much of the US, in contrast with a warmly welcomed recovery from the oil and gas sector. Good news too for the financial sector, with Novembers Bank of America Merrill Lynch survey showing fund managers’ allocations to banking stocks had leapt up, with a net 31% overweight, up from net 25% last month. But how is this Christmas going to be financially for the average Joe? Studies suggest the outlook may be quite different.

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According to global performance-management company, Gallup, the average American adult will spend around $785 on gifts this Christmas, up from the $728 they planned to spend in 2015. This fits in with the gradual upward trajectory in Christmas spending seen over the last few years, but is still a long way off from the $900 average seen just before the recession hit. These are, however, only average spends, 54% of those who took the Gallup survey said they planned to spend between $500 and $1000 this Christmas.

Last year 78% of those buying gifts for Christmas did not expect to borrow to fund these purchases, but this year it may be a different story. In a poll run earlier this year by the Associated Press and the NORC Center for Public Affairs Research it was discovered that two thirds of Americans say they would have difficulty in find $1000 to cover an emergency, even in higher-income households. So, where are Americans finding this money to cover Christmas gifts?

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An article published on NerdWallet this week states that overall US household debt has grown by 11% in the last decade, with a considerable chunk of that being credit card debt. Another article in Magnify Money from January last year claimed that holiday debt added almost $1000 to American households’ debt.

And for those Americans who do not use their credit card, there are a pool of loan companies who go into overdrive to offer Christmas loans to families to help cover their holiday expenses. These tend to be glorified payday loans with extortionate rates of interest, which may leave individuals in so much debt that they are still paying it off next Christmas. What it means to be building an American Christmas on debt remains to be seen. Let’s hope that the USA achieves a 3% GDP rate of growth in 2017 and that middle-class America receives the gift that an expanding economy gives – an increase in disposable income and a brighter future.

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For questions regarding anything in this article, or all other investment matters, please do not hesitate to reach out to us via telephone on 917-951-5170 or by email at info@hj-intl.com.