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Emily’s take on the financial markets – 14 October 2016

As my son walks around with his head buried in his phone, determined to catch (a?) Pikachu, it puts me in mind of Elon Musk’s theory that we live in a Matrix world where reality and virtual reality are indistinguishable. Similarities can be drawn with the financial markets; as investors buy and sell on the expectations of future trends, based on the multiple conflicting opinions of ‘respected’ individuals. It can get so confused that it can be hard for anyone to distinguish the signal from the noise.

Nothing brings the Brexit debate home to the British public quite like a shortage of Marmite. The panic surrounding the much loved toast topping was ultimately a fight over the price. Unilever attempted to raise the wholesale price, arguing that the low pound raised production costs. Tesco, the largest UK retailer of the product, argued that Unilever didn’t cut prices when sterling was strong and should therefore swallow the cost increases. Whilst this issue has now apparently been resolved (although Marmite wasn’t available on at the time of writing), what it highlights is the very real risk of inflation. With a weak pound we can expect to pay more for our food, clothes, and electrical good. This is all because it costs more for our shops to buy or create the products in the first place. I would recommend you all to look at your savings and investments to ensure you have a strategy that will protect you from a future rise in inflation.

Exploding batteries sent ripples through the technology market. This week Samsung has suffered as it has had to withdraw sales of its Note 7 phone due to issues with its battery. This isn’t the first time a technology company has come under fire for faulty batteries, and this event has triggered pessimism with technology investors everywhere.  The IT sector in the MSCI World is down 1.43% in dollar terms so far this week, but pessimism could drag year-end performance.

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Surprise came from China as export data was down 10% year-on-year, when a decrease of just 3.3% was expected. In order to grow, China needs to de-leverage its corporate sector. This data suggests that they’re not managing to reduce debt, they would need to export more to transform from a high leverage economy to something that matches its level of growth better. This increases the risk of a de-valuation of the Chinese currency, but how does this impact a UK investor? If the Chinese currency devaluates we’ll likely see deflation, which is bad news for developed markets and will create a lot of uncertainty. When deflation exists there’s little incentive to buy now, instead you’ll wait for the product to be cheaper, which makes growth incredibly difficult.

If you have any questions on this week’s topics, or anything else you have seen in the financial news, please get in touch. This column only works if it helps you.

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