The fast lane and the slow lane
We have highlighted two salient themes recently, the first is that divergent growth trajectories of the major economies will necessitate an associated divergence in monetary policy of the major central banks. Second, the rise in financial market volatility will likely accompany interest rate normalisation. In the first matter, the idea was simple: stronger growth in the United States would require a return to normalised interest rates (that is to say, numbers that do not start with a zero), whereas in Europe and Japan, monetary policy would have to remain extremely accommodative as each region struggled to generate enduring economic momentum. The idea behind the second is equally straightforward: when money has a price, markets discriminate. To be sure, investors behave differently when capital has a cost; their repositioning of assets in light of this causes price volatility; and uncertainty rises as a new consensus struggles to be formed in light of the new interest rate regime.
Both of these themes appear to have taken root in the thinking of G20 members at their confab held recently in Istanbul, Turkey. A draft communiqué from the summit obtained by Reuters cautioned:
“In an environment of divergent monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimise negative spillovers…”
Translation – memo to policymakers: Don’t make a mess of what comes next. The US’s divergent growth trajectory from the rest of the world is coming into sharper relief with every passing week.
The US employment report for January was impressive. An additional 257,000 people joined the workforce, beating the expectation of a 228,000 rise. Since more workers entered the labour market, this pushed the unemployment rate slightly higher as more people were encouraged by the prospect of finding a job. Moreover, the three-month average job growth was the highest recorded in 17 years.
Another measure of labour market health lends support to the January jobs report. In its Job Openings and Labour Turnover Survey (“Jolts”), the Bureau of Labour Statistics (“BLS”) revealed that job openings in December 2014 hit the highest level since 2001. Encouragingly, over the course of 2014, jobs rose in every region the BLS surveyed. Perhaps daydreaming a bit: it is interesting to note that there are roughly 9 million people looking for work and roughly 5 million job openings. If only those looking for work could be matched with those looking to hire…but this is the stuff of another note.
The bottom line in all of this supports our long-held belief that the Federal Reserve will begin raising interest rates at or before its June meeting. Given the recalcitrance of central bankers to act decisively in resetting interest rates, a June hike is most likely, though the Fed will have more than enough justification to start the process before then.
It is interesting to note the price action of the trade-weighted dollar and gold this year. Both moved in tandem at the start of the year. Since the end of January, there has been an increasing divergence between the two, as gold investors appear to be reconciling themselves with the reality of higher interest rates. To be sure, the dollar becomes an even more attractive “crisis asset,” a role that gold has traditionally played, when dollar assets hold the promise of a yield.
Hope amidst the headlines
In the euro zone, green shoots of hopeful economic data continue to sprout. The Organisation for Economic Cooperation and Development (“OECD”) released its December reading of its Composite Leading Indicators. These suggest “…tentative signs of a positive change in the growth momentum in the Euro area…” The report highlighted the “positive change” in growth momentum for Spain and Germany, with stable growth momentum in Italy and France. Investors appear to have anticipated some of this, as the Euro Stoxx 50 Index has gained 7.78% this year.
A non-Newtonian world of finance
An article in The Financial Times caught my attention and has stuck with me like the melody of a bad song. The article made mention of a Nestlé Eurobond trading at a negative yield. This is noteworthy, as the phenomenon of negative yields in the euro zone has spread from the sovereign to the corporate debt market. For those who believe in the “old ways,” investing should produce positive returns on investment; the idea of investing in anything with a negative yield is hard, if not impossible, to understand. In an attempt to comprehend the incomprehensible, I put Nestlé under examination. (Note: the following is not a buy or sell recommendation. It is simply an attempt to make sense of someone’s decision to commit precious capital to an investment that if held to maturity will produce a loss.
Nestlé SA is Switzerland-based multinational food company. It manufactures and markets everything from pet food to candy. The market capitalisation of the company is roughly 23 billion Swiss francs (“CHF”) or approximately 24.8 billion USD. Revenues for the 2013 fiscal year stood at 92.2 billion CHF. Investors in the stock collect a dividend yield of roughly 3.01%. Moreover, a quick check reveals the company raised its dividend every year from 2005 through 2013. The earnings yield is 4.18%. Finally, the stock is down 2% for the year so far. Compare the stock of the company with its Medium Term Note issued on October 17, 2012: the 0.75%’s of 10/17/2016 offered at 101.331 produces a yield to worst for the buyer of -0.0446%. It’s not a misprint.
The driver of negative yields in the sovereign bond markets is the European Central Bank’s (ECB’s) extraordinary monetary policy. The rush of money from the ECB’s various forms of quantitative easing has leaked into the corporate bond market, as the case of the Nestlé bond demonstrates. The presumptive motivation of buyers of these wealth-sapping instruments is that in a world of falling prices and repressed interest rates, there might be an opportunity to sell them to another buyer at a higher price, should the deflationary pull within Europe strengthen.
This strikes me as the greater fool strategy of buying something with no apparent economic value, only to sell it to the next in line at a higher price, hoping that the purchaser is more willing to suspend belief and the principles of mathematics. Incredibly, investors who would find the bond attractive appear to be turning away from Nestlé’s income-producing stock.
Newton is dead. The theory of gravity has been repudiated.
Six months in the planning, our inaugural “Building Bridges: Connecting Scotland with its International Communities” conference (www.buildingbridgesconference.co.uk) will be held at the RBS conference centre at Gogaburn on 17 and 18 March.
We’ve booked some great speakers, including Elizabeth Linder, Facebook’s government and politics specialists for Europe, Africa and the Middle East.
And we have a series of excellent talks and panel discussions lined up, all with a clear goal in mind: to explore how Scotland can best connect with the approximately 50-million people around the world who are linked to us by heritage or by a strong affinity to our country.
Offering his support, Lord Livingston, Minister of State for Trade and Investment, said: “Scotland’s future is as part of an interconnected and highly interdependent world.
“The diaspora of Scots living abroad and people who have come here to live and work, either as students or businesspeople, are part of that rich international community. We must make the best of those connections and the goodwill that the Scottish brand has.
“The ‘Building Bridges Conference’ is a welcome way of providing impetus to boosting Scotland’s efforts to succeed, especially in the high growth markets of tomorrow.
“As a proud Scot I am delighted to support Scotland’s efforts to increase exports and increase the number of businesses attracted here from abroad.”
Of course Asia Scotland Institute’s main focus remains Asia. Our primary mission is to support entrepreneurial Scots who seek to make the most of what is being called the Century of Asia.
But for two days we are broadening our remit; we are going global. We hope you can join us on 17 and 18 March for what promises to be a great conference.
Coming up to its first anniversary this spring, Edinburgh-based Lingua Nordica launched its new website at the end of February. Jenni Syrjala, who runs Lingua Nordica, worked together with Websites for Translators to create a new brand identity for her business, with strong influences from her Nordic background.
Lingua Nordica helps businesses who want to enter the Finnish and Swedish markets by offering translation services in Finnish, Swedish and English. The new website can be found on www.linguanordica.co.uk and Jenni can be contacted on jenni@linguanordica.co.uk.
The Open helps cement business relationships like no other major sports event. For a start, time is on your side, with the sporting action and relaxed hospitality present throughout the day. This summer from 12 -19 July, The Open is back in St Andrews – the home of golf – and sales of tickets and increasingly-accessible hospitality packages are at record levels with a number of options already sold out.
Newcomers to The Open will encounter a bandwagon of would-be corporate hospitality hosts but The Open Hospitality Programme is the only ticket and on-course hospitality provider approved by The R&A. No other company can offer facilities within the historic boundaries of the Old Course or guarantee tickets. The programme also pledges a proportion of profits go to local golf development projects providing an immediate legacy of the Championship for young people entering the sport.
The Open Hospitality Programme offers a wide range of corporate hospitality options from on-course private chalets through fine-dining course perimeter hotel suites and bistro style catering in the increasingly popular Champions Club. Located next to the 16th fairway on the Old Course, The Champions Club is making its first appearance in St Andrews. Introduced at Hoylake, it combines admission ticket, Spectator Village location, exclusive entertainment and all-day hospitality. Dining is informal so patrons are free to come and go as they please to relax and refuel throughout the day. Club facilities include a private garden complete with live TV on a giant screen, constantly updating leaderboard displays and a competitive long putt challenge.
Unique to St Andrews is a range of hospitality options in hotels that sit on the fairway edge, the Old Course Hotel that runs along the side of the 17th, and the Macdonald Rusacks Hotel next to the 18th. Hospitality packages range from £345 a head in The Champions Club to £899 in the Rocca restaurant next to the 18th hole.
For further details, please contact our team or visit www.TheOpen.com/Hospitality
T: +44 (0)844 381 0546
E: Hospitality@TheOpen.com
Now in its 18th year, the Thomson Cooper Accountants post-Budget analysis event in Dunfermline is a permanent fixture in many business calendars. Following their merger with Edinburgh firm Bill Hay & Co in 2014, they will be running an additional breakfast Budget Briefing at the Grosvenor Hotel in Edinburgh on Friday 20th March. These free events form part of the firms’ award-winning Business Development Programme and are open to non-clients.
The Budget this year could be more unpredictable than usual with the General Election looming ahead. Whatever happens, the Budget Briefing will deliver an analysis that provides planning pointers for individuals and businesses.
A free Auto-enrolment seminar will also be running at the Roxburghe Hotel on Thursday 26 March in Edinburgh. Auto-enrolment affects all businesses that have employees, and employers are seeking guidance on managing the process. It is their responsibility to enroll employees correctly or risk penalties. The Auto-enrolment seminars will explain employer duties and obligations.
Thomson Cooper Partner Andrew Croxford explains “We use plain English and case studies to illustrate how the Budget could impact on guests and their businesses. Feedback suggests this format is what attracts key decision makers to take time out of their busy schedules to attend our event. They also value the opportunity to network.”
All events are free and open to non-clients. Space is limited so booking is essential. Go to www.thomsoncooper.com for more information, email lwardlaw@thomsoncooper.com or call 0131 226 2233 and ask for Lynn Wardlaw.
At the Royal Scottish Academy we are looking forward to one of our major exhibitions of 2015, RSA New Contemporaries.
Our special corporate preview of the exhibition, City Night, is sponsored by NVT Group and takes place at 5pm on Friday 13th March and we’d be delighted if you could join us. It’s an opportunity to get a first look at a selection of the emerging talent from the 2014 degree shows and to perhaps make a few business contacts at the same time!
Please RSVP to events@royalscottishacademy.org by Friday 6th March
Royal Scottish Academy on Twitter: @royalscotacad
NVT Group on Twitter: @nvtgroup
The latest Scottish Chambers Quarterly Economic Indicator is now open. Please take 5 minutes of your valuable time to take part. The results of the Q4 2014 survey can be seen below:
Quarterly Business Survey Q4 2014
The Indicator is exclusive to the Scottish Chamber Network and is used by Scottish Chambers to fight for issues on your behalf. Such as campaigning for the abolishment of Air Passenger Duty. Calling on the Scottish Government to reduce Business Rates and on the UK Government to reduce VAT for tourism businesses. Just click on the link below to begin:
A consultation on whether corporate manslaughter should have tougher sentencing has just closed. Law At Work’s Health & Safety manager Steve Ashton looks at proposed sentencing changes and what they could mean to senior management teams:
Determining what a life is worth may seem an impossible question, but it is one that the Sentencing Council are currently trying to answer. They have been consulting on the introduction of tougher penalties to be available for judges dealing with corporate manslaughter, as well as breaches of health and safety and food safety requirements. If someone is killed, injured or could have been as a result of the gross negligence of their employers – what do you think the penalty should be?
For many years, major projects in the transport arena have adopted a figure for ‘Value of Preventing a Fatality’ (VPF) which is intended to help bosses decide if particular projects should go ahead depending on the potential cost implications if a worker was to be killed during the process. The penalties incurred by the courts have often been very much lower than the accepted VPF figures, which could give the impression that the courts placed a lower value on life.
Calculating a cost attached to a life seems cold blooded and harsh, even inhumane, but businesses may reasonably assess how much they should do, and spend, to ensure safety when the standard required in law is ‘so far as is reasonably practicable’.
In order for sentences to be more than merely a slap on the wrist, the proposed increases are aimed at ensuring directors and shareholders take on board that knowingly breaching health and safety rules is not an acceptable or commercially sensible way to deliver business.
The consultation is expected to result in a clear set of guidelines for the courts in England and Wales, this will provide a framework where similar breaches result in similar fines. In Scotland, the courts are not bound by the same Sentencing Council guidelines, but they do tend to follow similar principles and resulting sentencing.
There will be a series of factors judges need to take into account when deciding on the penalty to be imposed following a guilty verdict. They will be expected to consider the means of the business, the extent of the breach e.g. how far below acceptable standards was the employer, and the severity or consequences of the outcome. A company that knowingly acts in a dangerous way can expect a higher penalty than one where standards are generally high but perhaps have slipped on one occasion. An unforeseen chain of events leading to an unusual accident will be considered less blameworthy than an accident that follows other similar accidents where nothing has been done to prevent recurrence.
Businesses need to ensure their system for responding to incidents, including near misses, is robust, and that actions identified as necessary from any investigations are completed within a reasonable timescale or they can expect harsher penalties in the event that a recurring incident lands them in court.
Last year, some very large fines were upheld on appeal in the High Court, including against Sellafield and Network Rail who had to pay out £700,000 and £500,000 respectively. If the Sentencing Council is successful in their proposed changes, it is likely that these larger fines will be handed out much more often to businesses in the UK.
With only two working days left until the Edinburgh Business Awards 2015 excitement is at fever pitch. This year the #ECCAwards will take place at the Sheraton Grand Hotel and Spa at 7pm Monday 2nd March 2015.
The Awards have once again seen a significant increase in the overall number of entrants. David Birrell, Chief Executive of Edinburgh Chamber of Commerce said, “I would like to congratulate everyone who has taken time to enter. It is great to see so many businesses and individuals from our Capital City with positive stories to tell. We have a huge breadth of experience, talent and resource here in Edinburgh.”
Guest speakers at the glamorous ceremony will be Gavin Oates, owner and MD of Tree of Knowledge (Winner of Young Entrepreneur of the Year award 2012) and David Duke, CEO and Founder of Street Soccer Scotland will also speak on the night. David was named as The Sunday Times ‘Change Maker’ of the Year in 2012 and is an international speaker on social change and enterprise. We cannot wait to hear from them!
The Edinburgh Chamber of Commerce is delighted to be collaborating with a range of prestigious sponsors this year including City of Edinburgh Council, Mearns and Company, The Armed Forces Reserves Scotland, Transport for Edinburgh, Santander, Skanska, The Royal College of Surgeons, Insureness, Central Radio Taxis, Vision Events, Royal Bank of Scotland, and CommsFM.
For further information please email awards@edinburghchamber.co.uk or for information regarding future sponsorship opportunities please email sian.downes@edinburghchamber.co.uk.
Macmillan Cancer Support is appealing for brave volunteers to abseil from the Forth Rail Bridge on Sunday 7 June.
The cancer charity is one of the lead charities for the Forth Rail Bridge abseil, which is organised by the Rotary Club of South Queensferry. Participants will have the chance to abseil 165ft SAS style, (ie freefall) from the Forth Rail Bridge onto the beach below.
Fundraising Manager for Edinburgh, Jayne Forbes, said “The Forth Rail Bridge challenge is a real adrenaline rush for the daring and the ultimate challenge for the rest of us! No previous experience is necessary and it’s suitable for everyone over the age of fourteen. All of the funds raised for Macmillan from the event will support our vital services for people affected by cancer. We help people in many ways, from specialist nurses and doctors, to help and advice for people who have financial worries as a result of their cancer diagnosis. So why not sign up today and help us ensure no one in Edinburgh faces cancer alone?”
The registration fee for the event is £25 and participants pledge to raise a further £125. To sign up, contact Macmillan on 0300 1000 200 or email fundraising@macmillan.org.uk
Julie Murray abseiling down the Forth Rail Bridge
