The World In A Week - Declining Dollar Dominance?
As we write this piece on the first working day of August, we thought we would take the opportunity to reflect on the month of July. Broadly speaking it was a mixed month, High Yield bonds posted very healthy returns of +3.6%, while their high-quality equivalents returned +1.0%. Equities were more mixed in Pound Sterling terms, with the FTSE All Share down -3.6%, while global equities, as measured by MSCI ACWI, were down marginally (-0.9%).
Perhaps the most substantive move of the month was in the currency markets. The US Dollar had its worst monthly performance since September 2010 – falling -4.4% against a basket of the USA’s six largest trading partners over the course of July. The Dollar had acted as a safe haven in the depth of the coronavirus selloff in February and March, and the US Equity market also proved resilient relative to global peers.
A number of factors are now leading investors to question the supremacy of the almighty Dollar as the world’s reserve currency. First has been the US’s very poor showing in how it has handled the spread of the coronavirus crisis as cases continue to rise in many states. Real interest rates in the US have also converged with the rest of the developed world and are now negative. In addition, the USD has a degree of political risk in the upcoming November election. All of these factors have seen other major currencies surge vs the Dollar in July, and we have seen gold rally to an all-time high.
The potential for a substantial weakening in the US Dollar is something we had thought was possible for over a year, as a result, we are well-positioned to benefit via our holdings of Local Currency Emerging Market Debt in the higher-risk portfolios.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3 August 2020.
The World In A Week - Interim Update
The Federal Reserve concluded its two-day meeting and confirmed, as we fully expected, that the rehabilitation of the US economy will depend largely on the course of the COVID-19 virus. The ongoing health crisis will undoubtedly weigh heavily on economic activity, employment, and inflation during the short term.
Jerome Powell, the Chair of the Federal Reserve, verified that the Central Bank is using its full range of tools to support the economy during this challenging time. He also reiterated their commitment to maintaining the Federal funds’ rates at zero. Basically, the Fed is doing all that it can and the main tool that needs to be used now is fiscal stimulus.
Fiscal stimulus matters because it can directly influence consumers’ incomes, which is why US politicians need to come to an agreement around the emergency unemployment benefit that has just two days left before expiring. There is wide disagreement between Republicans and Democrats on what form the fifth fiscal stimulus package should take. What is clear though is a botched package could seriously dent any economic recovery, while a sensible compromise could boost a hesitant rebound.
One thing they have agreed, is for another round of cheques worth up to $1,200 to all US individuals, with the hope that this will generate a spike in consumer spending. However, consumers facing a significant drop in their unemployment benefits may choose to save the money rather than spend.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30 July 2020.
Why The Bank Of Mum And Dad Needs Legal Advice
The number of parents and grandparents putting their hand in their pocket to support the next generation when buying a home is on the rise. Fuelled by rising property prices and deposits, families can find they’re gifting or lending significant sums. It’s vital that financial advice is sought, but many are forgoing taking legal advice.
According to research by Legal and General, the average contribution from the Bank of Mum and Dad stands at £24,100. In 2019, the value of lending from parents and grandparents added up to £6.3 billion. We’ve helped clients understand how they can support aspiring homeowners, what taking a lump sum from their estate means in the long term, and the best assets to use.
However, clients still need legal advice, whether they’re choosing to gift or lend the money. Despite the risks and sizeable sums involved, it’s something many clients are overlooking.
The necessity of legal advice is often overlooked because loved ones are involved. Parents and grandparents may feel it’s simply unnecessary because they trust who they’ll be giving the money to or feel uncomfortable bringing it up. In fact, just 15% of loans or gifts from the Bank of Mum and Dad had a formal agreement in place, research from the Post Office found. Yet, despite the relaxed attitude, 58% of gifts made came with some conditions.
When clients approach us for advice when they’re considering lending, it’s often because they want to understand if they have enough to offer support, giving them the confidence to move forward with plans. But we recognise the importance of legal advice and the confidence it can bring too.
Legal advice for Bank of Mum and Dad loans
Where parents or grandparents have spare money now but need it later in life, to fund retirement, for instance, loans are a popular option. However, research indicates that many aren’t taking the time to have it formalised or even discuss when the money would be paid back.
Only 16% of parents and their children formalised their loan agreement using a third party. Even more worryingly, just one in five buyers borrowing the money agree on a repayment plan. It’s an oversight that could mean the two parties have different expectations and potentially leave the partners struggling financially in their later years.
Legal advice when drawing up a loan agreement can provide confidence and certainty to all parties.
It may be that you raise points they’ve overlooked when discussing the loan, such as whether any interest will be paid on the amount borrowed and how it will be repaid, for instance, through regular repayments or when the property is sold.
Clients are also unlikely to have thought about what would happen if things don’t go to plan. For instance, how would the loan agreement change if:
- One of the parties dies
- The borrower lost their job
- The money was loaned to a couple, and they split up
For clients considering offering a loan to support a homeownership dream, legal advice is essential.
Legal advice for Bank of Mum and Dad gifts
Where possible, we’ve found many parents and grandparents are happy to provide a lump sum as a gift to loved ones. However, while this wouldn’t have the same impact as an unpaid loan would have, we’ve found there are still three key reasons why parents may want to seek legal advice.
- Conditions attached to the gift: The research suggests more than half of gifts are given under some conditions. This may be stipulating that the money is used to purchase a home or that it will provide a place for them to stay at times too. Legal advice can help set out what will happen if the conditions aren’t met and ensure parents have some security if this is the case.
- Forgoing inheritance: In some cases, clients have chosen to gift their children or grandchildren with financial support now, with the understanding they’ll receive a smaller inheritance in the future. This has benefits for both the beneficiary and the benefactor, who gets to witness the security their wealth has provided. However, it’s essential clients update their will in line with the agreement they have made.
- Gifting to children and their partners: Finally, there’s been growing concern from clients who want to lend money to their children and their partner to purchase a home but are worried about what would happen if the relationship broke down. A deed of trust can provide the reassurance clients need to know their money will remain in the family, providing security for their children, even if the couple split up.
Whether the money will be a gift or loan, simply having a solicitor present to formalise the process can help make sure everyone is on the same page. If you’d like to discuss how we could work together to provide generous parents and grandparents peace of mind both financially and legally please get in touch.
Creating Security For Dependents: How Legal And Financial Advice Can Work Together
When clients seek financial advice from us, they come with a range of goals and priorities. However, for those with dependents, securing their future is often high on the list of things they want to achieve. Financial planning goes some way to delivering this, but legal expertise is often needed too.
While as financial planners we may help parents or guardians invest and save for a dependent’s future, there are numerous examples of where both financial and legal advice can help give clients the reassurance they’re looking for. This could include these three examples:
- Putting a will in place
We encourage all clients to think about their legacy and ensure they have an up to date will in place, whether they have dependents or not.
However, it’s an essential part of providing security for dependents where this is a priority. As a result, it’s often a step we help clients take, but legal advice is valuable in the majority of cases.
One of the aspects we help clients with when it comes to legacy planning is understanding the size of the estate they will likely leave behind and how they want it to be distributed. This will often involve looking at their current lifestyle and goals over the coming years, forecasting how it will affect their assets over time. It can provide a picture of what would be left behind for loved ones at different stages of their life.
Where dependents are involved, taking steps to ensure an inheritance would be appropriately managed becomes a priority too. In some cases, this will mean putting a trust in place to ensure long-term financial security or naming a trusted guardian that will act in their best interest and care for them.
While some clients opt to take a DIY approach when writing a will, when it comes to ensuring the future of their loved ones, we often find legal guidance is essential. Not only does it mean the intent of wishes is accurately noted in the will but it provides peace of mind too.
- Creating a trust to pass on wealth
For passing on wealth to those that can’t take ownership of assets, whether temporarily or permanently, a trust can be a vital way to ensure their future.
By allowing trustees to manage assets on behalf of beneficiaries, guardians can feel more secure about the future of their dependents, even if something should happen to them. The options available with a trust means it’s a solution that can be adapted to suit each family’s needs and goals.
For instance, those with young children may choose a trust that hands control to a trustee that will manage assets until the dependent reaches adulthood. Alternatively, for those with dependents that are mentally incapacitated and unable to fully handle their own finances, a trust that provides a lifetime income can create long-term stability.
With many different types of trust available and sometimes complex financial arrangements to be made, this is an area where we’d suggest clients seek legal support to complement the financial advice we’ve provided.
- Inheritance Tax planning
Where a client’s entire estate is worth more than £325,000, there may be concerns about Inheritance Tax. With a standard tax rate of 40%, Inheritance Tax can significantly reduce the amount that is left to dependents, potentially affecting their financial future.
While Inheritance Tax receipts have been rising since 2009/10, there are often steps families can take to reduce the eventual bill but clients need to be proactive. In 2018/19, HMRC collected £5.4 billion through Inheritance Tax, an increase of 3% on the previous year, highlighting the cost of inaction. Many of the steps we’d advise clients to take to mitigate Inheritance Tax can benefit from legal advice, including:
- Gifting during their lifetime: For some individuals, gifting during their lifetime can mean they get to see the benefits of their generosity and reduce Inheritance Tax. While we can offer advice relating to gifting allowances, there are times when legal knowledge can be valuable too, for instance, where large sums are being gifted or the benefactor wants to attach certain conditions to a gift.
- Placing assets in trust: We’ve already mentioned why trusts may be used to create security for dependents. However, when ensuring as much wealth is passed on as possible, they also play a role by taking assets out of the estate for Inheritance Tax purposes.
- Taking out a Life Insurance policy: A Life Insurance policy doesn’t reduce the amount of Inheritance Tax due, however, the resulting lump sum can be used to cover the bill. It’s a step that can allow families to grieve and support dependents. Legal advice is important here because a Life Insurance policy intended for this purpose should be placed in a trust, otherwise the payout will be added to the value of the estate, increasing the amount of Inheritance Tax due.
- Leaving a charitable legacy: When 10% or more of an estate is left to charity, the Inheritance Tax rate is cut from 40% to 36%. For some families, this will mean they leave more behind for dependents while supporting causes that are close to their heart. Where this is appropriate, a charitable legacy is something that should be addressed when a client writes their will.
A combination of financial and legal advice can ensure clients have taken all the necessary steps they need to be confident of future security for dependents, even when things don’t go according to plan. We work closely with professional connections to provide clients with holistic plans that deliver reassurance where it’s needed. If you’d like to learn more about how we could work together, please contact us.
The World In A Week – The Pain In Spain
The week started buoyantly with markets in a risk-on mood following positive news about vaccine trials and governments ordering doses of the vaccine in their tens of millions. However, this positive outlook slowly deteriorated throughout the week, as concerns over the US economic recovery became the main anxiety for markets.
With critical unemployment benefits due to expire at the end of the week and rising COVID-19 cases hitting 4 million, the US is looking less like the poster child for tackling the virus crisis. A rare press conference from President Trump admitting that things would get worse before they got better, highlighted this decrease in sentiment. To add to the woes for Donald Trump, we saw US/China tensions increase with retaliatory consulate closings.
Against this backdrop the majority of global equity markets slipped lower, with value outperforming growth for the second consecutive week. Meanwhile, safe haven assets such as US Treasuries and gold, edged higher.
In the UK, we were hit with the sudden exclusion of Spain from the travel corridor exemption list, with France also advising against travelling to parts of the country. Britons who have already travelled for their summer holidays will now be required to self-isolate, with a 14-day quarantine immediately imposed by the Government.
This has seen shares falling for airline and tourism companies, which have already been hit extremely hard during this unprecedented crisis. The uncertainty and confusion will undoubtedly be damaging for businesses and disappointing for those looking forward to a well-deserved break.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 27 July 2020.
The World In A Week - Interim Update
President Trump has finally confirmed that things will get worse before they get better, when he delivered an update on the coronavirus in the US. This is not new news, but it may stoke the fire of fear and, in turn, that could mean a negative economic response. That is why there was a meeting between the House of Representatives’ Speaker and the Treasury Secretary, to discuss the next fiscal stimulus plan.
This will be the fifth in the series of economic stimulus packages and it comes with a smidgen of urgency behind it. The additional unemployment benefit payments in the US are due to expire at the end of July. The fear is that the economy would not react well to a cessation of these important payments.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 23 July 2020.
The World In A Week - Simmering Tensions
Markets broadly remained in positive territory last week on the back of encouraging reports from vaccine trials. Data for the second quarter of this year demonstrated that the global contraction has been less severe than first feared. China, who was the first to reopen its economy, recovered faster than expected in June compared to the same period last year, with exports rising by 0.5% and imports by 2.7%.
This positive news was offset by political tensions between the US and China and the UK and China. Trade wars between the US and China continue to simmer in the background and the UK’s decision to ban all Huawei equipment from the UK’s 5G networks has also caused a backlash, with the media citing pressure from the US as the reason for the UK’s proposed ban.
Away from trade tensions, global virus deaths continue to climb with the US topping the list with 140,000 deaths. Some 30 States in the US have experienced an increase in cases in the last week, which has led to regional governors rethinking lockdown plans and, in some cases, backtracking on plans to ease restrictions.
The European Central Bank (ECB) met last week and left rates unchanged. European leaders’ marathon discussion, now in its fourth day, over the €750bn European Recovery Fund, remains in deadlock. There is a clear divide between the more frugal countries and those that are likely to be the biggest recipient of emergency funds. Discussions continue today.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th July 2020.
The World In A Week – Interim Update
We have had a series of data releases this week ranging from inflation, growth, industrial production, unemployment and retail sales. There was very little new news to be gleaned from the numbers; the consensus range was extremely wide, meaning there were no shocks to report.
The month certainly feels like a dead rubber, as the markets look towards the data releases in August, which will give us the numbers for the whole of the second quarter. Perhaps this will give us an indication of how effective the loosening in lockdown restrictions has been. It is expected that retails sales in the US will continue to grow, as the savings acquired in lockdown are treated like a windfall to consumers.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th July 2020.
The World In A Week - VAT's The Way Forward
Last week, the Chancellor, Rishi Sunak unveiled his latest plan to support the economic recovery. As the job-retention scheme begins to unwind, Sunak has pledged to protect the jobs of furloughed workers by offering a £1,000 bonus to companies who retain these workers on their books. He has also promised to fund the wages of new younger employees for the next six months. The combination of these measures taken will hopefully support the estimated 700,000 graduates and school leavers that are entering the uncertain job market this summer.
Aside from the job protection measures, Sunak has introduced methods of stimulating spending in the economy by proposing an “Eat out to help out” scheme which rewards people with a 50% discount for dining in restaurants and cafes. Furthermore, the cut to VAT in the hospitality and tourism sector is a measure aimed to boost the short-term consumption in the economy by taking advantage of the lower prices on offer. The stamp duty measures raise the threshold to £500,000 which will hopefully stimulate a resurgence in the housing market.
On the outset, the package of up to £30 billion appears significant in nature with policies clearly designed to reduce the rapid rise in unemployment. The deployment of this package remains devoted towards seeing out the interim and subsequently dealing with the financing of this additional expenditure at a later stage.
Meanwhile, cases of the coronavirus continue to increase with the World Health Organisation reporting a daily increase of 230,370 cases on Saturday and with the US reporting their highest daily increase to date. However, the recent spike in the number of US coronavirus cases seems detached from market sentiment as the S&P 500 continues to climb, returning +3.91% year to date in GBP terms.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th July 2020.
The World In A Week – Interim Update
Rather than the symbolic red briefcase, our Chancellor, Rishi Sunak, appeared to don a red outfit and played the part of Santa Claus in his summer statement yesterday. His £30 billion giveaway was firmly aimed at sustaining youth employment and helping low-income workers. We will give more details on his economic stimulus package in Monday’s ‘The World In A Week’.
The Great Firewall of China, which has extended its boundaries to encompass Hong Kong, is continuing to put pressure on the already stretched relationship between the US and China. The new law means China has control over Hong Kong’s internet, including censorship and potential arrests for managers of tech companies who refuse to hand over data on their users. This poses a dilemma for some of the largest US tech firms who may have to abandon their operations in Hong Kong.
Trump’s reprisal was confirmation that a ban on the video app ‘TikTok’ is being considered, which would be devastating to the youth in the US, but also gives rise to the fact that specific companies are now being targeted in this increasingly tense political environment. Media reports that the US is considering undermining the Hong Kong dollar’s peg to the US dollar, makes the US-Sino cold war that little bit chillier and adds more credence to the theory that Trump will be using his tough stance on China in his election campaign.