WeekWatch

Weathering the drought

While opinions may vary on whether the current hot, dry summer is nicer than Britain’s typical grey and drizzly experience, its effects on farming are less up for debate.

According to the Agriculture and Horticulture Development Board (AHDB), the heat has encouraged the spread of Bluetongue (a disease that particularly affects sheep) across southwest England. At the same time, several crops – such as winter wheat – are experiencing notably poor yields. Lower food production are likely to translate to inflationary pressures, though the extent of this may take time to fully materialise.

The weather situation is equally tough on mainland Europe. As well as the humanitarian costs, the wildfires that spread through France and Spain are estimated to have cost billions of euros in damages. Meanwhile, low water levels in rivers such as the Rhine have meant commercial shipping vessels have had to lighten their cargo.  

So far, however, the weather hasn’t put too much of a dampener on equities. Both UK and EU markets are trading at, or near, all-time highs on the back of strong company results and optimism around a potential deal with Iran.

A potential deal in Iran (again)

Reports are emerging that Iran and Oman are close to reaching a deal around the future of the Strait of Hormuz.

This led to renewed hopes that a peace deal might not be far off. As well as helping equity markets, this optimism has seen oil prices move lower.

However, any agreement between Iran and Oman would also need the blessing of the US. Hopes for this faded over the weekend after Iran offered an updated list of demands, including the US paying Iran war damages. At the time of writing, the US had not responded to the latest Iranian proposals. However, it appears the two sides remain apart on several key issues.

SpaceX spluttering launch

After its recent historic IPO, SpaceX briefly reached a market cap of $2.6 trillion in June, making it more valuable than Amazon.

Since then, trading has been decidedly tougher for Elon Musk’s company.

Last week, it published its first results since going public. Despite announcing higher revenue and lower losses per share than analysts expected, shares fell as much as 13% on Wednesday. Although it recovered by the end of the week to $133, this remains a long way below its June highs.

A few areas appear to be spooking investors. Following the IPO, most shares remained held by investors, unable to enter the public market for a set period. As of last Thursday, the first of these tranches were able to be sold. With more shares due to become available as time goes on, potential investors appear worried this might cause selling pressure (due to greater supply).

In addition, there are worries around the level of AI spend at SpaceX. As with other large tech companies, SpaceX is pouring billions into keeping up in the AI arms race. Investors appear nervous about the prospects of earning a healthy return on that spend any time soon. 

US intervention in Japanese yen

The US and Japanese central banks jointly intervened to help prop up the yen, after the Japanese currency fell to 40-year lows. 

While a weakening currency is typically a domestic issue, in this case there were risks to US borrowing. Investors had been borrowing yen at low interest rates and buying foreign government bonds for profit (sometimes called the yen carry trade). As a result, the yen has been under sustained pressure, while Japanese investors have become the largest foreign holders of US Treasuries.

The risk for the US is that if Japanese interest rates were to move higher or the yen moved abruptly, those cheap Japanese loans might become more expensive. This could force some of those Japanese investors to sell their foreign holdings to buy back the yen. With US Treasuries already trading at uncomfortably high yields, the Federal Reserve decided co-ordinated action with the Bank of Japan was in everyone’s interest.

This was the second intervention by the Bank of Japan to protect the currency this year, but the first time in over a decade by the US. Whether or not such a move is enough to shift the long-term downward trend, only time will tell.

Retirees seeking income certainty

Pension experts have seen growing interest in fixed term income plans and annuities, as many retirees look for  greater financial certainty in retirement.

Both can provide a predictable income, helping people feel more comfortable about covering their expenses in retirement. Fixed income plans guarantee an income for a set period, while many annuities provide a guaranteed income for life.

Higher interest rates have also made these products more attractive, with providers able to offer more competitive rates than in recent years.

Appetite has also grown as retirees seek greater security in the current uncertain economic environment. But once in place, these arrangements can be difficult to change, so individuals should carefully consider their future income needs and wider retirement plans before taking action.

Making Tax Digital pushes self-employed towards alternatives

New digital tax reporting requirements are prompting some self-employed workers to reconsider how they run their businesses.

Since April this year, self-employed individuals and landlords have been required to keep digital records and submit quarterly updates to HM Revenue & Customs. The Making Tax Digital system replaces the annual self-assessment tax return. The rules currently apply to those with qualifying income above £50,000, and from April 2027 will also apply to those earning more than £30,000.

While the changes are intended to modernise the tax system, advisers and accountants report that some people are adjusting their working arrangements in response. Some self-employed workers are aiming to stay below the threshold at which the rules apply, while others are exploring operating through a limited company instead.

Experts are warning that restricting earnings to remain below the threshold could limit business growth. Meanwhile, operating through a limited company may bring other administrative responsibilities and tax considerations.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.