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Public markets news from 30th October 2017




2 min read

Driven round the lend

As the dreamy haze of October afternoons begins to give way to the bitter realities of November nights, so too does the darkness seem to be drawing in for UK household consumers. Reports last week showed that UK consumer debt has rocketed since 2014 and now amounts to well over £200bn, at an annual growth rate of up to 12% at points throughout 2017. This comes at a time when annual household income growth has hovered around 2%, leading S&P to issue a warning to lenders last Monday that under current circumstances, UK banks could be holding up to £30bn of bad debts in the event of an economic downturn.

It is unclear whether this substantial increase has been caused by growing consumer confidence or out of desperation as wage growth stagnates and inflation expands. However, strong non-essential retail sales figures towards the end of Q3 perhaps hint towards the former. Either way, it is clear that there are growing concerns amongst analysts about the recent surge in UK consumer debt, but should they be worried? A rate hike in the next few months could apply further pressure on households to increase borrowing levels through pushing up mortgage rates. However, only 30% of UK households have mortgages and of these, 60% are fixed-rate, meaning the potential impact of a rate rise would be softened. Besides, it’s not as if high levels of consumer debt have ever led to widespread economic crises in the past…

Great ex-tech-tations

In the world of 'Big Tech', large US technology firms, such as Amazon, Microsoft and Alphabet, got even larger this week as reports came in that the S&P’s IT sector has risen by a massive 35% so far this year – outperforming the S&P 500 by a full 20%. The stand-out performer had to be Amazon as it put out results of a 29% increase in net sales for Q3 and rose a full 13% in the space of last week. The 'Big 5' – i.e. Amazon, Microsoft, Alphabet, Facebook and Apple – is now worth comfortably north of £2trln in collective weight and certainly doesn’t look like it'll be shrinking any time soon. While all five have had especially strong years, there doesn’t seem to be a single driving cause behind their collective success. For instance, Alphabet can put its solid recent performance down to a revival in Google’s figures for the value and sale of adverts, whereas Microsoft’s success falls mostly down to the significant outperformance of commercial cloud revenue. However, in the current climate, and with Apple’s positive iPhone X initial sales figures, the 'Big 5' aren’t getting any smaller.


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