In another relatively quiet week for the markets, Donald Trump’s plans to cut corporation tax continued to be the key drive of market movement. What had been a strong week for the S&P 500 ended slightly lower than anticipated in the wake of diminished non-farm payrolls and a resurgence of geopolitical tension following more nuclear testing by North Korea. However, perhaps supported by gold’s rapid decline to as low as $1,266 last week, it would appear that the spike in global concern following Kim Jong-Un’s early-September nuclear demonstrations is gradually subsiding.
In the UK on Monday, it was announced that after 49 years, Monarch Airlines had gone into administration. This comes following the development of a ruthless market for European-based short-haul airlines after a summer that has claimed both Air Berlin and Alitalia. Increases in terror attacks in formerly popular holiday destinations, such as Egypt, Algeria and Tunisia, have forced companies like Monarch to refocus on an already highly concentrated short-distance intra-European flight market. In the year to October 2016, the company reported losses of $291m, compared with a $26m profit in the same period to October 2015. Perhaps, in the face of the increased cost of travel for UK consumers following Sterling’s continued slump against the Euro, Warren Buffett’s pessimism surrounding airline investment remains truer than ever.
In a triumph for behavioural economics over the traditional assumption that all consumers behave rationally when making economic decisions, Richard Thaler was awarded the Nobel Prize for Economics Sciences. Professor Thaler, who’s application of psychology on traditional economic models provides the basis for modern behavioural economics, has been central to the integration of the alternative economic theory into more mainstream factions of governmental economic policy. For instance, his application of ‘nudge’ policies – the idea that by labelling money provided for specific purposes, a government can influence the spending decisions of consumers – found that pensioners in the UK spent more on heating when a sum of money given to them was labelled ‘winter fuel money’, when in reality, they were free to spend the money as they wished. Perhaps in an age where rationality appears to be playing an ever-diminishing role in certain areas of society, behavioural economics is as relevant as ever.