22 August 2023: Home rental values are at their highest since 2010

22 August 2023: Home rental values are at their highest since 2010


  • Core inflation has now begun to fall
  • Borrowing costs have risen to their highest level since 2007
  • No recovery in sight for German economy according to the Bundesbank
GBP – Market Commentary

After thirty-plus years, it’s time to agree privatisation has been a disaster

The mid to late eighties were a time of momentous change in UK financial services. In 1986, Big Bank took place which revolutionised the way equities were traded which allowed easier access to the market to the “man in the Street.”

This was also the time of privatisation, when the country’s publicly owned utility companies were sold off, apparently to allow greater competition in the marketplace. However, to most of us all it meant was an opportunity to make a “quick buck” the individual companies were “attractively priced” to ensure the float would be successful.

At a stroke, gas, electricity, telecoms, railways, and water providers became the largest privately owned businesses on the newly formed stock market.

This was hailed at the time as Margaret Thatcher’s great masterstroke. It was designed to increase people’s choice but has ended up making the rich richer.

Now, thirty-five to forty years later, it is accepted that the entire process was a massive mistake. Rather than providing greater choice, the utility companies have consolidated to form controlling interests in the hands of big business whose main driver is profit not service.

Barely a week passes that there is not a potential scandal, whether that is sewage being pumped into rivers, breakdowns in the availability of telecoms services in rural areas, or price fixing agreements in gas or electricity.

Although there were howls of protest from the Labour Party, vowing to reverse the privatizations at the time. However, it was interesting to note that when Tony Blair, then Gordon Brown were Prime Minister, they used the excuses of cost and the difficulty of unwinding companies to allow them to maintain the status quo.

Now privatized utilities have, for better or worse, become part of our everyday lives, but it would be a major political coup for Labour to announce a policy of a gradual return to public ownership.

At the end of the day, the public would see immediate benefits despite the cost to the public purse for such a change.

While house prices are not part of the “inflation basket,” rental costs are. The rises in interest rates over the past twenty months have meant a significant increase in landlords’ costs, which are immediately passed on to tenants. This means that average rental costs are at their highest level in over ten years, even though core inflation has begun to fall according to the ONS. The Bank of England, which only a couple of months ago “upped the ante” by hiking by fifty basis points is now facing another tough decision about whether it can pause its cycle of rate increases.

The pound started the week on the front foot. Yesterday, it rose to a high of 1.2766 and closed at 1.2755.

USD – Market Commentary

Democratic, free market system continues to beat autocracy

Winston Churchill famously once said that democracy is the worst form of government, except for all the others that have been tried. The near collapse of the Russian system and China’s inability to move its massive population from “fields to factories” makes that statement as true today as it was when it was first made.

The issue with those centrally planned forms of Government, and you can throw Turkey into the mix for good measure, is their leaders, who are painted as almost “James Bondesque” villains in the west.

It is hard to forget the attack on democracy that took place following the 2020 U.S. Presidential election, but free market democracy has stood the test of time.

The dawn of a new era of productivity encompassing AI, robotics, 3D printing, and driverless cars is upon us. Meanwhile China has been hobbled by its handling and involvement in the spread of Covid-19 while Russia’s imperialist invasion of Ukraine has come close to prompting another cold war.

Both centrally managed economies with an autocratic figure at their head will take a generation to be able to re-enter the “global family.”

It is true that the U.S. and China have a relationship of “factory and consumer” which for now works for them. Successive U.S. Presidents allowed their manufacturing capability to be “exported” to China, and despite Donal Trump’s vow to have it return, mass production is now outdated and an accepted part of the country’s economic model.

Over the next week, the cracks that have begun to appear in the veneer of public solidarity exhibited by the FOMC may grow larger. Several FOMC members will make speeches about the state of the economy, the fall in inflation and their voting intentions on September 20th.

There is still a full month’s worth of data to be published before the next meeting but provided the current trends remain it is more likely that there will be another pause.

While this may hurt the dollar in the short term, the boost to the economy will be such that the dollar will be “set fair” to make further gains in the coming months.

Yesterday the dollar index lost a little ground falling to a low of 103.14. This was to be expected given the price action on Friday where positive economic data saw the greenback run into significant selling pressure. It eventually closed at 103.33.

EUR – Market Commentary

Calls for a pause or an end to hikes growing

The dovish fervour which is expected to build in the runup to the next meeting of the ECB’s Governing council will be encouraged by the Bundesbank’s own view that the German economy may not recover for some considerable time, although it retains its belief that the ECB remains on the right course to defeat inflation.

The German preoccupation with inflation is both renowned and out-dated. No economy in the modern world would be able to collapse to such an extent that hyper-inflation would be the outcome, but memories are long in the EU’s largest economy.

Data for German producer prices, the cost of goods and raw materials at the factory gate were published yesterday and showed the fastest pace of decline since 2009.

Factory gate prices fell by 6% against a year ago partly due to the easing of inflationary pressures but also due to a large degree to a lack of demand. Particularly in the automotive sector.

The data was even weaker than the massive 5.1% fall predicted by analysts. A fall in energy costs was also a factor but overall demand is now close to crisis.

The Bundesbank fears that the economy which had shown tentative signs of “picking up” recently will stall again in the current quarter and a negative GDP reading for Q3 will inevitably mean a recession being seen in Q4.

Overall Eurozone inflation fell in July solely due to the continued easing of energy prices. However, the region is now wholly dependent on being able to successfully diversify away from any dependence on Russia. This will not be easy given Germany’s industrial and financial partnerships built up since the collapse of the Soviet Union and reunification.

Other parts of the EU are performing far better. For example, Spain has produced positive growth figures for more than a year as tourism has returned after the Pandemic. However, Italy has declined into a recession due, in its words, to the determination of the ECB to see it suffer.

The Euro made a little ground yesterday, rising to a high of 1.0913 and closing at 1.0895.

The low of 1.0872 seen on Friday looks like it may be the beginning of a short-term low which is yet to be confirmed, although any upside potential looks limited.

Have a great day!

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Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.