Slowing Domestic Auto Sales
At the start of October, monthly sales for the auto industry started to decline to the point where auto companies shut down production. The Ford Motor Company announced on Tuesday it will temporarily shut down production in Kansas City, Louisville, and Mexico (Durbin). Other auto makers are seeing a slowdown in demand, but GM and Fiat will not halt factories. While 2015 was a record year for the auto industry, many auto analysts are pointing at a downgrade from peak production (Durbin).
An upward trending in inventory by auto makers is another telltale sign indicating recessed demand. According to Kelli Felker, a Ford spokeswoman, many of the bestselling brands are off from their projections. These include the Mustang, down 30% year over year, Fiesta, down 40%, and Fusion, down 18% (Bloomberg). The other major concern is over supply in inventory. Currently, the F-Series pickup is up to 93 days of supply compared to 83 a year earlier (Bloomberg). The other major increase is the Fusion, which is up to 72 days from 51 days last year (Bloomberg). Other companies have not released sales data or inventory data, but the signs from Ford are pointing in this direction across the auto industry.
Weakening Pound pressures Great Britain
In recent months, the British Pound (GBP) has seen a considerable drop in value compared to other major currencies. At the beginning of June, the exchange rate was trading at $1.44/£, and as of today, it is trading at $1.23/£ (Investing.com). For US citizens awaiting for their trip to London, this is a good sign, but to British companies, it has put a strain on exports. This depreciation in domestic currency is not something new, although the UK did not intentionally devalue its currency.
There are a couple of major reasons for the repricing of the Pound over the past 4 months. The first is the referendum vote to leave the EU. While this has been decided since June, there is uncertainty in the UK banking industry on capital flows (Elliott). Banking and Finance in the UK is one of the most established in the modern world, but when regulations are not established, there is an incentive for companies and people to move capital to established markets (Elliott). The uncertainty could subside once the Prime Minister, Theresa May establishes the exit from the EU in March 2017.
Monetary pressure by the Bank of England (BOE) is the other major reason into the weakening in the pound. As of August, the BOE has started another round of quantitative easing as well as lowering targeted short term interest rates. This is to combat the uncertainty from leaving the EU. As with other regimes who are currently embarking on quantitative easing, i.e. ECB and BOJ, this pumps money into the system while the US Fed is not a part of QE (Elliott). This makes the US Fed look as though they are having a tightening effect on the US dollar, while it is not currently participating in QE (Elliott). This weakening in the pound will continue until the BOE ends QE (Elliott). Even though these are the major reasons for the devaluation in the pound, other economic pressures in the United Kingdom are certainly contributing.
Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Sarah Berndt, Portfolio Manager
Eric Kartman, Research
Drew Steinman, CPA, Trader/Research
Frank Echelmeyer, MBA, CKA®, Advisor Consultant
-for Broker/Dealer and RIA use only-
Bloomberg. Ford to Idle Four Factories as Slowing Sales Bloat Inventory. 17 October 2016. 2016.
Durbin, Dee-Ann. Fortd cutting productionas U.S. demand slows. 18 October 2016. 2016.
Elliott, Larry. Let the Pound Fall and the economy rise. 16 October 2016. 2016.
Investing.com. USD/GBP. 2016. 2016.
The materials presented is for use by professional advisors only. It is not intended as informational and educational, and is not intended to be interpreted as investment advice. The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients. No investor or client reading these materials should view them as investment advice. These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general. Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio. All facts referenced herein are derived from sources believed to be reliable.
Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information.