Stock Take

The food inflation story took a new turn last week when it was revealed that Burger King faces a lawsuit in the US over allegations that its Whopper burger looks bigger on the menu than it is in reality.

Back in the real world, markets continued to look for signs that the Federal Reserve was winning its battle against inflation. Wall Street edged up over the week as disappointing economic data raised hopes that the Fed would leave interest rates unchanged at its monetary policy meeting later this month. Not for the first time this year, bad news was good news.

Second-quarter GDP was revised significantly lower, as the US economy grew at a slightly less brisk pace than initially thought. But the continued steady progress, and signs that momentum picked up early in this quarter, suggest that recession isn’t on the near-term horizon.

In the middle of the week came news that US job openings dropped to their lowest level in two and a half years in July, and the hiring rate hit its lowest point since April 2020. Private payrolls growth also slowed sharply in August. Data released on Friday showed that US employers added 187,000 jobs in August, the same number as in July, although the unemployment rate jumped to 3.8%, its highest level in over a year.

The full effects of the Fed’s rate hikes are yet to be felt, and there is still some way to go to bring inflation down to 2%, but officials will be heartened by signs the jobs market is cooling rather than suffering dramatically. The central bank’s goal of achieving a ‘soft landing’ may yet be achieved.

In China, figures released on Thursday confirmed that factory activity improved marginally in August, but still indicated contraction for a fifth consecutive month. Non-manufacturing activity hit a new low for the year, adding to signs that the slowdown in the world’s second-largest economy has not yet bottomed out.

The crisis of confidence in the country’s property sector continues to fester. Until recently, real estate accounted for a third of China’s entire wealth, but credit woes and weak sales have hammered the sector. Evergrande, the world’s most indebted property firm with liabilities of £260 billion, has lost more than 99% of its share value over the past three years, and the stock fell almost 80% when it resumed trading on Monday for the first time in almost 18 months.

This was followed by Country Garden, China’s biggest private property developer, warning that it could default on its debts, after losing a record £5.2 billion in the first six months of the year.

As concerns mount about the crisis taking a growing toll on the country’s economy, weighing on consumer confidence and scaring investors, Beijing rolled out a slew of support measures in an attempt to shore up markets. Interest rates for existing first-time buyer mortgages were lowered, as were the downpayment ratios in some cities. The government also halved stock trading stamp duty and put the brakes on new listings.

The announced measures gave some respite to equity markets, but concerns remain that Beijing’s limited response is only tweaking around the edges and a long way off what’s needed to bolster its faltering economy.

Weak China sentiment drove market performance in August that lived up to its seasonal fears as stocks registered their worst month so far this year. Global equities reversed some of the gains over the last two months, sliding 2.6% in August, with emerging markets leading the declines. The S&P 500 was down around 2% over the month but is still up over 17% for the year.

European equities closed the month down 2.7% as investors digested news that inflation in August remained stuck at 5.3%, adding to worries that the European Central Bank will raise interest rates again, to a new record high, when it meets later this month. This is despite growing evidence that the European economy is at risk of sliding into recession, with Germany’s economy – the biggest in Europe – top of the list of concerns.

Wealth Check

In all the excitement and exhilaration of getting a brand new job, or a big promotion, it’s easy to overlook your death-in-service benefits. Negotiating your new salary or flexible working is, understandably, front of mind. After all, new jobs are all about the future, not the outside possibility that you may die while in employment.

A death-in-service benefit is often offered as part of an employee benefits scheme. It’s a lump sum pay-out to your loved ones if you die while on the company’s payroll. Most death-in-service benefits are a multiple of your salary – typically between two and four times your annual gross income – paid to your chosen beneficiary.

But that large lump sum can have an unintentional side effect – leaving your loved ones with a higher Inheritance Tax bill down the line.

Many employers’ death-in-service schemes are written under a trust arrangement, which means the money won’t be liable for Inheritance Tax (IHT) when your estate is being wound up.

If the money is then paid as a significant cash lump sum to your next of kin, it will inflate their estate, potentially adding significantly to their own IHT bill.

It’s often sensible to consider death-in-service payments the same way as a lump sum inheritance. And fortunately there is a way to protect the financial wellbeing of your family by using a Legacy Preservation Trust (LPT) as a perfectly legal tax shelter.

The LPT can be created during your lifetime and the death-in-service payments can be directed there on death. You can make tax-free withdrawals at any stage, for any amount, but what is left in the trust sits outside your IHT estate.

As with all trusts, taking expert financial advice is key to peace of mind. Knowing why you’re setting up a trust is as important as choosing your trustees. So it’s worth discussing with your financial adviser how you want your money to benefit your loved ones. For many families, an LPT might be there to provide income or cover school fees. Or it may mean you can clear a mortgage early or set children up in business.

Trusts are not regulated by the Financial Conduct Authority.

In The Picture

Want to make better financial decisions? Whether you’ve had a bereavement, ill health or even had an unexpected windfall, these things can affect your ability to make rational decisions regarding your finances. The good news is that sound financial advice can be a great support in difficult times.

For business owners, we’ve some sound advice for managing the crossover between your company and personal finances and the long-term benefits this can bring when planning the financial future you want.

Click here to read the issue.


The Last Word

‘China will stay committed to advancing high standard opening up, pursuing Chinese modernisation on all fronts with high quality development and creating new opportunities for open cooperation across the world.’

Chinese President Xi Jinping outlines his vision for continued Chinese development.

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