With global markets in turmoil issues which had until recently been swept under carpet are now having to be confronted, says Darren Sinden of LITE Trading.
For too long, we (in the UK) have been happy to ignore rising energy & commodity prices and the knock on effect that these have had on economic stability, preferring to focus instead on rising equity prices and in many cases to join in the speculation in commodities, in doing so perpetuating the cycle.
The FTSE 100 Index was for the last 18 months a beneficiary of the rising price of Oil and Commodities such as Gold & Copper - indeed the Bull Run in the prices of these consumables has lead miners to new highs & made the FTSE highly volatile as the weighting of the mineral resource stocks is now 30%.
This will increase further next week when Vedanta & Lonmin are promoted into the top one hundred, volatility is unlikely to be lessened as a result and turning many tracker funds into proxies for the mining sector .Whilst falling commodity prices mean index volatility they do not have an immediate effect on the real economy and consumers.
However rising energy prices feed through much quicker to the economy and impact consumers directly.
The impact of even relatively small energy price rises on consumer spending patterns should not be underestimated. A recent survey commissioned by LITE Trading and conducted by market researchers Ipsos MORI provides insight into the dramatic effects that household expenditure will be subject to and from this we can extrapolate this data to make predictions about which sectors and companies .
Our Survey found:
In February & March of this year we saw price rises imposed by Gas & Electricity suppliers which will mean that the average domestic energy bill will rise by an extra £209 per annum or £17.41 per month give the quarterly nature of utility bills many household will not yet have felt or indeed realised the impact of these rises .Looking at our survey data we can see that this level of monthly energy price rises could affect the spending of 70% of GB households and this will undoubtedly be felt in the Economy as a whole . We believe that the changes in spending behaviour will begin to manifest themselves in the late summer & into the last quarter of this year. The world cup party will be then over and the hangover could just be beginning.
Darren Sinden, LITE Trading
For more in-depth analysis, click here