VIEWPOINT: Have you got the Energy?… plus 7 Days to Friday 25th October 2013

S e w e l l B r y d e n G u n n VIEWPOINT: Have you got the Energy? There has been a lot of noise in the press, other media and on TV about the recent deals done by the UK Government with EDF (French Nuclear Power Plant Construction) and China (investment) and also about the price increases being charged by our “local” gas and energy suppliers.

 We have heard much discussion about how our energy companies are stinging us with yet more increases and how we are encouraged to “fix in” with a fixed price deal for our Gas and Electric and to hunt around for a good deal with anecdotal comments such as “How can they be charging yet more increases again and again – it’s not surely not necessary – is it?”   So let’s take a look . I have included below figures taken from our weekly analysis of energy futures – in this instance Natural Gas Contracts via NYMEX which deliver by end of November and close out by end of October. Although it is arguable that such figures do not necessarily reflect the whole picture for mere mortals living in the UK, it is important to recognise that the global energy sector comprises locally and globally traded commodities which also impact on the  UK energy market.   In very simple terms we can see that the 2013 contract (Nov 2013) is priced at 3.629 USD ($) per mmbtu for a standard contract (10,000 mmBtus) as traded on NYMEX (although London Natural Gas Trades are carried out through ICE and are priced in sterling per 1000 therms per day with Contracts of approximately 28,000 therms). Setting aside all the jargon, let’s just look at the number 3.629 for 2013 quoted on NYMEX. The number for the same thing for delivery in 1 year’s time is 3.973 for 2014 – some 9% increase in price for the same contract. If we look at a potential contract price for delivery 2023, in 10 years(!) then the notional contract price is already set at 6.026, representing a 66% approx. increase against today’s contract pricing! So is this the shape of things to come? Well, it may be. The main point of learning here is that in a year’s time, natural gas contract prices are potentially expected to be 9% higher than today with prices well on the way to doubling in 10 year’s time…..this of course reflects a wider picture of energy costs which will be reflected just as much in our domestic and business energy costs……an important financial planning point, especially for people who will in years to come require more energy usage rather than less!

This Viewpoint by Neil A Sewell, Chartered Financial Planner, Investment Analyst & Pensions Specialist at SewellBrydenGunn.

TAKE NOTE: If you are not sure if you are putting enough aside for retirement, or even if you think you are – is important to get all this reviewed.

Any queries – please do not hesitate to contact us.

Over The Past Week: Snapshot View of the Markets: Below are closing numbers as at Friday 25th October 2013.

For more discussion about how the financial markets may affect your own personal or business financial situation, protection, pensions or investments, why not get in touch?: 01276 471083 OR cedar@s-cm.com

Market Numbers

FTSE 100                              6721.34         1.49%    on the week

FTSE All Share                     3581.33        1.36%    on the week

Brent Crude $ per barrel       106.99        -2.68%     on the week

Natural Gas NYMEX:NG         3.629            -2.71%      on the week

Natural Gas NYMEX:NG 1yr   3.973           -1.17%      on the week

Natural Gas NYMEX:NG 10yr 6.026           0.97%      on the week

Gold $ per troy ounce pmL  1347.75        2.37%     on the week

Silver $ per troy ounce pmL     22.35        2.19%     on the week

Copper US$ per tonne lme3  7134.00       -1.86%     on the week   (LME 3 months)

Wheat Futures CBOT              696.50          -1.31%     on the week   (US$ per bushel – Contract 5000 bushels/136 tonnes)

Palm Oil US$ per tonne          882.50         1.44%   on the week   (eg CMEGlobex – trading unit 25 tonnes – mirror and settle to Malaysian ringgit benchmark)

MPC Base Rate  %               0.50  (Bank of England Base/Repo Rate) since 05/03/2009

Euro Repo Rate %                0.50  since 02/05/2013 (previously 0.75)

US Libor %                            0.10240   last week : 0.10900

Euro Libor %                         0.04786   last week : 0.04571

GBP Libor %                         0.46938  last week : 0.46875

Euro Euribor 3 mnths %     0.23   last week : 0.22

Sterling CDs 3 mnths %       0.48  last week : 0.48

RONIA  %                            0.4190  l wk : 0.4575 (Repurchase Overnight Index Ave Rate)

SONIA   %                            0.4330  l wk : 0.4322 (Sterling Overnight Index Ave Rate)

HFRX                                    1210.68           0.43%  on the week  (Global Hedge Fund Index)

Tesco [}{]                               370.15            0.27% on the week    xd

Sainsbury                               396.80           0.46% on the week

BT  [}{]                                   359.10            -1.64% on the week

BP  [}{]                                   451.15              0.83% on the week

Rexam                                    511.00              3.80% on the week

ARM Holdings  [}{]              £9.83             -3.06% on the week

HSBC  [}{]                              680.00            0.15% on the week   xd

RBS  [}{]                                 368.40            -1.15% on the week

RMG:LSE (330 launch)     555.00           10.45% on the week

Standard Life                         366.60             1.95% on the week   xd

WPP                                       £13.44               4.51% on the week   xd

10 Year Government Bond (Gilt) Price     £96.72      Yield    2.63%

15 Year Gilt Yield Index. 15th of the month approx.  Yield    3.14%

One Pound will buy 1.6167 US Dollars

One Pound will buy 1.1720 Euros

CPI Inflation stands at 2.7% as at Sept 2013     Currently the old Gov’t measure of inflation

CPIH Inflation stands at 2.5% as at Sept 2013   Currently the new Gov’t inflation measure

Retail Prices Index (Carli):  3.2% – Sept 2013  No longer a Gov’t measure of inflation

Retail Price Inflation RPIJ – Jevon’s formula:  2.5% as at Sept 2013

Inflation Target expected to stay in place: 2.0%  based on the Consumer Prices Index (CPI)

The Chancellor confirmed in his Budget Speech Wednesday 20th March 2013 that the 2% Inflation target for the Bank of England would stay in place.

The Government’s Inflation Target is announced each year by the Chancellor of the Exchequer in the annual Budget statement. The Bank of England Monetary Policy Committee has as one of its aims, the aim to set interest rates so that over- or under- inflation can be brought back to Inflation Target over a reasonable time period without creating undue instability in the economy. Inflation Target is not a permanently fixed level and may vary depending on prevailing economic and fiscal conditions.

KEY to Important Indeces:

RONIA – Repurchase Overnight Index Average Rate – Launched June 2011

Changes to Method of Calculating Inflation Measurement Index – March 2013

pmL Metal and Precious Metal Pricing used in Market Numbers 

lme3  – London Metal Exchange 3 months

[}{]  –   Denotes a Stock or Share of a FT Global 500 company

xd    –   Denotes a Stock or Share price quoted as ex-dividend

Please ensure you read and take note of the disclaimers mentioned here.

Whilst every effort is made to ensure accuracy of the above information, this cannot be guaranteed and cannot be relied upon to be free from errors, omissions or inaccuracies.

This information update is provided for convenience and interest only and is not intended nor does it constitute any form of regulated or other advice and no liability is accepted, nor does any information provided here constitute nor is it intended to be any form of invitation or solicitation or recommendation to buy sell or hold in any capacity and no liability is accepted. You should not use this update as a basis for making decisions.

SewellBrydenGunn (business name and trading style of SCM Finance) and or any of its members employees partners proprietorship or other stakeholders (we) from time to time may or may not have an interest in any items contracts stocks shares securities or other instruments mentioned here. For your own safety and convenience you should always assume that we may have an interest or position in any of the above and consequently you cannot rely on it to be impartial information.

You should confirm independently any information you wish to rely on to make any decisions – in any case you should seek and take appropriate and timely independent financial legal or other advice including full and proper discussions about the level of financial legal or other risk involved before deciding on any action transaction or inaction.

Past performance is not an indicator of future performance. The value of investments and any income from them can go down as well as up and you may get back less than originally invested.

“Secure” “investments” such as Cash on deposit, can provide relative safety to the amount invested or held in this way and can be expected to offer relatively low growth over the medium to long term. They cannot fall in actual value, but can fall in “real” value due to the effects of inflation.

At the other end of the risk scale, “Adventurous” investments (more volatile Equities – Stocks and Shares) carry a relatively much higher risk of capital loss but with the potential for relatively much higher capital growth over the medium to long term. They may be subject to a considerable level of fluctuation in capital value. They do not offer any guarantees.

At the extreme end of the risk scale – Aggressive/Specialist/Highly Speculative – are investments such as leveraged contracts, derivatives, options and futures. Directly investing into these investments carries a very high risk of capital loss, but with the potential for a higher return (or severe loss) over the short the medium and or the long term. They are very volatile and are only suitable for investors who can afford to, and are prepared to, risk the entire capital value and for some investment contracts, risk substantially more than the original capital value, as well as being prepared to take a very active role in managing their investment throughout the day, every day. These types of investment are definitely NOT suitable for the majority of investors since most investors are “passive” once they have made their initial investment – ie they expect to review their investments from time to time but without being actively involved on a daily basis. These investments do not offer any guarantees.

Photo Credit: SBG PhotoStock

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