WeekWatch

Is the German auto industry running out of road? 

The famous Peking Duck found itself at the centre of an international row last week, as the EU launched an anti-dumping investigation into imports of the bird from China. 

The move has been seen as the latest incident in an ongoing tit-for-tat argument between the two blocs, as they begin formal trade negotiations. 

One elephant in the room of any conversations between China and the EU will be automobiles. Until recently, China was a key market for German car manufacturers, shipping mainly combustion-engine cars east. However, the rise of Chinese competitors, particularly in electric vehicles (EVs), has rapidly reversed the flow. Squeezed between US tariffs and rapidly improving Chinese models, the German industry has found itself under significant pressure.  

Industry giant Volkswagen’s (VW) share price has been on a downward trend since 2021. It was down over 30% year-to-date as of Friday. Profits have also been under pressure for much of this time last week, VW announced a series of drastic measures to make the business more competitive. These could include the loss of 100,000 workers and up to four plant closures in Germany. Such moves would likely have to overcome powerful labour unions, though. 

Recently the German government announced a series of significant reforms, including linking pension age to average lifespan, and tighter requirements for sick leave. These were announced in the hope of making Europe’s historic manufacturing powerhouse more competitive. 

Whether these interventions will be enough to improve German automobile market share within and outside of the EU is yet to be seen. 

The ever-weakening yen 

Germany isn’t the only country facing issues. The Japanese yen is currently trading against the dollar at levels not seen for 40 years. 

Since 2024, the Bank of Japan (BOJ) has been selling US Treasuries to try to prop up its currency. At the same time, interest rates have gradually climbed to levels not seen in Japan since 1995 - 1.0% - to deal with demand-driven inflation and wage growth. However, that is still significantly lower than that of the Fed. 

According to Eugene Tan, senior investment manager for SJP Asia, the yield gap between the two countries has driven investor money out of Japan towards the US. 

A weaker yen has pros and cons for Japan. Eugene adds: “While exports remain cheap, the country will be faced with substantial inflationary risk for imported goods such as food and energy (as seen with the recent oil shock).

“In the event that Japan becomes a seller of US Treasuries rather than a buyer, this would push US Treasury yields higher, forcing the BOJ to raise rates, resulting in higher borrowing costs.”  

South Korea bets 

Among the biggest winners of the recent AI boom have been South Korean semiconductor manufacturers Samsung and SK Hynix. Both companies’ share prices have risen sharply over the last year. 

Recent past performance has made both stocks popular with retail investors, eager to buy into the AI craze. This has seen money pour into leveraged ETFs containing these companies. Leveraged ETFs aim to amplify daily returns through borrowing and derivatives, boosting gains when markets rise but also increasing losses when they fall. However, Eugene warns: “To provide the return of a leveraged ETF, platforms offering leveraged services need to buy more of these stocks when they rally or sell more when they decline. This translates to added volatility not just in the semiconductor industry but also in the highly concentrated index. 

“Those bets can quickly backfire as investors can be caught on the wrong side of the trade with massive losses that local individual investors are stuck with.” 

As ever with investing, it is important to remember past performance is not indicative of future returns. 
 
Is the ceasefire over already? 

Turning to the Iran conflict, which reignited again last week after the two sides traded missiles and Trump declared the ceasefire ‘over’. 

Somewhat unsurprisingly, the resumption of hostilities led to oil prices increasing. Brent crude went from under $72 a barrel to a peak of $78, before finishing the week around $78. It remains a long way off the $100 plus prices recorded in May, however. 

The conflict reopening would see the Strait of Hormuz close, and the world’s oil supply again choked. However, so far there has been no market meltdown. For example, the fresh uncertainty has helped push US government bond yields up, but they remain well below their May peaks.  

This indicates investors believe the rhetoric to be more sabre rattling, and so are playing down the prospect of a longer-term conflict. With the US mid-terms just months away, and inflationary effects somewhat limited so far, there is expected to be little appetite to get bogged down in an unpopular, regional quagmire. 

Mortgage rates fall at fastest pace in almost two years

Average fixed mortgage rates fell last month, representing the largest reduction since October 2024.

Mortgage experts have reported falls in average two-year and five-year fixed rate deals. The continued decline in fixed mortgage rates suggests financial markets expect further reductions in the Bank of England base rate.

However, mortgage pricing is also influenced by lender competition and movement in swap rates, so falling mortgage rates do not guarantee the Bank of England will cut the base rate.

Steep rise in cost of probate applications

Probate costs have risen sharply due to increases in court and tribunal fees.

The fee increases, brought in from today (13 July) by the Ministry of Justice (MoJ), vary depending on the type of probate application. But some fees have risen by as much as 75%.

For estates worth more than £5,000, the probate application fee now costs £500, up from £300.

The MoJ says the price rises will add consistency to the way fees for probate are charged and ensure fair access for all.

The new fee structure can be found on the government website.

Pensions dashboard launch could spark search for financial advice

Pensions experts are hoping to see an uptick in people seeking financial advice once the pensions dashboard launches in the 2027/28 financial year.

The government-backed pensions dashboard aims to help reconnect more than £30 billion of unclaimed, inactive or lost pension funds with their owners.1

It will provide people with a single place to find clear and simple information about their pension savings, including workplace and personal pensions and the state pension. The tool may be especially useful for people who have forgotten about past pension schemes, such as old workplace pensions, which they no longer pay into. 

Some industry experts predict the discovery of wealth held in unclaimed pensions could lead more savers to seek regulated financial advice. 

Pensions minister Torsten Bell said the launch of the pensions dashboard will represent a significant moment for the UK pension landscape. This is because, for the first time, savers will have a full picture of the value of their combined pension savings.

¹ Pensions UK: Brits missing £31.1 billion in unclaimed pension pots – October 2024