In this week's Commercial Awareness update we discuss Theresa May's announcement on Brexit, Deutsche Bank, oil production and the launch of Google smartphones.
1. Will it be a 'hard' Brexit?
Last week Theresa May announced Britain will trigger Article 50 by the end of May 2017 and formally begin the two-year period of leaving the EU. The Prime Minister also suggested Britain's legal position will be clarified by a 'Great Repeal Bill' which will remove the European Communities Act of 1972 from statute law. Many Conservatives and Leave voters were getting frustrated about the lack of progress but this new revelation adds clarity and means Britain can prepare itself for the complex negotiations with other EU member states.
International Trade Secretary Liam Fox has predicted Britain will be able to keep the benefits of the EU free trade agreement post-Brexit. He suggested introducing tariffs on trade between Britain and other European countries would harm the EU more, as Britain imports a huge amount from those countries. Others believe this wouldn't be the case, with Liberal Democrat MP Nick Clegg claiming Fox was "delusional".
It's been 100 days since Britain voted to leave the EU and the state of the economy is significantly better than many experts believed. Last week the Treasury predicted Brexit "will not dent growth at all in 2016". Gross Domestic Product (GDP) forecasts were immediately downgraded after Brexit, however they have recently seen a 1.8% increase.
Questions to ask yourself… Will Britain be able to negotiate a free trade deal with the EU after Brexit? Which industries have felt the biggest impact of the Leave vote?
2. Problems for Deutsche Bank
Deutsche Bank's share price plummeted to its lowest level since 1992 after the revelation it faces the prospect of a $14.5 billion fine from US authorities for an alleged misselling scandal before the 2008 mortgage crisis. The bank's share price has fallen by around 50% this year after they announced a €6.8 billion loss in January, but the share price hit a new low of under €10 this week. There has been much speculation of the bank's possible collapse for months and in July the International Monetary Fund (IMF) suggested it was "most important net contributor to systemic risks in the global banking system".
The German government has shown reluctance to provide Deutsche Bank with a bailout, but this could change if the situation deteriorates. There's a suggestion the government may take a 25% share of the company or facilitate a merger with Commerzbank. Deutsche Bank is getting media attention at the moment but the crisis stems from wider problems in European banking. With almost 0% interest rates, it's very difficult for banks to make money, as margins on yields are almost non-existant. Secondly, banks continue to be hit with misconduct fines and European banks often are the worst effected. The American Department of Justice often threatens banks with with removal of their dollar clearing licences if they don't pay the fines.
There was some better news for Deutsche Bank on Friday afternoon however as rumours emerged they were about to strike a deal with US authorities to cut their fine to $5.4 million. This caused a sudden rise in the share price, but the deal is yet to be confirmed.
Questions to ask yourself… Should the German government bail out Deutsche Bank if there's no other solution? How can investment and commercial banks start making more profits?
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3. FTSE rises after oil production deal
The FTSE 100 rose by 1% on Thursday with oil stocks increasing the most, after the Organisation of the Petroleum Exporting Countries (OPEC) agreed to cut oil supply. Oversupply has led to a declining oil price in recent years, but this new agreement will ensure exporters cut supply, in the hope of driving up prices. OPEC will cut output to between 32.5 million and 33 million barrels per day from about 33.5 million barrels. Despite the markets reacting favourably to the announcement, the cost of oil actually fell as many speculators believed OPEC wasn't doing enough to cut supplies.
Mining has also being doing well recently as investors seek safe assets while there's economic uncertainty. The price of gold has risen by 6% in the last 100 days while silver has increased by 12%. The industry has been volatile in the last 12 months, but an increase in investment and many seeking safe returns has provided stability in the industry.
Questions to ask yourself… Will Theresa May's announcement about Brexit have an impact on the markets this week? What are the potential downsides of cutting oil supplies?
4. Google Phones
Google will launch their first branded smartphones this week, aimed to compete with Amazon and Apple. Google focused on producing software which other companies could use, but with its new hardware division, they are about to launch their own distinct products. Google tried and failed to break into the phone hardware market after acquiring Motorola many years ago - this was a short-lived venture. Globally, around 80% of smartphones use Google's Android platform, but the hardware market has been dominated by Apple and Samsung in recent years.
In the same week, Blackberry has announced they will not be designing any more of their own handsets after 14 years, and will now focus on creating software instead. The launch of Google first smartphone is expected on Tuesday at an event in San Francisco - keep an eye out this week.
Questions to ask yourself… Which markets are key for the success of Google's smartphone? Does Google have the power to compete with Apple?
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5. UK still very competitive
The UK is the seventh most competitive economy according to the World Economic Forum. Efforts to cut red tape has made business activity in the UK much easier and led to a three-place rise in the rankings. The country is at the forefront of digital innovation and money is readily available for new ventures. Switzerland continues to top the list, while Singapore and the USA make up the top three.
Question to ask yourself… What are the key factors in making a country's economy competitive? What gives Switzerland the edge compared to other countries?
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