1. The pound drops to new low
At the end of last week the pound hit a 31-year low against the dollar, as the markets feared the impact of a ‘hard Brexit’. On Friday, the pound was trading at $1.25, down 2.5% after Theresa May announced her plan to tirgger Article 50 by the end of this tax year.
Shortly after currency markets opened in Asia early on Friday morning, the pound crashed 6% in two minutes to $1.18. However, it bounced back quickly leading to most blaming it on a 'fat-finger' trade (a data input error) or a rogue automated algorithm.
However J.P. Morgan strategists believe it wasn’t an error and despite the quick recovery, the pound never fully recuperated from this sudden dip and continued to lose value during the day. It appears that comments made by French President François Hollande suggesting there will be tough negotiations over Brexit triggered worried speculators to sell the currency.
What is 'hard Brexit'?
The term 'hard Brexit' has been frequently used by the media in recent weeks. This arrangement would see Britain give up their access to the single market and regain control of their borders. Pro-Brexiteers suggest this would give Britain the ability to form free trade partnerships with the world. However many businesses believe leaving the single market will lead to tariffs being placed on imports, making Britain less competitive.
These businesses and Remainers are seeking a 'soft Brexit', where Britain would maintain a close relationship with the EU and be part of the single market. The UK would not be part of the EU Parliament, but still be a part of the European Economic Area (EEA).
Questions to ask yourself… What are the advantages and disadvantages of a ‘hard Brexit’? Would a 'soft Brexit' let down the 52% who voted to leave the EU?
2. UK will be fastest growing economy in 2016
The International Monetary Fund (IMF) has admitted the UK will be the fastest growing G7 economy this year, after previously claiming they would be in recession due to the Brexit vote. In June, the IMF downgraded the UK’s growth predictions to 1.1%, but now believes it will achieve 1.8% - which was their original prediction before the Referendum. Leading figures in the IMF have said Britain will have a ‘soft landing’ this year, but the effects will be felt next year, especially if the British government pursues a 'hard Brexit’.
After the initial shock of the Brexit vote, the UK markets have made consistent gains. Last week, the FTSE 100 rose above 7,000 points for the first time since April 2015. The fall in the pound has been seen as a good thing for the UK main index as manufacturers in the UK can export their goods cheaper. Many of the multinational companies listed on the index operate in dollars so they are making more profit with the favourable exchange rate.
Questions to ask yourself… What factors could impact on the UK’s growth next year? What can the Government and Bank of England do to continue minimising the impact of Brexit?
3. Snapchat set for an IPO in 2017
Reports suggest Snapchat owners Snap Inc. are planning an Initial Public Offering (IPO) worth $25 billion in March 2017. An IPO is the first time a company sells shares on the public stock market and if Snap Inc. does go ahead, it will be the biggest IPO in America since 2014. Last year the company’s revenue was $60 million but they are predicted to have an ad revenue of more than $360 million this tax year - however it is unclear whether the app is profitable or not. Snapchat has 150 million regular users worldwide and is currently launching augmented reality glasses, their first hardware product, which allows users to take 10 second video clips.
In other social media news, Twitter’s share price fell 20% last week as Disney, Apple and Google revealed they weren’t interested in launching a takeover bid. Twitter has never made a profit but was floated on the stock market at $26 per share. After these latest announcements, the share price fell below $20. It is rumoured that business cloud software firms, Salesforce and Microsoft are considering their position on a possible takeover bid - nothing has been confirmed as of yet.
Questions to ask yourself… What are the key advantages of a company becoming public? Why are Twitter struggling so much to become profitable?
4. Did RBS squeeze struggling businesses?
Leaked documents show Royal Bank of Scotland tried to profit from floundering businesses. The bank bought up assets from these companies on the cheap in what they called a ‘dash for cash’, leaked confidential files have revealed. Employees at RBS were looking for firms who could be restructured or where they could charge higher interest rates. These restructures often involved cutting the size of their customers' loans while receiving cash or other assets. The files show these efforts were ramped up after the 2008 financial crisis and over 12,000 businesses were referred to the bank’s 'turnaround division', Global Restructuring Group (GRG).
RBS has said they led down some of their smaller customers but deny deliberately causing businesses to fail. The leak potentially supports a report compiled three years ago by Lawrence Tomlinson, who believed the GRG was a ‘profit centre’, which neglected the interests of small businesses. RBS’s share price was down around 3% as a result of the leaked papers.
Question to ask yourself… Should banks have more regulation placed on them today?
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