Commercial Awareness Update 21st November by Ben Triggs

Dollar reaches 14-year high

The US dollar jumped to a 14-year high as markets anticipate a huge spending boom by President-elect Donald Trump. Optimism in America led to the Dollar index - which measures the Dollar against a number of other currencies - reaching its highest level since mid-2002. After the initial shock of the Trump victory, the dollar dipped but has risen ever since as the markets speculate on his forthcoming presidency. The President-elect has promised public spending on infrastructure and construction - which could cost as much as $1 trillion - and experts believe this will provide a short-term boost to the economy. This public spending can also have a positive long-term impact for the US economy, but this will rely on the projects being a productive use of taxpayers money with little long-term wastage.  

A rise in interest rates is also expected to boost the value of the dollar. In the coming months, inflation is likely to rise - especially as Trump has pledged to restrict free trade - and with the current positive economic outlook, will encourage the Federal Reserve to push up interest rates. The rates are currently at 0.5% but most believe they will be increased next month.

Trump’s pro-business and spending stance did have an impact on the bond market - it’s lost $1 trillion worldwide since the US presidential election. Low-yield ‘safe’ bonds are being sold off in what many have coined the "Trump Dump", as investors pursue more lucrative investment strategies. With inflation rising, bond prices are likely to increase - the more you pay for a bond, the lower the yield (or potential earnings). Plus, Trump’s pro-business stance has encouraged investors to take money from bonds and put them in stocks - believing they will see strong returns.

Questions to ask yourself… Is a strong dollar good for the global economy? Is the market's current positivity about the Trump presidency an example of short-termism?

Click here for Finimize's more in-depth analysis.

Facebook to expand UK workforce by 50%

Last week Facebook announced it would boost its UK workforce by 50% when it opens a new London headquarters in 2017. There are plans to hire another 500 members of staff, including high-skilled engineers, marketers and salespeople. Facebook's engineers in the current London office have helped with the development of their new product, Workplace - a business platform to help internal communication flow between staff. 

After the EU Referendum there were many companies considering moving operations out of London but it remains the tech stronghold of Europe. Google has also committed to building a new headquarters in the capital which will provide 3,000 more jobs when it opens in 2020. London Mayor Sadiq Khan suggested this investment is a “sign that London is open to talent, innovation and entrepreneurship”.  

Questions to ask yourself… What makes London a tech hub? How does Britain improve technical skills among its workforce? 

Build-up to the Autumn Statement

Chancellor Philip Hammond will give his first Autumn Statement this Wednesday, as the Government will outline its plan for the economy. The Prime Minister Theresa May is keen to help out lower income households, but most of the attention will be on how Hammond aims to boost a potentially stuttering economy after Brexit. With ex-Chancellor George Osborne’s target of cutting the deficit being scrapped, this statement could spell an end to austerity. The cost of Brexit has also been a key topic this week, with forecasts suggesting it could leave a £100 billion blackhole in the budget.

What we think could be announced:

• Hammond has suggested £1.3 billion will be spent on improving roads across the UK
• The Chancellor is expected to back Osborne’s plans to cut corporation tax from 20% to 17% by 2020
• The personal allowance on income tax may be raised - it could be increased to £11,500 from today (previously scheduled for the 2017/18 tax year)
• To encourage savings, the amount people can put in ISAs before being taxed could be raised
• The idea of reducing VAT to 17.5% may be suggested, but this is unlikely to happen this tax year
• Increased tax on employees benefits - making gym memberships, private healthcare and similar more expensive for workers

Questions to ask yourself… What is the priority for the UK economy in the next six months? Should the Government continue spending and run at a deficit?

What happened in Britain?

The UK economy got some good news last week as data showed that prices for everyday consumer goods and services (like rent, groceries, clothing, etc.) weren’t increasing as much as feared. Also, retail sales (e.g. stuff sold in stores) grew by 7% versus a year ago - the strongest increase in 14 years. Economists continue to warn that prices will rise next year (as the weak pound makes imported goods more expensive), which will mean people won’t be able to buy as much stuff. But the pain has been delayed for longer than most economists were expecting.

And finally… 

Snap Inc., the owner of popular social media app Snapchat, officially began the process to become a publicly traded company (i.e. to have its shares traded on a stock exchange via an IPO). At a rumoured valuation of $25-35 billion, it would be the biggest US tech IPO since Facebook in 2012. The IPO is expected to take place in the first half of next year.