Commercial Awareness Update 30th January by Ben Triggs

1. Trump’s first week

Donald Trump took little time to stamp his mark as the new US President and in the process repealed a number of initiatives driven forward by Barack Obama. On his first day, he upheld his election promise and abandoned the Trans-Pacific Partnership (TPP). The TPP was a proposed economic relationship between 12 countries that bordered the Pacific Ocean, which would slash tariffs and boost trading across the region. Countries involved include Japan, Australia, Malaysia and Mexico, and in total represented 40% of the world’s economic output. Eventually, the plan was to create a new single market, but it needed all 12 nations to ratify it – only Japan had done so thus far. As the driving force behind the deal, America’s decision to pull out of the partnership leaves the TPP highly unlikely to happen.

On Wednesday a further “Trump rally” in the markets pushed the Dow Jones above 20,000 points for the first time in its history. The S&P 500 and Nasdaq also reached new highs, as the markets believe Trump’s economic policy will provide a boost for business. The Dow Jones Industrial Average shows the average share value of 30 large industrial stocks or blue chips across a range of industries. Trump’s initial plans on infrastructure and deregulation has given investors confidence in the US economy, especially in banks. Goldman Sachs’ share price is up 30.4% since the election in November.

In social policy Donald Trump came up against a huge backlash after signing an executive order banning citizens from 7 predominately Muslim countries from entering the USA. People hailing from Iraq, Syria, Iran, Libya, Somalia, Sudan and Yemen will not be allowed to enter the USA for the next 90 days and many commentators suggest this will pave the way for a permanent ban. The President has also suspended the US refugee program, stopping the admission of all refugees to the United States for four months. This decision has been met with widespread condemnation and protest across the world. A federal judge in Brooklyn ruled to block part of the ruling, preventing the government from deporting arrivals already in the USA with valid paperwork.

Questions to ask yourself… Will the global condemnation of Trump’s social policy have an impact on the US economy? Why was the TPP so unpopular in America? 

2. Government loses Brexit ruling

Last week the Supreme Court dismissed the Government's appeal on triggering Article 50, meaning Parliament has to be consulted before the UK starts the formal process of leaving the EU. All 11 justices were present at the hearing and ruled against the Government by a margin of eight to three. Therefore, a bill will have to be bought to both the House of Commons and House of Lords for debate and a vote. This is a major blow to the Government’s plan to start the formal leaving process by April. However, commentators suggest draft legislation has already been prepared and it’s expected to be a short bill. Plus, according to the ruling, the Scottish Parliament and Welsh and Northern Irish Assembly don’t need consulting on the matter.

The Labour Party, Liberal Democrats and other opposition parties are likely to demand time to fully debate the issue, therefore holding the Government fully to account and slowing down the process. Labour leader Jeremy Corbyn has encouraged his party to vote with the Government on the Brexit bill, which has led to a further revolt within the party. MP Jo Stevens quit the shadow cabinet over the issue and two Labour whips have refused to vote in favour of the Article 50 bill – whips are members of a party tasked with ensuring MPs vote in accordance with the official party line.

Questions to ask yourself… Can major political parties justify voting against the bill after the public voted to leave the EU? Should devolved regional powers have a say on the issue?

3. BT shares drop 20% in a day

On Wednesday, £8 billion was wiped off the value of BT’s shares as the extent of an accounting scandal in their Italian division was revealed. It is alleged the managers in Italy were depressing costs, allowing them to report increased profits. BT announced write downs of £145 million last year after investigating the accounting in the Italian division, but in a new statement now believed the accounting error could equate to £530 million. The 20% wiped off the share price is the biggest single fall in their share price since it was privatised in 1984. BT has also suggested a decline in government contracts in Britain is likely to decrease earning this year.

The scandal was a significant factor in BT’s third quarter profits falling by 37% compared to the previous year. The firm’s reputation has been dented, especially amongst the 700,000 small investors in the firm. The sharp fall in share price reflects a lack of optimise in the future of the corporation, as well as a mistrust.

Questions to ask yourself… What can BT do to turn around their fortunes and regain trust? Does the accounting scandal show a lack of leadership from the global head office?

4. Alphabet miss profit expectations

Google’s parent company Alphabet’s share price fell as they announced lower than expected profit figures. Revenue increased by 22% in the last quarter of 2016 compare to the previous year, with significantly more advertising revenue coming from YouTube and mobile phones, but this led to just an 8% increase in profits. Alphabet’s share price has fallen by almost 3% since the announcement.

The lower than expected profits is largelt due to an increase in costs and their tax rate. A one-off tax payment pushed the company’s effective rate to 22%, which was much higher than the previous year and expectations. Despite the profit results, Alphabet had a strong quarter and beat revenue targets for many of its key products.

Question to ask yourself… Which products will be essential for Google in the future?

5. Danish drug company to invest in the UK

Danish pharmaceutical company Novo Nordisk has committed £115 million to a new drug research centre in the UK. Based in Oxford, the firm will employ 100 scientists to investigate new approaches to treating type-2 diabetes. Many commentators suggest this is a vote of confidence in post-Brexit Britain’s scientific research sector. The government has just announced an extra £4.7 billion of funding in the life sciences sector over the next few years. With this funding and Oxford University’s reputation as a world leading institution encouraged Novo Nordisk to commit to the UK.

Many believe Brexit will make some companies think twice about investing in the UK, but it could be a logical move for many foreign firms. Since the Referendum the pound has decreased in value, making investing in the UK more viable. In this case, the Danish Krone is much stronger compared to the pound than it was a year ago, so it’s cheaper for the company to acquire or build research facilities and pay scientists in the UK.

Questions to ask yourself… Why is it important the UK maintains its position as a leader in scientific research? Should this investment be seen as a sign of post-Brexit strength?

Commercial Awareness Update 23rd January

May outlines 'hard Brexit'

On Tuesday, PM Theresa May outlined a 12-point plan for a ‘hard Brexit’ and the upcoming negotiations with the remaining 27 EU countries. She confirmed Britain would leave the single market and regain control of their borders. Here are some of the key takings:

• Theresa May hopes to agree a fair deal for a close relationship with the EU, but will walk away if a reasonable exit deal cannot be negotiated. In this situation, Chancellor Philip Hammond proposed that Britain could lower corporation tax (currently set at 17%) to encourage business activity in Britain, instead of the EU. Leading European Parliament negotiator Guy Verhofstadt suggests this would turn Britain into a “deregulated tax haven”.
• Britain wouldn’t be under the jurisdiction of the European court of justice, allowing it sovereignty to create and amend their own laws.
• There would be no financial contribution into the EU, giving Britain more autonomy to choose which projects to fund.
• May is committed to ensuring the rights of the three million EU citizens living in the UK. However, she also suggested one or two EU countries refused to discuss the issue at this early stage.
• Britain would leave the free trade zone (the single market) and will strive to negotiate free trade deals around the world. However, May appeared more open to reaching an agreement within the Custom Union. A Custom Union agrees a set tariff for exports from outside the union – once in the union, these goods can be moved freely across borders.
• It was confirmed both Houses of Parliament will have a vote on the final Brexit deal

The business world reacted positively to Theresa May’s announcement, which provided more clarity to the forthcoming Brexit negotiations. The pound rose 4% against the dollar on Tuesday alone, after a sharp dip on the days preceding the speech. On the most part business is strongly against a hard Brexit, so it may come as a surprise the pound rose after May’s announcement. However, the markets hate uncertainty and providing clarity is likely to have a calming and often positive effect. This initial positivity didn’t stop analysts at Bank of America Merrill Lynch predicting May’s plan will cost up to 10% of Gross Domestic Product (GDP) over 15 years.

Questions to ask yourself… Is lowering corporation tax a viable tactic to encourage investment in the UK after Brexit? Can Theresa May achieve this plan for Brexit?

Inflation at two-year high

The UK’s inflation rate has jumped to its highest level since 2014. The annual rate of Consumer Prices Index (CPI) inflation increased to 1.6% in December, with air travel and food prices rising due to the weak pound. UK manufacturers are now paying 16% more for fuel and raw materials, which will be passed on to customers to help them maintain profitability. The Bank of England target a 2% rate of inflation but projections suggest it will be significantly higher by the end of 2017. Bank of England governor Mark Carney believes consumer confidence will be knocked by highly levels of inflation this year, causing an economic slowdown.  

Apple has announced a price increase of 25% for apps in the app store. UK prices will now match US prices numerically, so if it costs $0.99 in America it would cost £0.99 in the UK. Current currency rates and the cost of doing business in a country have been cited by Apple as reasons for the increases. 

In other news, Apple has filed a $1 billion lawsuit against chip manufacturer Qualcomm. The Korean company owns a number of patents and licenses their microchip technology. Apple claim they have abused their position as a market leader by overcharging them. Apple also suggest Qualcomm aimed to punish them for their cooperation in a South Korean investigation into Qualcomm's licensing policy.

Questions to ask yourself… Are there any benefits of high inflation? Should governments be doing more to encourage competition in the market place?

Dispute over Link cash machines

The future of free cash points is in doubt after banks called for a 20% reductions in the fees a bank incurs. Most of the 70,000 Link ATMs are free for the customer with banks pick up the costs. If you withdraw money from a cash point which doesn’t belong to your bank, there is a 17p charge which your bank pays to the bank that owns the cash point. For ATMs not owned by a bank – like at stations – there is a 25p charge which gets paid to the independent ATM operator. This is the charge banks want a decrease in fees or they have threatened to stop covering the cost – which will either mean the customer pays the fee or the cash point will close.

With the increase in debit card and contactless payments, banks suggest it isn’t economically viable to continue spending such large sums of money funding cash withdrawals. An agreement between Link and the banks is likely to be reached within the coming weeks. If not, there’s a possibility the public will go back to having to use their own bank’s ATMs for free withdrawals.

Questions to ask yourself… With new contactless technology, are ATMs becoming redundant? Should banks fund cash point withdrawals?

Angry Birds creator opening up in London 

The creators of Angry Birds are set to open a studio in London tasked with the development of new multiplayer games for mobile. The Finnish company Rovio will hire 20 people in central London over the next two years, after choosing London over other European cities for its expansion. The company laid off 100 employers in 2014 due to slower than expected growth following the massive success of the Angry Birds app in 2009. Recently, the success of the Angry Birds film boosted revenues and they hope to continue to bounce back with new development in London.

Question to ask yourself… How can London continue to strengthen as a tech hub?

16th January Commercial Awareness Update by Ben Triggs

1. Pound falls further ahead of May announcement

The pound fell to its lowest level against the dollar since October amid reports PM Theresa May will outline plans for a ‘hard Brexit’ this week. The pound is currently trading at $1.20, which makes it 20% down since Britain voted to leave the EU back in June. May is expected to signal plans for Britain to leave the single market and regain control of their borders. The announcement is due on Tuesday and is likely to give the greatest insight into the government’s plan for Brexit. The full negotiating strategy is unlikely to be outlined, but the tone and language used will give a strong indication of the current thinking.

The PM has already said Article 50 would be triggered by the end of March, allowing Britain to start negotiating the post-Brexit deal. There has been some good news as the EU chief negotiator stated it was important for the remaining 27 EU countries to have easy access to the City and London’s financial institutions. This is the first time Michel Barnier has softened from his hardline approach, suggesting a ‘special’ relationship could be forged.

In America, President-elect Donald Trump has backed Britain’s decision to leave the EU and believes they are ‘doing great’. During his first UK interview - with former cabinet minister Michael Gove for the Times - Mr Trump has promised the USA and UK will do a quick trade deal. Barack Obama previously suggested Britain would be at the “back of the queue” when it came to a trade deal with the US, but this doesn’t appear to be the case with the new President, who starts on Friday. However, a deal cannot be done until Britain formally leaves the EU in 2019.

Questions to ask yourself… Should Theresa May outline her full strategy for Brexit to the public? Is too much of Britain’s economic power centred on London?

2. Eight billionaires 'as rich as half world's poor'

An Oxfam report has revealed the world's eight wealthiest individuals have a combined wealth equal to that of the poorest 3.6 billion people. The research into inequality found the gap between rich and poor was “far greater than feared”. However, Oxfam’s interpretation of the figures has been questioned, as well as their focus on the super-wealthy. Some suggest Oxfam should more focused on encouraging economic growth and eradicating poverty. The former is more likely to be achieved if they are “making sure the economic cake is getting bigger”, UK economist Gerard Lyons claims.

Labour leader Jeremy Corbyn has proposed a wage cap for the highest earners in the UK, including ‘fat cat’ CEOs and footballers. Corbyn has yet to outline his plan for the cap, but suggests it would be more than the £138,000 he currently earns. Findings from a recent research survey suggest a majority of the public would support this policy, with only 30% disagreeing with it in principle. However, experts suggest it would have disastrous consequences for the UK economy, without guaranteeing reduced levels of inequality. If wages were capped, the top talent is likely to move abroad to seek bigger wage packets – this would force big corporations to do the same to access the best talent for their business - therefore harming the UK economy.

Questions to ask yourself… Is wealth creation the best way to improve poverty levels around the world? Is Jeremy Corbyn’s suggested wage cap a workable policy?

3. Tesco and Morrison’s Christmas boost

British supermarkets Tesco and Morrisons enjoyed strong performances over the Christmas period, as the ‘Big Four’ continue to fight off competition from discounters Aldi and Lidl. Morrisons had their best figures for seven years in the 12-weeks to Christmas, with like-for-like sales increasing 2.9% compared to the previous year. It’s been a good period for supermarkets overall as sales increased by 1% in December. The big winners were Tesco, as they continue to show an increase in sales after recording a loss in 2015. 

Discount supermarket Aldi reported record figures after a 15% increase in December sales. With inflation set to rise and continuing economic instability, more people could turn to the cheaper alternatives - Aldi and Lidl. Many predict the ‘big four’ could become the ‘big six’ by the end of the decade. Aldi aims to double the amount of stores it owns in the UK over the coming years, which is likely to further disrupt the dominance of the current ‘big four’. Asda has been effected most by the rise of the two discounters and struggled this Christmas, recording a 2.4% decline in like-for-like sales.

Questions to ask yourself… Will Aldi and Lidl continue growing their market share? How can Asda turn their fortunes around?

4. The Stoke Central by-election

Labour MP Tristam Hunt is quitting as an MP to take over as the head of the Victoria & Albert museum in London. Hunt will vacate his Stoke Central parliamentary seat and set up a by-election. The constituency is traditionally a Labour stronghold, but UKIP are ready to launch a major challenge. Stoke had one of the biggest leave votes in the UK during last years’ EU referendum and it’s thought new UKIP leader Paul Nuttall could stand for the seat they have a genuine chance of winning. In 2015, the Stoke Central constituency was notable for its low turnout - just 49.5% - which gives plenty of scope for Labour’s competitors to engage the disengaged voters.

Hunt refused to serve in Jeremy Corbyn’s shadow cabinet after the former was elected as Labour party leader in September 2015. He follows Jaime Reed in resigning from the party, and could open the door for more Labour MPs to follow. Corbyn is faced with a tricky by-election and a poor current showing in the polls. Anything other than a convincing victory for Labour in Stoke Central could spell trouble for Corbyn's leadership.

Questions to ask yourself… Should more be done to ensure MPs stay in office for their full term? Is the Labour Party in irreversible decline?

5. And finally…

This morning the iconic billboard lights at Piccadilly Circus were turned off for renovation work to begin. The lights have been on continuously since World War Two - only going off due to power cuts and special events. The six screens will be replaced with a one-screen display, which boasts one of the highest resolution LED displays for its size in the world. The work is scheduled to be completed in the autumn, and the new screen will show advertising as well as weather and news updates. About 100 million people pass through Piccadilly square every year, making it one of the most valuable advertising opportunities in central London.

Question to ask yourself… Is physical display advertising still relevant in the digital age?  

Commercial awareness update 9th January by Ben Triggs

Is the UK the world’s strongest economy?

After a turbulent year, the UK ended 2016 as the world’s strongest economy, with business activity reaching a 17-month high in December. The economy grew by 2.2% last year, which was significantly higher than the Bank of England’s post-Brexit predictions, and more than Germany and the US. The UK’s Gross Domestic Product (GDP) actually rose more in the second half of 2016 than it did in the first.  Experts suggest only the German and UK economies will be in the world’s top eight by 2030, with the French economy forecasted to be less influential in the next decade.

The chief economist at the Bank of England, Andrew Haldane admitted economists’ pre-Brexit predictions were off the mark and has likened their inability to predict economic events to the ‘Michael Fish moment’. BBC Weatherman Fish infamously failed to predict the 1987 storm – Haldane likely this moment to economists not foreseeing the crash in the sub-prime mortgage market, which sparked the economic crash of 2008.

Last week, the FTSE 100 finished at its highest level ever, after enjoying its longest run of record closes since 1997. The FTSE hit 7,200 points on Friday, as the shares in housebuilder Persimmon rose 7% amid reports of strong sales figures. The FTSE has been boosted by the weak pound, which has fallen further today after PM Theresa May hinted about a ‘hard Brexit’. On Sunday, she suggested Britain couldn’t pick and choose which bits of the EU it wanted, causing the pound to sink to $1.2175 (a two-month low).  

There are many signs the UK’s economy is going into 2017 on stable ground, but economists have warned high inflation and the triggering of Article 50 will cause economic instability in the year ahead.

Questions to ask yourself… Is there anything the Bank of England could do to boost the value of the pound? Are there any negatives of a high FTSE 100? 

Consumer spend at two-year high

Brexit uncertainty doesn't appear to have impacted on consumer confidence, as spending increased in the final months of 2016 quicker than any time in the last two years. Payment company Visa found cash withdrawals and card payments had experienced a year-on-year growth of 2.8% in Q4 – a larger increase than both Q2 and Q3. Bars, restaurants and hotels showed the biggest spending increase, growing 7.3% in the period. A more established Black Friday and consumers spending more over the Christmas period contributed to this growth. It’s a significant indication of how the British public are feeling about the economy and their financial security. Spending always increases around Christmas but this growth in expenditure suggests  people are feeling more confident in their position compared to a year ago.

In 2017, consumer spend will continue to be a key indicator of confidence. Inflation has already risen to 1% due to the weak pound (and therefore more expensive imports), but it's expected to reach 2.7% next year. Experts believe consumer confidence will be affected, due to the cost of essentials increasing more than wages rise.

Questions to ask yourself… Could experts be wrong about the negative impact of Brexit in 2017? Should the Government consider raising interest rates?  

The iPhone turns 10

A decade ago today the very first iPhone was unveiled, with the aim of combining three products – a mobile phone, an iPod and an internet communications device. This was a revolutionary step forward in the mobile phone market, but took time to become the market dominating force we know today. Within two years of this launch, the App store was fully established, the price had significantly dropped and their 3G model was released, all contributing to its huge success. In 2015, there were over 231 million iPhones sold globally and Apple became the first US company to be valued at $700 billion.

What’s next for the iPhone?

In 2016, Apple saw sales of its premium product decline for the first time ever. Could it be the iPhone's boom years have past? In Apple’s biggest markets, people who want an iPhone will most likely have one and the market doesn’t grow quick enough to satisfy their growth targets. Apple’s strategy could be to lower price to increase their demand in emerging markets. Domestic brands like Huawei dominate the market in China, while Apple have been losing their share in the market. A change of pricing strategy could start to boost their market share again.  

Another possibility is Apple will be able to develop something brand new which significantly changes the marketing again. Apple CEO Tim Cook claims “the iPhone set the standard for mobile computing in its first decade and we are just getting started. The best is yet to come.” Let’s hope this is the case.

Questions to ask yourself… What makes the iPhone stand out in the mobile phone market? Does Apple need to create ‘the next big thing’ to stay relevant?