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In this week’s Commercial Awareness update we discuss Venezuela’s debt, Tesla’s semi-electric trucks, Jaguar Land Rover taking the lead in self-driving cars, General Electric’s turnaround plan and the artwork worth $450 million. Plus, we look ahead to Wednesday’s Budget.
Looking ahead to the budget
On Wednesday, Chancellor Philip Hammond will reveal the latest budget and outline the government’s financial plan for the year ahead. Commentators believe it will be a “safe” budget, given the government’s weak position in parliament after the elections earlier this year. Hammond cannot risk a backlash from Conservative backbenchers, but at the same time, has been accused of being uninspiring with his vision for Britain’s economic future. With Brexit uncertainty causing many firms to think about relocation, it will be difficult to get the balance right between increasing welfare support, managing spending and keeping businesses happy. Here’s what to look out for on Wednesday.
Housing: Hammond is likely to commit to building 300,000 new homes per year (217,000 were built last year), but not go as far as committing to the £50 billion Communities Secretary Sajid Javid believes is needed for the project.
Young people: The Conservatives are very aware that they don’t have popular support amongst 18 to 25 year olds, so expect some policies aimed at young people. Changes to tuition fees are likely, as is a pledge to build more affordable homes for first time buyers.
Income Tax: There have already been promises to raise the personal allowance to £12,500 by 2020-21, but Hammond may announce an accelerated plan. Will he also look to raise the higher rate of tax from £45,000 to £50,000 earlier than expected?
Public Sector Pay: There has been a lot of recent debate surrounding public sector pay, especially nurses’ salaries. The government has capped increases at 1% a year, but has shown flexibility for some professions - prison guards got a 1.7% pay increase last year. There’s a chance Hammond will announce greater pay rises for some public sector workers and nurses look likely to benefit.
Innovation: Hammond is expected to commit more funds for electric cars, driverless cars and the development of artificial intelligence in a bid to support innovation in the economy.
The major talking point hinges around Hammond’s willingness to borrow more and spend on public services and the economy. He’s previously committed to cutting the deficit by 2020, but this looks highly implausible, given Brexit uncertainty and the demands to give more support to the public sector. The budget will be announced on Wednesday - I recommend keeping up-to-date with it and we will be summarising the key policies in next week’s update.
In other political news, the pound fell 0.64% against dollar and 0.62% against Euro on Thursday as speculation about May’s future mounted yet again. There were reports that 40 MPs had agreed to sign a letter of no confidence in the current PM. Whether this was true or not remains unclear, but it was enough to create uncertainty about her future - something the markets reacted negatively to.
Questions to ask yourself… Where should Hammond’s priorities lie in this budget? Should we borrow more to increase funding to the public sector?
Venezuela declared in default
Standard & Poor’s (S&P) last week became the first ratings agency to put Venezuela officially in default after the country failed to make $200 million in debt repayments on two global bond issues within the grace period, which expired on 12th November. Venezuela is also overdue on four other bond payments worth $420 million, but it is still within the grace period on those. The Venezuelan economy has struggled in recent years, and experts believe its total external debt could be as much as $150 billion - $60 billion of which is in outstanding bonds issued by the government or state-owned businesses.
Venezuela relies heavily on oil exports for its income, which has led to it struggling in recent years due to low oil prices. Experts suggest it has not invested income from oil effectively to maintain a stable economy and this is a significant part of the problem. The government in Caracas has also blamed US sanctions for its economy woes. US citizens cannot do business with anyone on a sanction list, which includes Vice President Mr El Aissami - who is accused of drug-trafficking - and a number of wealthy business owners. Therefore, doing business with the Venezuelan government could be seen as breaching these sanctions.
Last Monday, the Venezuelan government met with creditors with the aim of restructuring the deal. It hailed the meeting as a success, but it didn’t produce a concrete plan and it has since been declared in default.
Questions to ask yourself… How can the Venezuelan government help its economy recover? What impact does political violence have on an economy?
Companies to watch
There has been much talk about electric and driverless cars this week, especially as Hammond pledged to support initiatives to develop the technology. We’re covering Jaguar Land Rover and Tesla in this week’s update.
Jaguar Land Rover
Coventry-based car manufacturer Jaguar Land Rover revealed last week it has been quietly testing driverless cars on public roads, as it leads the way in developing new technology in the UK. It has been testing computer-controlled cars on a half-mile route in Coventry over the previous few weeks. The car relies on sensors to detect traffic signals, pedestrians and other vehicles, but for the trial a driver was in the car ready to take over in case of problems. Commentators believe the autonomous car industry could be worth £900 billion by 2025 and, as Britain’s biggest car manufacturer, Jaguar Land Rover wants to be at the forefront of development.
In the last few weeks, Google’s Waymo tested its cars without a driver in the front seat for the first time - with only a researcher in the backseat with access to an emergency stop button.
On Thursday, businessman and Tesla CEO Elon Musk unveiled a new sports car and its first semi-electric truck. Tesla claims the latter - a slick looking vehicle called the Roadster - will decrease the costs to owners by 20% compared to a standard diesel truck. It also has plans to build a network of “megachargers” in the US, which can give vehicles 400 miles worth of charge in just 30 minutes. Musk said production would begin on the trucks in 2019 and the new sports car in 2020, but is this realistic? In recent months Tesla has been hampered by production issues and in the third quarter of this year only produced 260 of its Model 3s - well below the 1,500 it promised. The company has also been hit by a number of complaints and lawsuits by employees claiming racial or gender discrimination.
The US conglomerate General Electric (GE) announced a turnaround plan last week after a significant reduction in profit margins, but this wasn’t to the shareholders liking as its share price dropped 6% on the news. The firm is set to move its focus away from aviation, power and healthcare and focus on sectors which they believe will be more profitable - potentially leading to the sale of $20 billion worth of assets. During the announcement, GE also halved its profit outlook and dividends, while the company completes this transition. On the Dow Jones, GE is down 35% for the year and on Friday, hit its lowest share price for 5 years ($19.22). The cut in dividend payments will save the company around $4 billion and other changes aim to make the business smaller and easier to manage during the turnaround.
Questions to ask yourself… Will modern technology and automation lead to more or fewer jobs in the UK? Why are many large conglomerates struggling in the modern market?
Da Vinci painting sold for $450 million
Leonardo Da Vinci’s ‘Salvator Mundi’ (Saviour of the World) was sold at auction last week for $450 million - becoming the most expensive piece of art ever sold. Painted 500 years ago, it was rediscovered in 2005 during a regional art auction, only after it had been overpainted. Since then, it has been restored to its original form and last week was the first time it was put up for sale since 2005. This is believed to be one of around 20 Da Vinci original paintings to exist, with the last one being discovered back in 1909. In 1958, long before experts recognised this as a Da Vinci, the painting sold at auction for just $45.
Question to ask yourself… Is any work of art worth $450 million?