Applications are open for leading graduate schemes and internships - now’s the time to ensure your Commercial Awareness is really strong. This week we discuss the markets after North Korea test more missiles, the plan for a new digital currency in banking, the decline of Royal Mail, the gambling industry's recent fines, and much more.
Markets Review: More uncertainty over North Korea
In the last week, tensions have risen surrounding North Korea as it carried out more tests of its nuclear weapons. On Tuesday there were reports that a ballistic missile flew over the northern Japanese Island of Hokkaido and at the weekend the US Geological Survey detected a thermonuclear weapon test through a 6.3-magnitude earthquake after North Korean media announced the “perfect” test of a hydrogen bomb that could be mounted on an Intercontinental Ballistic Missile. World leaders have been quick to condemn North Korea’s actions, but this didn’t stop it having an adverse impact on global markets. After Tuesday, European markets took a hit with the FTSE 100 dropping to a 16-week low and the European Stoxx 600 at a six month low. With investors unnerved, demand for gold was high and rose by $5 to $1322 per ounce.
However, the major indexes performed reasonably well last week - despite being jolted by both the North Korean missile test and the fallout from Hurricane Harvey. This can be largely attributed to a boost in the technology and industrial sectors after the dollar weakened against other major currencies. If the dollar is weak, products exported from large american firms become cheaper for the rest of the world, hence the share price boost. While the dollar is down almost 10% in 2017, the Euro is at a two-year high.
Questions to ask yourself… If the tension leads to military action, what impact will this have on the markets? Is the price of the EU currently over-inflated?
The new digital currency in banking
Six global banks have joined forces in a project to create a new digital currency which will be used for clearing and settling financial transactions over blockchain - the technology which underpins bitcoin. The banks - including Barclays, Credit Suisse and HSBC - have thrown their support behind UBS’ ‘utility settlement coin’, which will make markets and transactions between banks quicker. Start-up Clearmatics were the first to develop blockchain-based digital cash last year, but the new group are planning to launch it next year. The Bank of England recently published a working paper on blockchain’s distributed ledger technology, finding it could reduce costs and improve efficiency. However, they had their reservations about its use at this time, as the technology was still rapidly evolving.
In related news, Bitcoin smashed the $5,000 barrier last week, as the digital currency continues to make astonishing gains - the value has doubled since July this year. Many believe the recent rise can be attributed to market-led speculation about its future role in the world and the fact it’s being more frequently traded. However, it has experienced crashes in the past and some experts believe this new “bubble” will burst. After hitting $5,000 last week, it almost immediately dropped 5% in value due to a widespread sell off.
Questions to ask yourself… What are the possible disadvantages of a blockchain-based digital currency in banking? Is buying Bitcoin a good investment at the moment?
Companies to watch
Royal Mail lost its place on the FTSE 100 last week in the FTSE Russell’s quarterly review and will be relegated to the FTSE 250. The firm has faced challenging market conditions and has been battling to keep its FTSE 100 status in recent years. The FTSE 100 is the top 100 UK firms in terms of market capitalisation - calculated by multiplying the total number of shares by the present share price. If a bluechip drops below 111 in the UK, they get demoted to the FTSE 250. Royal Mail’s current market capitalisation is £4 billion, which dropped in below the current threshold. Letter volumes have been declining quicker than Royal Mail expected, hence it’s worse-than-expected performance in recent months.
In the same quarterly review, finance firm Provident Financial also dropped out of the FTSE 100, after they issued a profit warning earlier this year.
Technology company Intel are awaiting a €1 billion antitrust ruling after a decade-long battle with the European Court of Justice (ECJ). The competition commission in Brussels handed a fine to the US tech giant in 2009, after ruling it had blocked a competitor from gaining a foothold in computer chip markets, when Intel had the biggest market share in the market in 2009. It was the biggest antitrust fine ever - the general court dismissed Intel’s challenge in 2014, but it has taken it to the ECJ.
Google will be interested to see the ruling of this case, as they are fighting multiple actions against the antitrust authorities in Europe. Google was handed a €2.4 billion in June for favouring its own results in the shopping search results. However, this fine may not be the last - the tech giant are expecting an even bigger fine relating to their Android operating system. Some experts believe this could be as much as €4.5 billion.
Gambling firm 888 have been hit with a record £7.8 million fine for failing to protect problem gamblers. The watchdog stepped in after the online gambling firm let 7,000 people gamble once they had voluntarily banned their own accounts. One customer made £1.3 million worth of bets over a year. A technical problem in the company’s systems allowed £51 million to be bet from these voluntarily banned accounts.
In the same week, Ladbrokes Coral announced a profit boost for their online offering. Operating profit for the recently merged firm was up 7% to £158.3 million (on a £1.2 billion revenue), with online revenues offsetting the decline in betting shops. The betting industry has changed rapidly in recent years - in the last year alone betting on smartphones was up 18% compared the previous year. It emerged that gambling group GVC approached Ladbroke Coral for a takeover worth around £3.6 billion. Talks are believed to have broken down, but there could be further developments on this story in the future.
Questions to ask yourself… Is Royal Mail in irreversible decline? Should the government bring in more legislation to protect problem gamblers?