This article is part of our Commercial Awareness Update archive but don't worry; we've got plenty of resources for you to explore. The latest Commercial Awareness Update is available as a podcast, Thinking Commercially. Find it on Spotify, Apple Podcasts or Google Podcasts. To improve your commercial awareness more broadly, take the Bright Network Academy Commercial Awareness course.
As a Bright Network member, you can also sign up to receive weekly updates straight to your email inbox by heading to your career preferences section and ticking the Weekly Commercial Awareness Updates box.
In this week’s Commercial Awareness update, we discuss the FTSE 100’s new all-time high, US interest rates, the impact of the ‘Brexit Bill’, Trump’s Protectionism and Intel entering the driverless car market.
1. Why did the FTSE 100 hit new highs?
On Friday the FTSE 100 closes on a record high of 7,424.96 points, following another excellent week for the main index in Britain. There are three key reasons why the FTSE did so well:
The Dutch election
The right-wing populist Geert Wilders (from the controversial PVV party) was defeated by the centre-right VVD party run, led by current Prime Minister Mark Rutte. The result enables the mainstream party (the VVD) to form a coalition which would exclude the far right wing Wilders, who promised the “de-Islamisation of the Netherlands”. The Green-Left party will almost certainly be part of this coalition as they gained 10 extra seats (now 14 seats of a total of 150) on their way to third place. The rest of Europe welcomed the result and the markets reacted accordingly. The attention now turns to France - who go to the polls next month – and more specifically to the impact Marine Le Pen’s National Front could have.
US Fed boost rates
The US Federal Reserve (commonly known as the ‘Fed’) have announced they will increase their base interest rates from 0.75% to 1%. This makes rates in America the highest level since November 2008 and is the second rise in three months. The aim is to combat increasing inflation rates, which is now at 2.7% on the back of the ‘Trump effect’. The Federal Open Market Committee (FOMC) – who set base rates in the US - highlight a strong economic outlook and low unemployment as reasons for their decision, while also committing to more rate rises in 2017. The markets in America initially reacted positively to the FOMC announcement, which was emulated in markets across the world. However, the dollar lost value against other large currencies, including the pound. Some commentators suggest the FOMC could have been more aggressive with their projected rates rise given the strength of the US economy.
Bank of England could be close to interest rates rise
Last week the Bank of England’s Monetary Policy Committee voted to keep interest rates at 0.25% - a decision completely expected. However, what was less expected is that one of the Committee (out of nine), Kristin Forbes voted to raise rates by 0.25%. Forbes pointed towards the fast rising inflation – 1.8% last month - and strength in the UK economy since the Brexit vote as key reasons for her vote. Even though the result was convincing, the minutes from the meeting suggest other members would consider a raise in rates in the near future. The pound jumped when the details of this meeting were announced and the FTSE saw a boost too. This news will be welcomed by financial services firms, who will be able to make more money from lending if rates were increased.
Questions to ask yourself… Can the FTSE 100 keep going up? Should the US Federal Reserve keep raising rates this year?
2. But what about Parliament approving Brexit?
On Tuesday, Parliament passed the so-called ‘Brexit Bill’ without amendment, giving Theresa May permission to trigger Article 50 of the Lisbon Treaty and start the formal process of leaving the EU. The Prime Minister has today confirmed this will be triggered on Wednesday 29th March, with a written letter to the European Council. May is expected to set out the government’s aims to Parliament on the same Wednesday and negotiations with the 27 remaining EU member states is likely to start in May. This caused significant fluctuations in the value of the pound this week. When the Brexit Bill passed through Parliament on Tuesday, the pound dropped to £1.21 against the dollar. As discussed above, the pound rose later in the week to £1.24, before dipping to £1.237 this morning after May announced Article 50 would be triggered next Wednesday.
Brexit wasn’t the only thing keeping the Government busy last week, as they were forced to U-turn on the Budget commitment to raise National Insurance for the self-employed (see last week’s update). The policy had caused widespread dissatisfaction in the media and a backlash from Conservative backbenchers, leading to Chancellor Philip Hammond changing his mind on the policy.
Questions to ask yourself… What will happen to the markets and pound when Theresa May triggered Article 50 next Wednesday? Is a policy u-turn of this sort an embarrassment for the Government?
3. G20 drop anti-protectionist pledge
The finance ministers of 20 of the leading economies were unable to agree a commitment to free trade, following US officials pushing back on the agreement. There’s been a long-standing pledge to anti-protectionism amongst G20 ministers, but they had to drop their commitment to “resist all forms of protectionism” this year. The G20 is an informal forum, but it helps set the agenda for economic policy for the year. The lack of agreement has been played down by many of the finance ministers in attendance, but there's concern about Trump’s wariness towards free trade policies. US Finance Minister Steven Mnuchin emphasised his commitment to “balanced trade”, but couldn’t agree with the G20's line on protectionism.
During the meeting, the delegates were also unable to pledge financial support to preventing climate change. Trump has already cut funding to the US Environmental Protection Agency and the G20 meeting is further evidence he’s sceptical about the impact of climate change.
Question to ask yourself… Is the lack of agreement at this meeting suggest problems for global trade during Trump’s Presidency?
4. Intel enters the driverless car market
American tech giant Intel have entered into driverless car sector after agreeing to buy Israeli autonomous vehicle technology company Mobileye for $15.3 billion (£12.4 billion). Mobileye’s has more than 25 automaker partners and their technology is used in many vehicles – the company claims to have a 70% market in the obstacle-detection software. They are also already working with Intel and BMW to create a test fleet of 40 fully-autonomous cars.
The acquisition has raised many eyebrows in the market and shows Intel are willing to diversify well beyond their core computer chip offering. In the acquisition deal, Intel will pay $63.54 for Mobileye’s shares – a 34% premium on their share price. Last year, Mobileye generated $358 million in revenue, so the $15.3 billion Intel will pay for the company has been seen by many as a risky investment. However, this acquisition is clearly part of a wider plan, as Intel have takeover a number of companies with advanced technology in recent years. Plus, they forecast the driverless market will be worth $70 billion by 2030.
Questions to ask yourself… Are there any ethical concerns surrounding the driverless car market? Do you believe Intel has overpaid to enter a market which hasn’t been fully established yet?