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In this week’s Commercial Awareness update, we discuss the impact ‘Trump trade’ has on the markets, sharp inflation rises, why big firms are pulling their ads from YouTube and the new £1 coin.
1. Market watch: FTSE 100 stalls as the Trump effect begins to wear off
It was a bad week for markets on both sides of the Atlantic, as the FTSE 100 recorded its worst week of 2017. The shocking events in Westminster on Wednesday caused a temporary slump in the markets, but it was Donald Trump who continues to have the biggest ongoing impact. Since becoming President, it’s generally believed the markets have reacted well to his commitment to infrastructure spending and deregulation in the finance sector. The FTSE 100 and the American Dow Jones has reached recorded highs in this time.
Last week, the US and other global markets went down because speculators are beginning to doubt Trump’s ability to enact the change he talks about. The healthcare bill which aimed to repeal Obamacare had to be withdrawn from the House of Representatives just before it was to be voted on due to lack of support. This is politically embarrassing for Trump, but has also led to questions to whether he can deliver many of his election promises. After two months in office, there has been a lot of noise about tax cuts and infrastructure, but not a lot of action – the so called ‘Trump trade’ may have reached its peak and if actions continue to be delayed the markets are likely to lose confidence in his agenda.
Across Europe markets had a better week, after figures showed a high in business activity across the region. In March, the Eurozone’s activity was growing faster than any time since 2011. As the two biggest markets, France and Germany both saw better than expected figures for economic output.
A bad week for Nike
After announcing strong quarterly earnings, American sportswear company Nike saw their share price drop 7%. Nike did miss its revenue target by a small amount, but not significant enough to cause this drop in share price. Speculators are more worried about the impact of increasing competition – both Adidas and Under Armour are gaining on Nike. When they announced their third quarter results, Nike weren’t as positive about future performance as they had previously been.
Questions to ask yourself… Can Trump be an effective leader without the support of the House of Representatives and the Senate? What can Nike do to stay ahead of their competition?
2. Inflation rises to 2.3%
Inflation in the UK hit 2.3% in February according to the Consumer Price Index (CPI). Increases in food and fuel prices were major contributors, as inflation jumped from 1.8% in January to 2.3%. This is the highest level of inflation since 2013 and the first time food has had an upward impact on inflation for two and a half years. The Bank of England target an inflation rate of 2%, but have forecast it to hit 2.8% in early 2018. Increasing interest rates and encouraging consumers to save money is a strategy the Bank could employ to keep inflation increases in check, but this could be risky while the UK economy is fragile. History suggests there is an optimum inflation level of 2%, especially if wages are increasing at a similar level (its currently at 2.3% in the UK).
Is this just a result of Brexit?
Last week, many commentators suggested these new figures showed the Brexit vote had finally taken hold of inflation – but is it that simple? The value of the pound dropping and therefore increasing costs for imports goods and supplies has definitely been largely impacted by Brexit. However, many experts believed the pound was overvalued before Brexit, so it’s likely to have lose value in this period nonetheless (probably not as much as the 20% the pound has lost against dollar). There are also other factors involved, including deals to limit crude output – creating less supply and increasing prices – and poor weather in Europe affected vegetable growth and pushing prices up.
Question to ask yourself… Is inflation a bad thing for an economy?
3. Google ads
McDonald's, Marks and Spencer, the BBC, RBS and L’oreal are just some of the major firms and government agencies to have pulled their advertising from Google recently over fears it is appearing next to extremist content. The main issue is surrounding YouTube, with firm content appearing alongside videos posted by extremist groups. What makes matters worse is YouTube pays video posters for generating clicks, so firms have been indirectly funding extremist groups.
Google’s European chief has publically apologised and has said the company is reviewing how they control and review content. There’s a huge amount of content added to YouTube every day, much of it is flagged for review and potentially removed. However, there’s some content which is legal but isn’t suitable to have advertising associated with it. It seems Google has fallen short on some of these checks and a small amount of ads are appearing alongside this content. On Friday a group of MPs from the home affairs select committee wrote to the company claiming they are “profiting from hatred”.
Questions to ask yourself… Should Google be doing more to protect firms ads from appearing next to extremist content?
4. The new £1 launch
The brand new £1 coin will be entering into circulation at the end of March, as the round pound will be phased out. The new 12-sided coin has a number of new security features which make it much harder to counterfeit – it’s believed 3 of every 100 pound coins is currently counterfeit. In the next six months both pound both coins will be accepted as legal tender, but on 15th October the old round coin will no longer be recognised.
This change is not good news for everyone and the Automatic Vending Association (AVA) forecasts it will cost the vending industry about £100 million. All vending machines will have to be changed to recognise the new coin, as well as automated ticket machines and self-checkouts at supermarkets. The AVA has estimated that 40% of vending machines won’t be ready for 28th March and 25% of car park ticket machines.
Questions to ask yourself… Should they have given the vending industry more time to prepare for the new £1 coin?