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In this week’s Commercial Awareness update we discuss the markets as tech stocks rise, EU negotiations, what will happen to taxes after the election and is the UK economy facing a delayed Brexit slowdown?
1. Market watch
Tech stocks are flying
It was a strong week for the technology sector as a number of leading firms reported better than expected results for the first quarter of 2017. The tech-heavy American stock exchange Nasdaq reaches new highs after Amazon, Alphabet (who own Google) and Paypal exceeded their expectations last week. Nasdaq is 13% up in 2017, largely thanks to the performance of these huge technology companies. Amazon saw their stocks rise 4.6%, after reporting excellent revenue figures and good margins in the last quarter. Meanwhile the impact of large corporations removing their adverts from Google and YouTube doesn’t appear to have been felt by Alphabet - their share price was up 3% after a strong showing in the previous quarter. Facebook and Apple are set to announce their figures later this week and the market is ready for more good news.
Boost for BP
On this side of the Atlantic, the FTSE 100 had a strong week and jumped up again when trading opened this morning. It has been boosted by BP beating predictions in the first quarter of this year. The oil industry has struggled in the recent years, but the rise in oil prices and increased production has helped BP return to profit. The oil firm posted a loss of $485 million in 2016, but bounced back last quarter with a $1.4 billion profit. Oil prices crashed in the previous year but have been trading around 35% higher in 2017, hence the significant boost for profits. BP has invested heavily in new projects this year, including in the Middle East, which will significantly increase their output - they aim to produce 800,000 barrels of oil more per year in 2020. In the US, energy companies ExxonMobil and Chevron have also announced strong results for the quarter.
Questions to ask yourself… Why did the tech sector do so well last quarter? What disadvantages are there to rising oil prices?
2. British growth slows
There were signs the UK economy is starting to slow down in the first quarter of 2017 and Gross Domestic Product (GDP) fell more than expected to 0.3%. In the previous quarter GDP grew by 0.7%, making the new figures a worrying sign for the government. Many suggest this is part of the delayed ‘Brexit slowdown’ caused by rising inflation and a lack of consumer confidence. Figures suggest the retail and leisure sectors have been hit by consumers having less disposable income due to rising prices. Last quarter’s figures aren’t a disaster for the economy but could indicate bigger problems ahead. With inflation set to continue rising and uncertainty over Brexit, the situation is likely to get worse before it gets better.
Last week, however, it wasn’t all bad news for the UK economy. Growth in the manufacturing sector reached a three year high in April. The manufacturing purchasing managers’ index (PMI) rose to 57.3 - significantly higher than the 54 experts were forecasting. The manufacturing sector has been boosted by the declining value of the pound, which has made exports cheaper. Even after the UK triggered Article 50, there hasn’t been any changes to trade agreements as of yet, allowing manufacturers to benefit.
Questions to ask yourself… Is this the start of a ‘Brexit slowdown’? How will Brexit effect the manufacturing sector?
3. EU agree strategy
The remaining 27 EU countries have all agreed to the draft guidelines for negotiations with the UK. At a summit in Brussels, it took the delegates 15 minutes to unanimously accept the proposed strategy surrounding Britain leaving the EU. In the guidelines, the EU will not start negotiating a trade deal until the ‘divorce settlement’ has been agreed and there has been a deal reached on the rights of EU citizens currently living in the UK. Theresa May wanted these negotiations to happen at the same time to speed up the trade deal process, but this is now highly unlikely to happen.
The negotiations are set to start after the new government is elected on 8th June. There have been recent reports in the media that Theresa May clashed with Commission president Jean-Claude Juncker at a Downing Street dinner last week - whether this is an over-exaggeration or not, it’s very clear there are at least two tough years of negotiation to come.
Questions to ask yourself… Is the UK in a strong position when entering the negotiations? How could the election result change Britain’s strategy in these negotiations?
4. Election question: Should the Conservatives keep the “tax lock”?
While all parties hit the campaign trails in preparation for the general election, taxation appears to be a key topic of debate. In 2015, the Conservatives committed to not raising income tax, National Insurance or VAT until 2020 - known as the "tax lock". There have been signs that the new government will not make the same promise. Many commentators have highlighted how inflexible the policy is during a time when the Chancellor needs all options open to him in order to steer the economy in the right direction and cut the deficit. On the weekend Theresa May committed to not raising VAT in the next parliament, but would not make the same promise on income tax and National Insurance.
Labour leader Jeremy Corbyn has highlighted his commitment to raising taxes so a potential Labour government can increase funding to the NHS, nationalise rail services and reverse some of the spending cuts under the Tory government. Pledging to raise taxes is usually an unpopular policy direction, but many feel the government has gone too far with their cuts to welfare. Could Corbyn’s stance be a vote winner come 8th June?