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In this week’s Commercial Awareness update, we discuss the pound in a week of uncertainty, an end to ECB’s quantitative easing, protests in France, the canceled merger in the energy sector and space tourism.
The pound in a week of uncertainty
The news in the last seven days has been dominated by the turmoil in Westminster as Theresa May first delayed the House of Commons vote on her Brexit deal and secondly fended off a vote of no confidence in her leadership. Firstly, May knew that her proposed Brexit deal wouldn’t get through parliament, largely due to the lack of certainty around Northern Ireland and the so-called backstop, and consequently cancelled the vote. However, cancelling the vote caused increased worries about a no-deal and the markets reacted. The pound fell against all major currencies, as confidence fell - the pound dropped to $1.25 against the dollar, the lowest since mid-2017.
Then on Wednesday, Theresa May faced a vote over her leadership of the Conservative party, after the required 48 MPs wrote a letter of no confidence. Needing over 50% of the parliamentary party votes to continue as PM, May won with 200 MPs who declared their confidence against 117. This did boost the value of the pound, but it wasn’t able to recover fully before Friday’s close. May is now trying to negotiate with the EU to add clarity to her deal and get it into a shape which Parliament will pass. If this can’t happen, the next steps are unclear - expect the pound to fall further if there’s no movement for the deal.
European Central Bank
The European Central Bank (ECB) has ended its €2.5 trillion Quantitative Easing programme after four years of pumping money into European economies through the purchase of bonds. The ECB has been buying €30 billion of government bonds each month to fuel investment and offer stability after the financial crisis. This was expected but there had been speculation they would continue the financial stimulation due to the Eurozone growth stalling in the recent months. Another way to stimulate the economy is by keeping interest rates low, which the ECB plans to do. Quantitative Easing was largely untested before the 2007/8 financial crisis, but it was something deployed in the US, UK, Eurozone and other countries.
Protests in France
Staying in Europe, it was another tricky week for French President Macron, after the fifth weekend of protests across France. The Gilets Jaunes (Yellow Vest) protesters took to the streets after Macron announced a rise in fuel duty - something they believe attacks working class people at a time when they already find their income squeezed. After four weeks of protests across France, many of which turned violent, Macron backtracked on the proposed fuel tax rise. He also promised a rise in the minimum wage and tax cuts for pensioners, but this hasn’t stopped protesters - on Saturday, after the announcement, around 66,000 took to the streets to continue to show their displeasure.
The Yellow Vest protesters have not only led to President Macron’s popularity dropping, there has also been an economic impact. Research from IHS Markit, found that private sector business activity in France fell in December compared to the previous month for the first time in over two years. Many also worry that Macron changed his economic plans after pressure from protesters. The Euro has fallen against the dollar as a result.
Companies to watch
SSE and Npower merger
A merger that would have created the UK’s second biggest energy supplier has been called off. The proposed arrangement would have combined 11.5 million customers and transformed the UK’s Big Six retail energy firms into a Big Five. The proposed deal, which was between SSE and Npower, was called off with the parties blaming increasing competition and the Government’s recent price cap. It was stated that the new conditions would have been very challenging for the new company and consequently not viable.
The new cap will keep typical usage energy bills below £1,137 a year saving 11 million customers an average of £76 a year on their gas and electricity bills. In a statement, SSE stated the deal, which would have combined SSE’s household division combined with the retail operations of Npower, was no longer “in the best interests of customers, employees or shareholders”. The merger occurred in a background of challenging market conditions for more traditional energy suppliers with an increase in smaller suppliers offering lower prices. SSE had also issued a profit warning in September following low output from its wind farms and high gas prices. The company will face a bill of £67 million for the failed merger.
Shares in fashion based retailer, Bonmarche, have plummeted 40% following a warning that it could make a £4 million loss in this financial year. The share drop meant that the fashion firm, with 300 UK stores, lost almost half of its value falling to 40.4p. The Yorkshire based company has stated that this is due to unprecedented conditions on the traditional UK high street with CEO, Helen Connolly, stating that trading had been ‘significantly worse even than during the recession of 2008-09’. After disappointing Black Friday results, Bonmarche has stated that consumer behaviour is not following last year’s pattern of behaviour making it very difficult for retailers to predict trends.
After a disappointing year for many retailers, a poor festive period may spell trouble for some companies. Bad weather last weekend meant that the high street was unusually quiet on one of its busiest days before Christmas. Retail experts estimate that numbers were 9% lower this Saturday compared with this time last year. Friday and Saturday brought Storm Deirdre with freezing temperatures, gales, snow and rain to many parts of the UK and consequently, consumers chose to stay at home and shop online rather than navigate the poor weather conditions. It’s not just physical stores that are struggling - online fancy brand ASOS announced slowing growth in their sales causing the share price to plummet.
As the year draws to a close, it’s easy to start wondering what the next will bring. One of these things could be space travel after Virgin Galactic launched the first commercial US flight beyond the atmosphere since 2011. Sir Richard Branson founded the commercial spaceflight company in 2004 and is currently charging $250,000 for a 90 minute flight to space, with more than 600 people having already bought tickets. The billionaire owner is in a race with Elon Musk, Space X, and Jeff Bezos, Blue Origins, to become the first company to send tourists into space.
On Thursday, the commercial spaceship took off from the Mojave Desert with two pilots, a mannequin named Annie and four research projects for NASA. The pilots travelled 82.7km at 2.9 times the speed of sound, however, the flight did not breach the 100km Karman line. This line is often frequently used by companies to resolve conflicts about where space begins. Virgin Galactic's competitors have already breached this line, however without humans on board. With rival firms Space X and Blue Origins planning missions for 2019, the space race is truly underway.
This week's Commercial Awareness update is proudly sponsored by Deutsche Bank. At Deutsche Bank, your ideas have impact. As Germany’s leading bank, with a strong position in Europe and a significant presence in the Americas and Asia Pacific, they’re proud to drive change and innovation in the industry. That’s why they're looking for creative, curious and strategic thinkers who are ready to make a difference from day one. View their roles.